Christian Fonss/Mariel Estigarriba/Nicole Golden
Teaming Agreements and Virginia Law - Contractors Beware
This article will address the teaming agreement process in Virginia in accordance with state law. Agreements in the state have historically faced difficulties in trial as Virginia courts tend to view teaming agreements as non-binding, good faith agreements due to their vague terminology. In referencing the case of CGI Federal v. FCi Federal, the article will identify failures in previous teaming agreements as well as suggestions in drafting successful ones.
Background on the CGI Federal Inc v. FCi Federal, Inc. case
The lawsuit between CGI Federal Inc and FCi Federal, Inc. involved a teaming agreement to obtain a federal contract between two parties. This teaming agreement incorporated two components: an action plan in regard to receiving the contract award as well as a plan of how both parties would go about negotiations for a future subcontract if the contract were awarded. After FCi received the contract, they failed to enter into a subcontract with CGI, and CGI sued FCi based on the original terms in the teaming agreement regarding the subcontract but the court found against CGI. The court argued that the language of the agreement lacked enforceable obligations and was dependent on future events and circumstances. The terms and the vagueness surrounding the subcontract in the agreement meant that recovery of lost profits and costs incurred could not be recovered as both parties entered into a good faith agreement, according to Virginia law. The Virginia Supreme Court concurred with the circuit court on the basis that the subcontract could not have been imposed on any party when provisions in the teaming agreement clearly stated final terms needed to be negotiated. It was obvious, in this case, that final terms were never agreed upon. The Court also claimed that CGI was not entitled to recover any damages based on its claim of fraudulent inducement as there was no subcontract which declared CGI would be entitled to any lost profits. The failure of both parties to enter a subcontract within 90 days as stated in the teaming agreement limited CGI from obtaining lost profits. The failure to reach an agreement after 90 days ultimately terminated the agreement.
Takeaways from Teaming Agreement Failures
In the case of CGI v FCi, the teaming agreement did not make clear provisions for awarding a subcontract. The court stated the teaming agreement was not enforceable under Virginia law as the primary contractor cannot rely on the agreement to force the other party into a subcontract. Typically in a teaming agreement, the ability of the partnership to increase chances of obtaining an award is dominant over considerations of the contract actually being enforceable. Virginia law tends to lean toward the argument that contract agreements are good faith agreements, which are agreements to agree as opposed to legitimate binding contracts. The terms of a teaming agreement play a critical role in the likelihood of enforcement by the courts of Virginia. The courts often rule depending on how they view the specific language and terms used in the contract. For example, in the case of Cyberlock Consulting v. Information Experts, it is clear that modified provisions failed to include what could be considered mandatory language, resulting in a ruling that prevented Cyberlock from earning a contract award. These provisions hinted at negotiations of a subcontract following receiving the award, and that the award would be dependent on success in these future decisions. Also, provisions stated that a potential subcontract would be subject to approval by the government involved and the framework which would allocate work in a future subcontract was subject to change. The ruling determined the contract lacked any essential terms that would grant Cyberlock an award in a subcontract, maintaining that terms of a subcontract were not enforceable.
Suggestions for Success in Drafting Teaming Agreements
In Virginia, it may be beneficial to include a variety of helpful provisions in teaming agreements. This may include ensuring enforceability such as a Statement of Work which would outline the requirements of personnel involved as well as requirements for project management. These provisions should make clear that the parties will arrange to pursue the award together and not independently as well as identify the scope of work, timeline for the agreement, confidentiality terms, cost and location, and intellectual property protections. It is also important to highlight what events and actions may result in the ultimate termination of the contract. This will likely include the details of a subcontract. It is important to avoid mentioning circumstances that may lead to the fallout or complete termination of the agreement as well as making the award of a subcontract subject to negotiations outlined in the terms of a subcontract. Lastly, avoid language that hints at the parties’ inability to reach an agreement and include language that demonstrates the intent to fulfill a binding contract.
Teaming agreements should be drafted mindfully with great detail and specificity in terms of outlining requirements for a subcontract. Agreements must show proof of a primary contractor entering into a subcontract agreement with the other party involved. The prime contractor should have assurance that the subcontractor will be a reliable partner in the subcontract. Additionally, the subcontractor wants assurance that they will be awarded for the work outlined in the agreement in terms of a subcontract. Teaming agreements may include an attached copy of the subcontract or highlight important points of the subcontract as well as specifics regarding the parties involved as well as work allocation. The time frame following the award in which the subcontract will be drafted should also be included.
It appears that teaming agreements must contain mandatory language as well as explicit guidelines in order to avoid being ruled unenforceable by the Courts of Virginia. Previous cases have lacked specific detail and hence have been ruled unenforceable due to the vagueness of terminology in both the teaming agreement and subcontract agreement. While Virginia law tends to rule against the binding terms of teaming agreements, if mandatory language is used to enforce both parties to abide by the agreement, it will be more difficult for the courts to disregard the terms of the teaming agreement.