“Teaming Agreements” Must Be Carefully Written

prime vs sub
In a recent blow to a common tactic of small- and medium-sized companies attempting to do business as subcontractors on federal government contracts, Judge James C. Cacheris of the U.S. District Court for the Eastern District of Virginia ruled that a Teaming Agreement between a prime-contractor and its former sub-contractor was too vague and indefinite to be enforced by a court.  This ruling serves as yet another warning to government sub-contractors to carefully examine any Teaming Agreement to ensure it includes concrete, enforceable obligations, or otherwise, accept the risk that if the relationship between prime- and sub-contractor turns bad, the sub-contractor may be left with no legally-enforceable rights at the end of the road. The case, Cyberlock Consulting, Inc. v. Information Experts, Inc., No. 1:12-cv-396 (E.D. Va.), involved a sub-contractor that had already successfully completed work for the prime-contractor under a contract from the U.S. Office of Personnel Management (“OPM”), and ironically, involved an earlier teaming agreement between the prime and the sub.  When the prime learned of a new contract that would soon be awarded by OPM, the prime and the sub entered a new teaming agreement that was significantly less-detailed than the first teaming agreement, notably including a provision that said it would terminate if there was a “failure of the parties to reach agreement on a subcontract after a reasonable period of good faith negotiations.”  Relying upon information provided by the sub-contractor, the prime successfully bid the new OPM contract, but the prime and sub later failed to agree to a sub-contract.  The sub-contractor then sued the prime, claiming that the Teaming Agreement formed an enforceable, legal contract, and that the court should look to the surrounding circumstances of the relationship, including the successful work done under the previous Teaming Agreement. Judge Cacheris disagreed and ruled in favor of the prime-contractor, holding that the Teaming Agreement could not be enforced under Virginia law.  Judge Cacheris focused on the written terms of the Teaming Agreement as a whole, and citing long-standing Virginia law that bars the consideration of evidence from outside the written document (known as the “parol evidence rule”), refused to consider the prior course of conduct between the prime and sub.  Stating that it is “well settled under Virginia law that agreements to negotiate at some point in the future are unenforceable,” the judge ruled that the Teaming Agreement “read as a whole indicates that this particular language was not meant to provide a binding obligation but rather set forth a contractual objective and agreed framework for the negotiation of a subcontract in the future along certain established terms.”  Judge Cacheris even went as far as to note that “calling an agreement something other than a contract or subcontract, such as a teaming agreement or letter of intent, implies that the parties intended it to be a nonbinding expression in contemplation of a future contract.”  While the Teaming Agreement did contain seemingly mandatory language requiring the prime to award the sub with a portion of the contract, that language was modified by other tentative, indefinite language that recognized the parties would still negotiate a future agreement regarding the work.  This proved fatal to the sub-contractor. Attorneys and practitioners in the field of federal government contracts should also pay attention to Judge Cacheris’s criticism of a 2002 case that is routinely cited by attorneys attempting to enforce Teaming Agreements on behalf of sub-contractors.  That 2002 case, EG&G, Inc. v. Cube Corp., 63 Va. Cir. 634, 2002 WL 31950215, was issued by the Fairfax County Circuit Court and favored a sub-contractor after examining not only the language of the Teaming Agreement, but the surrounding circumstances, including the parties’ intent and performance on the government contract.  Judge Cacheris criticized this approach, stating “[t]o the extent that EG&G suggests that teaming agreements are a special arrangement to which Virginia’s standard rules of contract interpretation, including the parol evidence rule, do not apply, the Court concludes that that case is incorrect and should not be followed.”  Thus, practitioners (especially those representing sub-contractors) should be aware of this new development. Judge Cacheris issued his Opinion and Order granting the prime-contractor’s motion for summary judgment while denying the sub-contractor’s motion for summary judgment on April 3, 2013.  The sub-contractor appealed the decision to the U.S. Court of Appeals for the Fourth Circuit (Case No. 13-1599), and its opening appellate brief is due to be filed with that court by July 1, 2013 while the prime-contractor’s response brief is due on August 8, 2013. Cyberlock v Info Experts Opinion (PDF)
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