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Public Contract Law Journal

Public Contract Law Journal Vol. 49, No. 3

Close Enough for Government Work: The Economic Utility of Teaming Agreement & the Issue of Enforceability

Michael W Mutek


  • Describes widespread use of teaming agreements in context of government contracting.
  • Analyzes regulatory framework and policies applicable to teaming agreements in federal procurement.
  • Reviews bid protest decisions involving challenges to team arrangement recognition.
  • Discusses alternatives to traditional teaming arrangement and issues posed.
Close Enough for Government Work: The Economic Utility of Teaming Agreement & the Issue of Enforceability

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I. Introduction

The phrase “close enough for government work” is generally believed to have originated during World War II. At that time, the phrase meant that a product met the highest standards of quality because the product would not be accepted by the U.S. military unless it met such exacting standards.Over time, popular culture began using the phrase in an ironic sense. Eventually, that ironic and sometimes disparaging usage of the phrase changed the common meaning from something that meets the highest standards to something that is just good enough to “get the job done.”

The phrase’s evolution from an exacting standard to one that “gets the job done” is worth considering in the context of contractor team arrangements. Such arrangements combine complementary capabilities from different companies in order to satisfy government needs and are integral to contract pursuit strategies. They “get the job done,” but enforcement of such agreements is subject to state laws that have more exacting standards.

A good starting point is the Federal Acquisition Regulation (FAR) because it recognizes the economic utility of team arrangements and provides a regulatory framework that supports such arrangements. Contractors also recognize the economic utility of team arrangements because for many years such arrangements have provided an effective means to join forces and become more competitive. The FAR does not mandate that an arrangement be memorialized in an enforceable teaming agreement, and there is no simple “bright-line” test to facilitate a federal government agency’s evaluation of enforceability.

This is significant because team members collaborating to win a government contract can find themselves in a dispute that raises the issue whether their teaming agreement is enforceable. Thus, it is fair to ask whether a teaming agreement is “close enough for government work” — meaning that it is recognized as valid under the FAR — even though the agreement’s governing law could find the agreement unenforceable.

Stated differently, should the economic utility of a team arrangement — one that helps teammates pursue a government contract and may provide the government with “the best combination of performance, cost, and delivery for the system or product being acquired” — be recognized as valid under the FAR only if the team arrangement is memorialized in a teaming agreement that would be enforceable under its governing law?This standard for recognition — enforceability under the agreement’s governing law — would impose an exacting requirement similar to the original meaning of “close enough for government work.” Alternatively, should a teaming agreement clearly manifesting intent to cooperate and work together be recognized as a valid team arrangement under the FAR even if enforceability under state law is uncertain? This standard would reflect the current meaning of the phrase “close enough for government work” because the teaming agreement “gets the job done.”

II. Team Arrangements & Government Contracts

Through the FAR framework for recognition of team arrangements and the development of internal company policies and procedures that address collaboration with other companies as a business strategy, teaming has become woven into the fabric of government contract pursuit activities. In fact, teaming is so common that competitive procurements routinely involve team versus team competitions. An important aspect of such arrangements is that they can facilitate pre-award cooperation, which includes the development of competitive strategies by the prospective prime contractor and its prospective subcontractors. Team arrangements can be procompetitive, enabling the teammates to create a strong and credible proposal in a situation where the companies might not be able to compete successfully on their own.

The “holy grail” sought in government contracting is competition. It is the cornerstone of the government’s acquisition policy. Team formation can be a critical aspect of a government contractor’s competitive strategy to win a contract, and contractors have used team arrangements as such a strategy for many years. A contractor team arrangement serves to bring together companies with complementary capabilities that share a common goal, which usually is to win a specific contract or related group of contracts.A benefit can be that the past performance and experience of an intended subcontractor can bolster a prime contractor’s competitive position and address gaps in the prime contractor’s performance capabilities.

The potential benefits of teaming have been acknowledged by the Federal Trade Commission (FTC) and the U.S. Department of Justice (DoJ). These agencies have stated that to compete in today’s marketplace, companies that are actual or potential competitors might at times need to collaborate as teammates in pursuing a government contract.

Collaboration can provide competitive benefits, but disputes can arise.If the dispute is not resolved and a party seeks to end the relationship, questions concerning the agreement’s enforceability could be raised. Should the government agency awarding the contract consider the impact of an actual or even a possible dispute between team members during the source selection process? Should an agency providing credit to the prime contractor because of a potential subcontractor’s past performance, resources, capabilities, and experience consider the enforceability of the teaming agreement that the parties execute? These are among the questions that this article will examine.

Disputes can arise either before or after award of a contract. If a dispute arises before award and the government becomes aware of it, the government can consider the dispute’s potential impact on performance when the government evaluates the team’s proposal and makes a source selection decision. The FAR permits exchanges between government evaluators and offerors, which can be used to flesh out the actual risks to contract performance created by such a dispute. However, this kind of evaluation and risk analysis is not possible when a teaming agreement dispute develops after the team has been selected for award.

Another issue that the government and prime contractors must consider is the mandate for “present responsibility.” All contractors must possess present responsibility to perform a government contract. Further, there cannot be an award “unless the [C]ontracting [O]fficer makes an affirmative determination of responsibility,” and without “information clearly indicating that the prospective contractor is responsible, the [C]ontracting [O]fficer shall make a determination of nonresponsibility.”

The government assessment of present responsibility during the source selection evaluation process includes a determination that the prime contractor possesses the necessary skills, equipment, and facilities to perform the contract. Although generally there is no privity of contract between the government and a subcontractor in the acquisition of goods or services sought by the government, the FAR does recognize the importance of subcontractors and reserves rights for the government in the FAR subpart on contractor team arrangements that permit it to require consent to subcontracts and “[h]old the prime contractor fully responsible for contract performance, regardless of any team arrangement between the prime contractor and its subcontractors.”Because the subcontractor may be the source of necessary skills, equipment, and facilities required in the performance of the contract being pursued, the potential prime contractor is required to assess the present responsibility of its proposed subcontractors. The potential prime contractor’s determination of its prospective subcontractor’s responsibility may affect the government’s determination of the prospective prime contractor’s responsibility. However, although the government considers the resources and experience of a subcontractor, an analysis of the teaming agreement’s enforceability is not part of that review.

Furthermore, Contracting Officers are not equipped to perform this analysis. Any review of enforceability would require knowledge of relevant state law. The FAR provides Contracting Officers with guidance as to the use of team arrangements because team formation is a beneficial process that is often fundamental to government contract competition and performance; however, enforceability of teaming agreements is not mentioned in the FAR.

This article proposes that the economic utility of team arrangements supports the treatment of such arrangements as valid under the FAR without a determination as to enforceability. However, an important caveat is that if the procuring agency becomes aware of an actual dispute between team members, it can determine during the source selection process whether the dispute poses an actual risk to the performance of the contract.This treatment of teaming agreements is based on recognition that team arrangements provide an economic benefit and “get the job done.” Also, this treatment recognizes the frequent and common use of teaming agreements in government contracting in order to bring together complementary capabilities. Finally, it avoids speculation over whether, under the relevant state law, there could be an issue with enforceability when there is no actual dispute posing a risk.

Of course, the government does consider risk as part of its evaluation process. It can determine not to provide evaluation credit to the prime contractor for the past performance and experience of a subcontractor for several reasons, including the fact that a dispute exists. The government also could inquire as to alternative sources that the prime contractor could utilize if the proposed subcontractor is not available; in fact, a prime contractor might be prudent to proactively address this issue with the customer if a dispute arises with a teammate.

The thesis of this article is that the FAR and the economic benefit derived from team arrangements support recognition of team arrangements without an assessment under the governing law that the agreement is enforceable. This article will examine the regulatory framework and the policy that support team arrangements, discuss the process of teaming, and argue that a Contracting Officer should not be forced to adjudicate enforceability, which would revolve around key issues of the parties’ intent to be bound and the specificity of terms contained in the agreement.

III. Regulatory Framework & Policy

A. The FAR

The FAR prescribes the rules for contracting with the federal government and is the primary document governing federal contracting actions. Subpart 9.6 of the FAR takes up the issue of contractor team arrangements and defines the term “team arrangement” in a manner that addresses both horizontal and vertical teaming:

“Contractor team arrangement” . . . means an arrangement in which — (1) [t]wo or more companies form a partnership or joint venture to act as a potential prime contractor; or (2) [a] potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified [g]overnment contract or acquisition program.

The FAR expresses government policy on team arrangements:

The [g]overnment will recognize the integrity and validity of contractor team arrangements; provided, the arrangements are identified and company relationships are fully disclosed in an offer or, for arrangements entered into after submission of an offer, before the arrangement becomes effective. The [g]overnment will not normally require or encourage the dissolution of contractor team arrangements.

Some of the key benefits of team arrangements are expressly recognized in the FAR, which states that “[c]ontractor team arrangements may be desirable from both a [g]overnment and industry standpoint in order to enable the companies involved to — (1) [c]omplement each other’s unique capabilities; and (2) [o]ffer the [g]overnment the best combination of performance, cost, and delivery for the system or product being acquired.”

Prospective contractors seeking a contract award and government agencies evaluating proposals understand that team arrangements can be an important part of a prime contractor’s proposal and can impact the competitive source selection process. The government evaluates the proposing prime contractor’s team as part of its source selection process to determine which offeror has proposed “the best combination of performance, cost, and delivery for the system or product being acquired.” The agency’s consideration of a subcontractor’s capabilities is proper where the offeror is proposing performance as a team.

It is important to note, however, that the term “teaming agreement” does not appear in FAR subpart 9.6, Contractor Team Arrangements. Further, there is no prescribed format in the FAR for a teaming agreement; in fact, there is no express requirement in the FAR that such an agreement be written. However, the government may ask to see evidence of the claimed team arrangement in order to provide it with an adequate assurance that a teaming commitment exists; and the request for proposal (RFP) or request for quote (RFQ) may expressly require evidence of the team arrangement.

Even though a teaming agreement is entered into by private parties and does not include the government, the government is fulfilling an obligation, whether it is to support national security by buying a weapon system or to ensure general welfare by buying an information technology system for use by a civilian agency, when it issues a solicitation. The government maintains a strong interest in team arrangements formed to fulfill government needs. As a result, the government is a third-party beneficiary of team arrangements and of the teaming agreements that memorialize the commitments of the teaming partners pursuing the award of a government contract.

B. Deference to Agency Discretion

Courts generally defer to an agency in the conduct of the agency’s responsibilities, including the agency’s interpretation of its own regulations. In Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., the Supreme Court addressed the question of deference and stated that, if an agency reasonably interprets a statute in promulgating and interpreting its regulations, courts should generally defer to the agency’s interpretation.This has become known as “Chevron deference.”In Chevron, the Supreme Court provided a two-part test that examines whether Congress has directly spoken to the precise regulatory question at issue and, if not, whether the agency’s interpretation is consistent with the purposes of the statute pursuant to which the regulation was promulgated. Where “the statute ‘is silent or ambiguous with respect to the specific issue,’” the tribunal “must sustain the [a]gency’s interpretation if it is ‘based on a permissible construction’ of the Act.”

Over the years, FAR provisions have been upheld under Chevron on the ground that Congress has not spoken directly to the precise question at issue, and the Supreme Court has extended the Chevron doctrine to agencies’ interpretations of their own regulations. The result is a strong presumption in favor of the validity of agency action, so long as the agency’s interpretation of its statutory authority is reasonable. Although this deference is not without criticism, without Chevron, agencies would act in the shadow of far greater uncertainty about whether federal courts will obliterate their handiwork. In that world, courts would exercise far greater authority over the meaning of federal law — and, by implication, far greater control over the scope and substance of federal policy in virtually every significant field of regulatory activity. Chevron’s importance is attested to by the fact that it is arguably the most cited case in modern public law.

As a result, contracting agencies possess discretion in determining whether to recognize a team arrangement; and the courts — and the GAO — would be understandably reluctant to second-guess a Contracting Officer’s decision or substitute its own judgment, provided that a rational basis supports the decision to recognize or not recognize the validity of a team arrangement.

C. State Law Is Not Binding on the Agency Examining a Team Arrangement During Pre-Award Evaluation.

As noted above, FAR subpart 9.6 addresses team arrangements but does not discuss enforceability of teaming agreements and does not mention the term “teaming agreement.” An agency will examine and may consider subcontractor capabilities when reviewing a potential prime contractor’s proposal. If an offeror is not successful in obtaining the award of a desired contract, issues including the evaluation of the winning contractor’s team arrangements are examined and a challenge in the form of a bid protest can be filed.

Considering the value of team arrangements to a competitive proposal, it is not surprising that the enforceability of a teaming agreement under state law has been raised in the protest scenario. Thus, for example, in AllWorld Language Consultants, Inc., the protester alleged that the awardee’s teaming agreement was unenforceable under Virginia law and that the agency “unreasonably found that [the awardee] had provided evidence of a ‘binding agreement’ . . . as required by the RFQ.” The GAO stated in a footnote that “the protester does not establish why GSA was bound by Virginia state law in interpreting the RFQ requirement for evidence of a binding commitment.”

IV. The Contracting Officer Is Not in a Position to Adjudicate Enforceability

Contracting Officers are not in a position to adjudicate the enforceability of a teaming agreement under state laws. This is because the investigation that would be required to determine the intent of the parties and the specificity of the material terms that the parties intend to include in their post-award arrangement would be too fact-intensive.

A teaming agreement is a generally deemed to be a “preliminary agreement” (i.e., an agreement that contemplates later execution of a more definitive agreement).More specifically, the teammates usually plan to execute a subcontract that will supersede their teaming agreement if the team’s proposal is successful. The questions examined to determine agreement enforceability generally are (1) whether the parties intend to enter into a binding contractual relationship, and, assuming that the parties intend to do so, (2) whether “sufficiently objective criteria” exist whereby a court can determine the terms. An issue can be the lack of specificity in the teaming agreement, which renders the agreement a mere “agreement to agree.” Typically, a mere “agreement to agree” is unenforceable.

The clearer the intent of the parties to be bound, and the more definite and specific the agreement’s terms, the more likely a court will hold the teaming agreement to be an enforceable contract and not an unenforceable agreement to agree.However, because team arrangements may be formed and collaborative proposal efforts begun months before an agency has published a final Statement of Work (SoW), the parties would have to be clairvoyant to determine exactly what the final SoW will look like — and accordingly how they should allocate workshare, and negotiate price, warranties, or other terms of their arrangement. This may be possible in some contracts, for example contracts for the purchase of commercial or off-the-shelf products. However, determination of the scope and details or a final SoW is difficult in situations where development is involved or where customer needs are evolving.

Any expectation that a definitive and final SoW can be ascertained early in the process also ignores certain realities of government contracting, including the fact that the SoW can and often does change and that the final negotiated contract between the prime contractor and the government customer may differ from that contemplated when the government first issued its RFP. Throughout a competition, the stakeholders to a team arrangement — the prime contractor seeking the award, the subcontractor(s) seeking subcontract(s), and the government evaluating the team’s proposal to obtain a needed product or service — anticipate that the team will work together and that the subcontractor(s) will participate in the performance of the contract. But the precise parameters of the arrangement must often await changes in the RFP, definitization of the SoW, negotiation of the proposals, agreement on price, and award of a contract. These realities that can change the scope of the potential contract and its subcontracts create fertile ground for disputes, and those disputes could end up implicating issues of enforceability of the teaming agreement.However, the economic benefits of establishing team arrangements to compete for government contracts — the establishment of a competitive team between the prime and subcontractor(s) and the provision of a competitive offering for the government — justify recognition of the team arrangement in the absence of an existing dispute that jeopardizes the arrangement and future contract performance.

What follows is not an exhaustive survey of all cases that have addressed disputes between teaming partners. Instead, this review of several key cases is presented in order to indicate the difficulty that exists in determining whether a teaming agreement would be found to be enforceable under its governing law. The purpose of this review is to show that it would be impractical for a Contracting Officer to be required to examine a teaming agreement in order to determine the enforceability of the agreement.

A. Intent

The vast majority of team arrangements are performed without a dispute. The parties in this marriage of convenience share the mutual goal of winning the contract. The issues that may arise usually are resolved through negotiation.If a dispute occurs, the parties may utilize the “disputes” provision of their teaming agreement.

The “disputes” provision may provide for dispute resolution through negotiation, and it is not uncommon for a teaming agreement to provide for escalation of the dispute’s negotiation upward through senior management ranks of the companies in the hope that the parties can resolve the matter.If the dispute is not resolved, the “governing law” provision kicks in, and the venue may be prescribed.

The party alleging breach of the teaming agreement will need to establish the existence of an enforceable agreement.A lack of enforceability may be raised as a defense by the party alleged to have breached the agreement. If enforceability is raised, the first issue to be addressed by a court may be intent.

A court examining the intent of the parties to the teaming agreement must balance interests. It does not want to require performance of contractual obligations when the intent of the parties was not to be bound until the execution of a definitive subcontract, but the court also seeks to enforce intent to be bound by the teaming agreement. For example, a prospective subcontractor may be denied its anticipated work. This aggrieved subcontractor scenario is a good starting point to discuss enforceability. This scenario — where the intended subcontractor expends time, money, and effort to help the prime contractor achieve a contract award and may have given up other opportunities only to be denied its intended work — may be referred to as “being left at the altar.”This type of dispute could arise after evaluation of the proposal that includes the subcontractor’s past performance and prior experience by the source selection team.In “left at the altar” cases, there may be some element of a lack of good faith in that the subcontractor contributed to the prime contractor’s success in winning the award of the pursued contract.

This scenario is also a good starting point because Air Technology Corp. v. General Electric Co., the case generally accepted as the first reported team arrangement decision, is a “left at the altar” case.This 1964 case presented the situation where the parties entered into an oral agreement and agreed that they would be a “team member” in the prime contractor’s proposal to the Air Force.The Massachusetts Supreme Judicial Court, affirming the decision of a master based upon its own review of the record, found, “[the prime contractor] sought [the subcontractor]’s aid in obtaining and carrying out a prime contract for” the Air Force. The bargain was that, in return for the subcontractor’s support, the prime contractor undertook to issue a subcontract for specified work that would allow the subcontractor a “reasonable opportunity to recover its costs plus a fair profit.”

The Air Technology court examined intent and rejected the prime contractor’s argument that “its obligation to [the subcontractor] was at most to negotiate a subcontract and that such an obligation is too uncertain to be enforceable,” and held that, “[w]hatever uncertainty may have existed about the subcontract does not preclude recovery by [the subcontractor].” In affirming the enforceability of the contract, the court held, “[t]he use of the term ‘team member’ leads us to infer that the parties intended a contractual association in some form of joint undertaking.”

Another “left at the altar” decision resulted in a Virginia court finding “specific performance not only appropriate, but necessary,” because the clear intention of the parties was that the intended subcontractor would receive the work. In EG&G, Inc. v. Cube Corp., the court rejected the notion that the teaming agreement was merely an agreement to agree, finding instead that it was a binding and enforceable contract because, among other reasons, the parties began performance prior to the breakdown of negotiations over the subcontract. In this case, specific performance was possible because the court examined the intent of the parties, which was that the subcontractor will be performing “certain functional areas as a subcontractor.”

In another “left at the altar” teaming decision, the U.S. Court of Appeals for the Third Circuit held that a teaming agreement, which provided that the subcontractor would assist the prime contractor in preparing its bid, was enforceable because of the intent of the parties. In that case, ATACS Corp. v. Trans World Communications, Inc. (ATACS), the customer was Greece, and it sought bids to manufacture communications shelters for its army. ATACS, the intended subcontractor, and Trans World, the intended prime contractor, worked together and the team submitted the lowest bid. The arrangement fell apart when Trans World revealed that it had been soliciting other proposals from other companies for the subcontract and used pricing information from other companies to request that ATACS lower its price.

Then, after Trans World selected another company as its subcontractor, ATACS brought an action asserting, among other things, breach of contract.With respect to intent to be bound, the court noted that “[t]he record contains numerous correspondences by both parties clearly indicating their ‘inten[t] to team.’” In addition, Trans World represented in its proposal to the customer that ATACS “constituted part of the ‘team’ that would undertake the project.”The representation was a factor in determining the agreement’s enforceability.

ATACS summarized the issue of intent, stating, “[i]t is by now hornbook law that ‘the test for enforceability of an agreement is whether both parties have manifested an intention to be bound by its terms and whether the terms are sufficiently definite to be specifically enforced.’”The ATACS court said:

With teaming agreements, courts are particularly sensitive to what the parties intended in agreeing to “team” — that is, searching for sufficiently definite terms for enforcement other than the simple promise to enter into a subcontract at a later date — and whether that teaming agreement was intended to bind the parties during the various stages of government contract procurement.

The court also cited the Uniform Commercial Code for the proposition that “[a]n agreement for sale which is otherwise sufficiently definite . . . to be a con- tract is not made invalid by the fact that it leaves particulars of performance to be specified by one [of ] the parties.”

A more recent Florida U.S. District Court decision, Premier Gaming Trailers LLC v. Luna Diversified Enterprises, Inc., addressed a partner “left at the altar” without a subcontract. The prime contractor used its partner’s bid information in the proposal that it submitted to the Army.Then, it terminated the relationship after receiving an Army prime contract in order to find a less expensive supplier. The district court ordered the prime contractor to pay damages and costs to its partner due to the failure to recognize their unwritten agreement. This court focused on the use of the teammate’s information as an indication of intent and the fact that the teammate was part of the winning proposal.

The Delaware Court of Chancery applied a similar objective approach in interpreting a memorandum of agreement (MOA), another form of preliminary agreement, often similar in terms to a traditional teaming agreement, in accordance with industry customs. The court, in denying the motion to dismiss, found the facts pled supported that an enforceable agreement could exist. In examining intent to be bound, the court said, “Delaware adheres to the ‘objective’ theory of contracts: a contract’s construction should be that which would be understood by an objective, reasonable third party.” The court noted that it “looks for allegations suggesting an objective manifestation of intent to be bound by the MOA.”The court found that “a rough skeleton of definite obligations exists in the MOA upon which prior course of dealings and industry custom could, by reasonable inference, add sufficient flesh to justify enforcement of the resulting form.”

Review of cases that have examined teaming agreements illustrates that intent is relatively simple to ascertain when compared to specificity of terms.That may be because disputed teaming agreements are those where there has been great reliance upon and considerable activity in furtherance of the parties’ pursuit of a contract award. The activities of the parties may illustrate “an objective manifestation of intent to be bound” by the teaming agreement.The second question addresses the specificity of terms and this requirement to find an enforceable teaming agreement is not as simple to meet, as discussed below.

B. Specificity of Terms

The more difficult issue faced by a contractor seeking to enforce a teaming agreement is proving that the terms of the agreement are specific enough to warrant enforceability. Virginia courts have garnered attention in teaming agreement disputes. Virginia is a key area for government agencies and is home to many government contractors who use Virginia as governing law for teaming agreements. As a result, several teaming agreement disputes have used Virginia law, which has of late exhibited a strong focus on the specificity of the teaming agreement’s material terms. As noted above, specificity may be difficult to achieve in the pre-award environment where a teaming agreement is executed.

In W.J. Schafer Associates, Inc. v. Cordant, Inc., the Virginia Supreme Court held that the teaming agreement at issue was unenforceable on the ground that the teaming agreement was “too vague and indefinite to be enforced.”The court found that the agreement showed that the parties knew that the required items made by the subcontractor (called “digitizers”) might not be available for use if the contract were awarded. The court also noted that the teaming agreement stated that the prime contractor

“shall make a determination, through consultations with [the subcontractor], on the probability of [the digitizer’s] availability by contract award” and that, “[i]f sufficient and satisfactory progress has not been made in order to make the [digitizer] available by contract award, [the prime contractor] reserves the right, in its sole discretion, to pursue a replacement product.”

As a result, the court found that, by its express terms, the teaming agreement “was not an enforceable contract for the sale of digitizers.”

In the EG&G “left at the altar” case mentioned earlier, the court issued an injunction compelling specific performance. The court’s decision demonstrated that Virginia courts will uphold a bargain that creates an enforceable right under Virginia law, whether called a teaming agreement or something else, and found that the teaming agreement was enforceable. In that case, the joint NASA and Navy solicitation sought bids “for the procurement of operations and maintenance support services” at one of NASA’s flight facilities, and the procurement was a small business set-aside.Under the teaming agreement, EG&G was to assist Cube in preparing its bid, and Cube would award EG&G a subcontract. Cube was awarded the contract but, after performing under a letter subcontract, the teammates were unable to reach agreement regarding the specific terms of the subcontract.Then, Cube sent EG&G a letter stating that, because the parties had reached an impasse, the relationship would end, and EG&G brought an action for specific performance of the teaming agreement.The court held that the teaming agreement was sufficiently definite.

The EG&G court distinguished the facts faced by the Schafer court and stressed that the teaming agreement contained an obligation to subcontract, which was lacking in Schafer.The EG&G teaming agreement was binding because it specifically said that, if Cube were awarded the contract as prime contractor, “EG&G would be a subcontractor.” The EG&G counsel involved in this litigation felt that this “would be” language was “the icing on the cake,” and it was in addition to the fact that the agreement included specific terms including a defined work scope.

The ATACS case, discussed in the section on intent, was decided at a time when no Pennsylvania case had addressed teaming agreement enforceability. The defendant prime contractor argued that “Pennsylvania law would not recognize such an arrangement without a finalized subcontract because of the absence of an essential term.”In ATACS, the particular essential term asserted by the defendant was the price of plaintiff’s subcontract, and the defendant emphasized that the parties never reached a final agreement on price, which, defendant argued, “must prove fatal to contract formation.” The court noted that “[t]he fact that the parties never finalized an implementing subcontract is usually not fatal to enforcing the teaming agreement on its own” and said that “Pennsylvania courts have long since recognized that ‘the paramount goal of contractual interpretation is to ascertain and give effect to the intent of the parties.’”

The court went on to say, “Indeed, the omission of an essential term in a contract, such as price, does not vitiate contract formation if the parties otherwise manifested their mutual assent to the agreement and the terms of that agreement are sufficiently definite.” The court said that it would “look to: (1) whether both parties manifested an intention to be bound by the teaming agreement; and (2) whether the terms of that agreement are sufficiently definite.” The court found that “[a]fter a thorough review of the relevant correspondences,” the lower court “concluded that the plaintiffs established sufficiently definite terms of the teaming arrangement,” and the court of appeals affirmed. The court went further and stated that an agreement can contain open terms that will be addressed in the future even if the open terms are essential and clear intent to be bound is evident.

Cyberlock Consulting, Inc. v. Information Experts, Inc. is a Virginia decision that has received much attention and has been debated by government contracting practitioners because its mandate for specificity in teaming agreements may be difficult to achieve.Another concern is that the decision may ignore certain realities of the government contracting industry. For example, in many situations, it may be impossible to achieve such specificity before contractor selection and prime contract award.

However, Cyberlock does not necessarily lead to the death of teaming. That is because the parties in this case had shown the court what they could achieve in a teaming agreement between them. The teaming agreement in dispute was the parties’ second teaming agreement. Their first teaming agreement had achieved — the court noted — the actual negotiation of a subcontract.The court said that “one of the attachments to the First Teaming Agreement, Exhibit D to that agreement, was the specific subcontract which the parties intended to enter into upon the award of the prime contract.”

Cyberlock claimed that it was owed a subcontract from Information Experts, Inc. (IE), the prime contractor, as a result of the second teaming agreement. This second teaming agreement was entered into to bid on a contract issued by the Office of Personnel Management (OPM); the teaming agreement contained a merger or integration clause, which stated that the agreement “constitute[d] the entire agreement of the parties hereto and supersedes all prior and contemporaneous representations, proposals, discussions, and communications, whether oral or in writing.”

The second teaming agreement included a statement of work indicating that, in the event of an award of a prime contract, IE would perform fifty-one percent of the work and Cyberlock would perform forty-nine percent. The important nuance in this case was, as the court pointed out in the very beginning of the decision, the first teaming agreement between the parties included as an attachment the subcontract the parties intended to and did execute upon contract award, but the second teaming agreement said that its terms were subject to termination upon the “failure of the parties to reach agreement on a subcontract after a reasonable period of good faith negotiations.”

OPM awarded the prime contract to IE and, after a month of negotiations on the terms of the subcontract resulted in no agreement, IE terminated negotiations. The court noted that, while the agreement did contain language indicating the parties planned to enter into a subcontract in the event IE was awarded the OPM contract, the parties never negotiated or agreed to a specific subcontract for the second teaming agreement (as they had for the first).The court held the agreement read as a whole indicated that the teaming agreement language set forth a framework for the subcontract negotiation. One way to read this case is that the lack of specificity in the second teaming agreement indicated a lack of intent given the first agreement’s inclusion of a negotiated subcontract.

A post-Cyberlock decision of the Virginia Supreme Court involved a small business set-aside, and the court noted that the negotiations for a contract with the Defense Threat Reduction Agency did not result in an agreement.Two subcontractors then alleged breach of the teaming agreement and the non-disclosure agreement (NDA) with the prime contractor. In Navar, Inc. v. Federal Business Council, the Virginia Supreme Court emphasized the lack of evidence presented at the trial court, which had found for the aggrieved subcontractors. The Virginia Supreme Court noted that the subcontractors “did not present any evidence to support their argument beyond arguing that they were entitled to a full [forty-nine percent] workshare because the [t]eaming [a]greement stated Navar would ‘receive, at a minimum, [fifty-one per- cent] of the labor hours and labor dollars.’” The court also noted that this figure may simply reflect attention to the applicable regulatory requirement that the prime contractor “perform at least [fifty] percent of the cost of the contract incurred for personnel with its own employees.”Further, and in what could be an important statement, the court pointed out that the subcontractors “did not present any expert evidence to support their argument that the standard in the industry was that subcontractors were guaranteed [forty-nine percent] of the work share. The evidence showed email exchanges mentioning workshare percentages, but no written documents were produced regarding any actual agreement governing the workshare split.”

The Navar court found essential terms lacking and found no basis for determining damages, such as testimony from an expert witness. Essential terms that were lacking in this case appear to be specific work share instead of a percentage and a means of determining damages in the event of a breach.

This case may illustrate the difficulty that exists for a disgruntled teammate to adequately prove damages and may provide a reason to consider the issue of damages in teaming agreements. In essence, addressing damages in the teaming agreement could serve as a sort of prenuptial agreement if there is a break-up. One basis of damages that may be ascertainable is the amount of bid and proposal expense incurred to support the pursuit of the contract. This would represent actual damages and merely compensates the aggrieved team member for the actual expense incurred. Expectation damages, such as lost profits, would be difficult to prove given the uncertainties of future contract performance.The issue of damages would not, however, be relevant were a Contracting Officer to seek to examine the enforceability of a teaming agreement. The Contracting Officer would focus on sufficient specificity to deem the teaming agreement enforceable.

The Navar case, rather than Cyberlock, was used by the Virginia Supreme Court in the more recent case, CGI Federal Inc. v. FCi Federal, Inc., where the court affirmed the lower court’s action setting aside a jury verdict for twelve million dollars in damages arising out of breach of contract and fraudulent inducement claims.The court said this teaming agreement did not create an enforceable obligation to enter into a subcontract because language expressly conditioned the subcontract on future events and negotiations.

Although rarer than an intended subcontractor being left at the altar, teaming agreement disputes have also arisen in situations where a planned subcontractor leaves the team and the prime contractor seeks to keep the planned subcontractor on the team, perhaps as a result of shared proprietary or competitive information. A case from Virginia presented that situation. In this case, A-T Solutions, the prime contractor, sought to keep R3, the intended subcontractor, from becoming a member of a competing team.That case, which was a bench decision on a motion for a preliminary injunction, interjects the twist of a cancelled solicitation.

After signing the teaming agreement, both companies commenced their collaboration but on July 17, 2015, the government cancelled the solicitation “to allow for a reassessment of the mission requirements and revisions.” A revised solicitation was issued on December 10, 2015, and bids were due January 11, 2016. However, the intended subcontractor told A-T Solutions that the teaming agreement ceased to be valid as a result of the July solicitation cancellation.

A-T Solutions then sought to prevent its teammate from competing against it and brought suit, arguing that it was entitled to specific performance compelling R3 to team with A-T Solutions for the program. R3 argued that there was no enforceable contract. Ruling from the bench on A-T Solutions’ motion, apparently the day after proposal submission closed, the judge rejected A-T Solutions’ request.

These decisions show that a review of enforceability examines intent and the specific terms in the teaming agreement considering the surrounding actions of the parties in the effort to determine whether the agreement will be deemed enforceable. This process is not simple and not the type of water into which a Contracting Officer should attempt to wade during the evaluation of a proposal.

C. Oral Teaming Agreements

The FAR does not specify a requirement that a teaming agreement be in writing, although the RFP may require evidence of a teaming agreement.Oral teaming agreements exist although they are not as common as in the past. Air Technology Corp. v. General Electric Co., the first reported teaming agreement case, discussed earlier, involved an oral teaming agreement.

Other oral teaming agreements have been the subject of disputes. For example, in 2000, the Ninth Circuit considered the enforceability of an oral agreement to enter into a teaming agreement. The hopeful subcontractor, Cable & Computer Technology, Inc. (CCT), engaged in negotiations with Lockheed Martin Corp. (Lockheed) over the terms of a teaming agreement, but never executed the agreement. On the one hand, Lockheed claimed that no contract existed, explaining “that all the parties did was to try, unsuccessfully, to work out a ‘teaming agreement,’ which [the Boeing Company (Boeing)] required to be submitted as part of the bid.” CCT, on the other hand, claimed that it had a teaming agreement with Lockheed.

Lockheed decided to keep the work in-house and worked with an affiliate, instead of CCT, who then sued to enforce the terms of the draft teaming agreement. The district court found for Lockheed, but the Ninth Circuit disagreed, stating that the district court’s analysis “avoid[ed] the question of whether there was an oral contract” to execute a teaming agreement. The circuit court found that CCT had provided “significant, probative evidence” that CCT and Lockheed had orally agreed to team.Agreeing that “[n]o naked agreement to agree constitutes a contract,” the court nevertheless went on to say that “CCT offered in evidence to the district court . . . an exchange of promises, supported by consideration, to be a team with [Lockheed] and as a team submit a bid to Boeing.”The court explained that, “[u]nlike an agreement to agree, an agreement to use best efforts to achieve a common objective is a closed, discrete, and actionable proposition. As might be expected, the law of California is no different from this statement by Judge Becker of what is the law of other American jurisdictions.”

The district court reduced the damages, and Lockheed appealed “the damages approved by the district court, arguing that CCT is no more than a disappointed bidder and should recover no more than the expenses incurred in its reliance.” The Ninth Circuit held:

The defendants in their present brief attack the jury-awarded [punitive damages] of $25,735,000 against each of the two Lockheed subsidiaries, characterizing them as “gigantic” and out of line with other punitive awards in California. But the district court has already reduced the [punitive damages award] to $12.8 million against Sanders and the same amount against Owego.

The Ninth Circuit said that the punitive damages were deserved and affirmed the judgment of the district court.

The cases examined in this section of the article reveal the challenges that exist in determining teaming agreement enforceability. They support the proposition that this determination is not an activity that a Contracting Officer should engage in during a source selection.

V. Bid Protests Challenging Team Arrangement Recognition

Disappointed competitors have challenged the award of a contract on the basis that the winning team included a teaming agreement that would be deemed unenforceable. The contract awardee’s teammate may have provided in the source-selection evaluation what were deemed essential capabilities as well as favorable past performance.

It has been established that an agency’s consideration of a subcontractor’s capabilities is proper where the offeror is proposing performance as a team.However, as stated earlier, FAR subpart 9.6 does not address enforceability of the team arrangement and does not prescribe a specific type of teaming agreement.In addition, a predicate to the examination of the enforceability issue should be the existence of a dispute; otherwise, the enforceability issue is not ripe for adjudication.

GAO bid-protest decisions state that the agency has discretion in evaluating team arrangement issues in protests. In one protest, Rohmann Services, Inc., the protester alleged improper evaluation of an unsigned teaming agreement. The GAO denied that challenge and found that the RFP did not require submission or evaluation of teaming agreements.

In another protest, the protester alleged that the agency improperly considered the experience and past performance of teaming partners “because of the vague and/ or limited roles that these entities would have in performing the awarded contract.”Again, this protest was denied by the GAO, which found that the Contracting Officer reasonably concluded that the teaming partner would perform the total effort promised, and that “its role would include — but not be limited to — the specific tasks set forth in the teaming agreement.”

In a different protest, Beretta USA Corp., a protester challenged its exclusion from consideration based on lack of information in its teaming agreements in a situation where the RFP required the agency to “determine the commitments with key suppliers and how each offeror has sourced or will source said key suppliers.”The GAO denied the protest, finding the deficiency assigned by the agency was rational where the teaming agreements lacked information to permit the evaluation of the teammate’s ability to meet its delivery schedules. The GAO noted that “the agency did not ignore the teaming agreements but expressly found that the agreement between [the awardee] and its ammunition supplier did not provide a ‘level of commitment to verify delivery.’”

Another protest, AllWorld Language Consultants, Inc., raised the issue of teaming agreement enforceability under Virginia law, the governing law for the teaming agreement at issue. The protester alleged that the agency could not consider the capabilities of a teaming partner since the awardee did not have a “binding agreement” with its teaming partner. That was because the teaming agreement said that “the [p]rime [c]ontractor intends to award a subcontract to the [s]ubcontract[or].” Declining to examine state law principles on teaming agreements, the GAO accepted the Contracting Officer’s statement that the proposal reflected a “binding commitment.” Although it can be argued that “binding commitment” is ambiguous, the GAO’s decision examined the intent of the parties, and no dispute between the teammates was identified in this decision.

Furthermore, in a different protest, Mission Services, Inc., the GAO examined a situation where the RFP required the provision of fully executed copies of entire teaming agreements.The RFP defined an “enforceable agreement” as:

A written and signed agreement (by both parties) that details that all parties have agreed to a business relationship for this procurement. This document must be clear that both parties have defined and agreed to the extent of the relationship to include the type or types of work the subcontractors/ partners shall perform and what areas of the base [indefinite-delivery, indefinite-quantity contract statement of work] they will cover. The agreement shall be specific in nature.

Notably, in this protest decision the GAO did not define enforceability by reference to a determination of enforceability under state law, but looked to indicia of intent to be bound and to the specificity of the agreement as required in the RFP. The GAO noted that the provision of teaming agreements that meet the RFP’s definition of enforceable agreement resulted in favorable consideration in accordance with the RFP.

VI. Alternatives to Traditional Teaming Agreements & Issues Posed

State law generally requires clear intent and specificity of material terms to find a teaming agreement enforceable. Despite this requirement, some companies, when faced with a tight competition schedule and a need to create a team, have utilized certain alternatives to traditional teaming agreements. Generally, such alternatives are simpler and quicker to negotiate, important points when competition for a contract commences. These alternatives are being used even though the use of such agreements may translate to enforceability issues.

The reality is that companies, particularly companies that frequently work together, may choose to rely more on the strength of their relationships and adequate due diligence in the selection of teammates and less on the terms of the written agreement to keep the team together. Teaming agreements take time to negotiate, and time is precious in the heat of a competition.

In informal discussions with business and proposal managers of defense contractors, the top three concerns with regard to team arrangements consistently were: (1) Will this teammate improve my probability of winning and give the customer a strong offering?; (2) Can the companies work well together?; and (3) Are there any issues with this teammate that could impair the team’s selection for the contract award? Enforceability of the teaming agreement did not make the list. Simply put, these managers expect the mutual goal to win the contract to be sufficient to keep the team together and do not anticipate a dispute that would cause the team to break up.

As a result, it is not surprising that alternatives are being used, even though some alternatives may be less likely to be enforceable because they lack the specificity of terms that enforceability demands. One rationale for such alter- native agreements is that there should be evidence manifesting the intent to work together but, in some cases, it is not possible to address material terms. For example, when an indefinite delivery indefinite quantity contract award is sought, the goal is to win the contract that would enable the team to seek later task or delivery orders. There may be no actual work that comes with the initial award.

Benefits gained through use of the alternatives to traditional teaming agreements include the ability to provide written evidence of the arrangement to the government customer in the proposal in addition to being simpler and easier to negotiate, which saves time and money. At the same time, often alternatives are not exclusive and workshare is not guaranteed. For the potential subcontractor, that may be a significant downside.

These alternatives come in various forms including an enhanced non- disclosure agreement (NDA) that addresses a specific opportunity that the team seeks to pursue. Sometimes referred to as an “NDA on steroids,” this form of alternative teaming agreement can be useful with commercial companies that lack experience in government contracting. Such an agreement may facilitate the commercial company’s willingness to support the proposal effort. Another variation is sometimes called a “bidding agreement” and is an agreement that the supplier will support the prime contractor with information useful in the proposal and that the supplier intends to submit a price proposal.

An alternative that does require considerable effort but could be useful if several proposals are contemplated is the development of a blanket or master purchase agreement that authorizes the release and fulfillment of purchase or task orders by the prime contractor to the supplier. This provides evidence of an established relationship and avoids the material terms issue because the terms, including price, are negotiated as part of the master purchase agreement and would be applicable to the several proposals.

VII. Conclusion

Team arrangements are common in government contracts. Although the FAR addresses the government’s recognition of contractor team arrangements as well as the economic utility of such arrangements, a teaming agreement’s enforceability looks to the law of its governing state. This interplay may raise the question whether there can be a valid team arrangement under the FAR if, in the event of a dispute, the teaming agreement used by the parties could be deemed unenforceable. The answer should be that a team arrangement should be treated as valid manifestation of the team members’ intention to collaborate and perform the contract if awarded. This would be the case under the FAR, despite potential unenforceability under the teaming agreement’s governing law. Treatment of a teaming agreement is an issue of agency discretion, which should be given deference if the determination has a rational basis.

The FAR neither mandates a specific type of agreement to be used by contractors to combine their capabilities in pursuit of a government contract nor addresses the enforceability of teaming agreements. In fact, the FAR does not require a written teaming agreement. However, the government can inquire into the arrangement to satisfy itself that the parties intend to work together and that they possess the requisite responsibility requirements prescribed in the FAR to perform the government contract.The federal government is not bound by state law. Furthermore, the government is not in a position to adjudicate enforceability. As the cases indicate, the examination of intent and specificity does not involve a simple “bright line” test, but an examination that may include review of the parties’ “surrounding actions.” This is not a simple determination.

The actual existence of a dispute before the award of the contract presents a scenario that could reasonably raise concerns about the availability of the subcontractor to perform the contract. This uncertainty could impact contract performance. Such a situation could be considered as a risk in the source selection evaluation. However, enforceability generally should not be an issue unless there is evidence of a dispute that is ripe for adjudication. In the absence of an actual dispute, a teaming agreement reflecting the parties’ intent to be bound in a team arrangement should be deemed “close enough for government work.”

In practice, the vast majority of team arrangements are held together by mutual interest and the parties usually satisfy themselves through due diligence that they can work together to achieve their mutual goal. Such arrangements often are a key component of a government contractor’s competitive strategy and have been used in government contracting for a long time. A very small percentage of teaming agreements generate significant issues that require a review of enforceability. As a result, team arrangements are likely to continue to be an important tool for contractors seeking the award of a government contract despite enforceability concerns.