Teammates pursuing federal contracts should draft their teaming agreements with care, to avoid unintended consequences, as we discussed in a previous Alert, Is Your Teaming Agreement Enforceable?   

The Pitfalls of Non-Specific Teaming Agreements

Among other issues, teammates cannot assume that their teaming agreement is specific enough to be enforced in state or federal courts. Teaming agreements often lack the details necessary to be enforceable, even if a federal agency finds the agreement acceptable under Subpart 9.6 of the Federal Acquisition Regulation.

For example, prime/subcontract teaming agreements frequently say that teammates will “agree to negotiate” the terms of a subcontract after an award is made to the prime. Such “agreements to agree” are unenforceable in many states – including North Carolina and Virginia – because they do not include sufficient material terms. Instead of guessing what the parties intended to include, courts often will find the agreement to be unenforceable, leaving one party (usually a spurned subcontractor) with no remedy against its teammate. 

This was the result in Cyberlock, where the parties included a percentage workshare in their teaming agreement but omitted other details about the work to be performed.

Earlier this year, a second Virginia federal court in A-T Solutions, Inc. v. R3 Strategic Support Group, Inc. refused to enforce a teaming agreement between two contractors pursuing a $50 million federal government contract. In Navar, Inc. v. Federal Business Council, the Virginia Supreme Court refused to enforce a $1.25 million jury verdict tied to a prime contractor’s alleged breach of a teaming agreement and related non-disclosure agreement (NDA). 

A-T Solutions: No Emergency Relief to Enforce Teaming Agreement

A-T Solutions, Inc. and R3 Strategic Support Group, Inc. signed a teaming agreement to “pursue general opportunities” relating to the federal Combined Explosive Exploitation Cell (CEXC) program. In the teaming agreement the parties promised not to make independent submissions or engage in competing teaming agreements under the CEXC program. 

The teaming agreement – as teaming agreements often do – stated it would expire without further action if the Government terminated the solicitation. The teaming agreement provided that, if A-T was awarded a contract, the parties “agree[d] to negotiate in good faith towards the execution of a mutually acceptable subcontract . . . .” The teaming agreement said it would terminate if the parties could not reach agreement upon the terms of the subcontract.

After the teaming agreement was signed, the parties exchanged labor rates, overhead margins, mobilization costs and other information in connection with a CEXC bid made under a particular solicitation number.  

After the teaming agreement was signed, the Government cancelled the solicitation and said it would re-issue the solicitation later. A-T and R3 did not, at that time, modify their teaming agreement in anticipation of a renewed solicitation. The Government issued its revised solicitation with a closing date of January 11, 2016. R3 advised A-T during December 2015 that the Government had cancelled its previous solicitation and that a valid agreement between A-T and R3 “does not exist.” 

A-T sued R3 and sought emergency relief in the form of “specific performance” of the teaming agreement.[1] A-T argued that, if the teaming agreement was not enforced, A-T would lose its expectancy of being able to compete on a $50 million contract as teammate with R3. A‑T also argued that, if the teaming agreement was not enforced, R3 would misappropriate A-T’s trade secrets. R3 responded – and A-T did not deny – that under the teaming agreement R3 would have provided only 2 of more than 30 “full time equivalents” for the procurement.  

The court denied the request for injunctive relief. Regarding the trade secrets claim, the court determined that A-T could not demonstrate that A-T would have won the contract without the cooperation of R3, and that there was no evidence that any trade secrets would be disclosed by R3. The court also found that the teaming agreement analysis was governed by Cyberlock and that the language of the contract was not sufficiently definite to be enforced.

Navar – No Enforceable Teaming Agreement and No Breach of related NDA

The Navar case resulted in a jury trial and award of $1.25 million for breach of a teaming agreement and accompanying NDA. Navar involved an 8(a) set-aside contract awarded by the United States Defense Threat Reduction Agency (DTRA) for event planning services. The plaintiffs, two contractors that provide conference planning services, agreed that Navar could serve as prime contractor for the set-aside contract. The parties signed a teaming agreement promising to award Navar 51% of the labor hours and labor dollars and said that the parties would “negotiat[e] in good faith to reach agreement on the terms of a subcontract” if DTRA awarded a proposal to Navar. The parties also signed an NDA that apparently made no reference to the DTRA opportunity but said generally that confidential information would not be used for “any purpose inconsistent with the intention of the parties” without the consent of the disclosing party. 

Plaintiffs and Navar subsequently met with the Government to discuss their proposal, which was mostly prepared using plaintiffs’ content. Navar won a five-year award for $55 million, but Navar and plaintiffs could not agree over the division of work. Navar did not extend subcontracts to either plaintiff. Plaintiffs then sued alleging breach of the teaming agreement, breach of the NDA and the theft of trade secrets by Navar. At trial, both plaintiffs presented evidence of their profit margins, but neither presented evidence of misappropriation or misuse by Navar of either plaintiff’s confidential information in violation of the NDA.

A jury found the prime contractor liable for $1.25 million.

The Virginia Supreme Court found no liability by the prime contractor and reversed the jury verdict. As for the teaming agreement, the court found the teaming agreement to be an unenforceable agreement to agree: “the Teaming Agreement does not contain a sum, or any reasonable certain method for determining a sum, or any requirement that Plaintiffs and Navar mutually agreed that Plaintiffs would be the actual subcontractors hired by Navar once the prime contract was awarded.” The court also found no breach of the NDA as there was no misuse of the confidential information shown: the presentation to the Government was an authorized use of this information by Navar and there was no other use demonstrated.

Takeaways

These cases teach the need for clients to be as specific as reasonably possible in their prime/subcontractor teaming agreements by avoiding vague “agreements to agree” language and including, where possible, a complete subcontract that triggers automatically upon award of the federal contract to the prime. The Navar case cautions that parties should tie an NDA to a specific government opportunity to make the NDA enforceable. If a lawsuit is needed to enforce the NDA, the plaintiff must specify the confidential information wrongfully used and the damages caused thereby. Parties must weigh all of these considerations against the cost of preparing documents for a federal proposal the team may not win.

[1] Parties to a lawsuit can seek emergency relief in the form of a “preliminary injunction,” which is an extraordinary remedy designed to prevent imminent and irreparable harm, either by preserving the status quo until trial or requiring the non-movant to perform a particular act intended to prevent such harm. Seeking specific performance – as A-T did – carries a higher burden because the order would require a change in the status quo. In this case, A-T sought to enforce the teaming arrangement and require R3 to participate in the response to the Government’s RFP.