Teaming agreements regularly are used by companies to join forces to win work. But because the exact nature of the work may not be known until there is a contract award, the teaming partners may be reluctant to specify exact prices for exact work. Often, team members leave the negotiation of the subcontract until after award of the prime contract. And that can be an invitation to a lawsuit.
After a recent ruling by one court that a teaming agreement was an unenforceable “agreement to agree in the future” and not a binding contract, companies competing for contract work may wonder how they will lock in teaming partners in the future. While that decision (in Cyberlock Consulting, Inc. v. Information Experts, Inc., decided on April 3, 2013) cannot be ignored–especially since it comes from Virginia which is the home to many government contractors–a decision from another court demonstrates that teaming agreements are not dead yet.
That latter case is X Technologies Inc. v. Marvin Test Systems Inc., decided by the U.S. Court of Appeals for the Fifth Circuit on June 11, 2013. In that case, Marvin Test Systems (also called “Geotest”) had agreed to team exclusively with X Tech, but it (Geotest) was actually teamed with another contractor also. When that other team, including Geotest, was awarded the contract, X Tech sued Marvin Test for breach of contract.
The decision doesn’t say what type of damages X Tech was seeking–for example, whether X Tech sought the profits it would have earned had it won the contract or the bid and proposal costs it expended on its losing bid. In any event, a jury awarded X Tech $336,000 plus attorneys fees.
Geotest had lots of defenses, including a government negotiator who testified that the Government would not have awarded the contract for the price that X Tech bid. If X Tech couldn’t have won the contract, it had no damages from Geotest’s breach. (The decision doesn’t say what Procurement Integrity Act hurdles had to be overcome for this government employee to testify about the government’s negotiating position.) But, said the court, the jury didn’t have to believe that testimony and apparently didn’t.
In short, don’t discount a properly-drafted teaming agreement. The key words, however, are “properly-drafted,” so that your agreement won’t be found to be unenforceable. If your teaming partner breaches an enforceable teaming agreement, you may have rights and remedies. If you are the breaching party, make sure your checking account has enough funds to cover the damages.