FAR Part 9.6 defines Contractor Team Arrangements. Government Contractors enter into teaming agreements to put themselves in a competitive position to secure contracts and to boost their ability to meet all of the Government’s support requirements. However, in some states, some terms of these Teaming Agreements may not be enforceable, especially as it relates to the clauses providing for the award of a subcontract. So, what is the point of putting a teaming agreement in place? Although there are many advantages to having teaming agreements, Government contractors need to know the limits of a teaming agreement. Whether you are anticipated to be the prime or subcontractor, those limitations need to be carefully considered.
Unfortunately, many contractors do not understand that, unless there are very definitive terms regarding a proposed subcontract, it could be challenging to enforce the subcontracting commitment. It is a well-established opinion that, in most jurisdictions, contractual provisions that merely set out agreements to negotiate future subcontracts are not enforceable. Generally known as “agreements to agree in the future,” and most courts do not enforce them because they are too vague and indefinite. This does not mean other terms in the teaming agreement are not enforceable. However, the most significant reason a proposed subcontractor enters into a teaming agreement, to perform specific work, is not guaranteed.
Since Virginia courts have consistently found some teaming agreements to be agreements to agree in the future and therefore unenforceable, in order to increase the likelihood that a teaming agreement would be enforced, it should include an unqualified obligation to award and accept a subcontract and include, at least the following provisions:
- Scope. A clear statement of work, including the percentage of work with defined tasks.
- Payment/Price. This is probably the most challenging provision to enforce as the parties usually do not know the proposed pricing until significant proposal work has been done, which is generally not done until after a teaming agreement has been executed. However, without a price for the work to be done, the agreement’s enforceability is put at risk. Some have said to ensure you have verbiage in the teaming agreement that speaks to the final pricing provided by the subcontractor will be incorporated into the subcontract.
- Duration. A reasonable term for the duration of the teaming agreement and how it may be terminated.
- Specific language. Use words like “in the event of an award, the parties shall subcontract” as opposed to “will enter into good faith negotiations”. Avoid stating that the teaming agreement can be terminated if the parties are unable to negotiate a subcontract within a reasonable amount of time.
It has also been discussed that the Prime Contractor should include a draft subcontract as an exhibit (oar attachment) to the teaming agreement.
As stated above, there are clauses in teaming agreements that can be enforced, and the parties should try to include as many definite provisions as possible. For example; (1) designation of prime contractor vs. subcontractor; (2) protection of intellectual property; (3) responsibilities of the parties; (4) disputes; (5) limitation of liability; (6) exclusivity provisions; and (7) nondisclosure/proprietary protection clauses. These provisions can be enforced, as they are concrete commitments to be carried out in the present, not sometime in the future.
Both parties to the teaming agreement want to work together and make certain commitments upfront. However, the award of a subcontract should not be taken for granted by a proposed subcontractor. Following an award to a prime contractor, the prime has to do no more than make a “good faith” effort to negotiate a subcontract.
The bottom line is that teaming agreements must be carefully negotiated to ensure enforceability for both parties.
Kelly Davidson, Revolutionary Solutions, LLC.