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Federal Court Declares Teaming Agreement Unenforceable

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I know a lot of posters here work on the Government 'side' but thought it was worth discussing. I've been spending a lot of time reviewing our Teaming Agreement process because of this case.

This a few months old but after doing a few searches, I didn't see it discussed here (which I thought was odd).

Two government contractors entered into a Teaming Agreement for the purpose of working together towards securing a prime contract from the Federal government. The companies, Information Experts, Inc. (“IE”) and Cyberlock Consulting, Inc. (“Cyberlock”), successfully put forward a persuasive bid, and the government awarded the prime contract to IE. Despite the Teaming Agreement, IE refused to use Cyberlock as its subcontractor and went on to perform the contract without it. Not surprisingly, Cyberlock sued IE for breach. The U.S. District Court for the Eastern District of Virginia determined, however, that IE did not breach the Teaming Agreement because it was not enforceable.

Some key points from the case doc:

..."Upon reconsideration of the well-established Virginia legal principles regarding contract interpretation discussed above, and reading the Second Teaming Agreement as a whole instrument, the Court finds that the post-prime contract award obligations in the Second Teaming Agreement are unambiguous and constitute an unenforceable agreement to agree. In Virginia, any "writing in which the terms of a future transaction or later, more formal agreement are set out is presumed to be an agreement to agree rather than a binding contract." Virginia Power, 2012 WL 2905110, at *4. Indeed, calling an agreement something other than a contract or subcontract, such as a teaming agreement or letter of intent, implies "that the parties intended it to be a nonbinding expression in contemplation of a future contract." Id.Moreover, even if the parties are "fully agreed on the terms of their contract," "the circumstance that the parties do intend a formal contract to be drawn up is strong evidence to show that they did not intend the previous negotiations to amount to an agreement" which is binding. Boisseau, 30 S.E. at 457."...

More:

...The Court finds, however, that the agreement read as a whole indicates that this particular language was not meant to provide a binding obligation but rather to set forth a contractual objective and agreed framework for the "negotiate[ion] [of] a subcontract in the future along certain established terms." Beazer, 235 F. Supp. 2d at 492. ...

Here's the case

http://scholar.google.com/scholar_case?q=Cyberlock+Consulting,+Inc.+v.+Information+Experts,+Inc.&hl=en&as_sdt=2,47&as_vis=1&case=7857103033436991211&scilh=0

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What aspect of the decision do you want to discuss? What are you thinking?

I've worked with Virginia companies for almost 20 years. This is the first time I've heard a Teaming Agreement (TA) considered as an "agreement to agree in the future" (thus, unenforceable) by a court instead of an "agreement". In researching this in other State's decisions, specifically, Delaware takes a much stronger stance on a Teaming Agreement being a binding agreement.

The language stated throughout the court documents have been in just about every TA I've ever done. I just wondered if this is changing the procedures for other contracts people in the Private sector.

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I just wondered if this is changing the procedures for other contracts people in the Private sector.

Yes, possibly, and thanks for posting the information. Once again WIFCON has broadened my horizons, we've never experienced a similar situation and it never occurred to me as a possibility.

We often team using Virginia legal construction. Our TAs all contain language which convert the TAs to subcontracts if a superseding subcontract can't be otherwise reached, but I've sent the case to our counsel and asked for a review of it, and for research for similar constructions elsewhere that might affect our TAs. Thanks again.

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I don't know anything about Virginia Law, but there is this from an article in the Fall 2010 issue of Procurement Lawyer by R. Hanseman and C. Kidd, "Enforceability of Teaming Agreements", 46-Fall Proclaw 18:

Although breach of contract has proved to be the theory most likely to bring success to a disappointed team member, the nature of teaming agreements renders it difficult to prove the essential elements of an enforceable contract. Generally speaking, these essential elements are: (1) intent to be bound; (2) consideration; and (3) definite terms, including price, quantity, and duration. Because teaming agreements involve numerous contingencies, the existence of the first and third elements are often in doubt in cases in which a disappointed party asserts a breach of contract claim. [Footnotes omitted.]

I think that the status of a teaming agreement would depend upon the intent of the parties as manifested in the terms of the agreement. All contracts are agreements, but not all agreements are contracts.

Maybe others have something more useful to say.

Vern

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Far Fetched, if you do a search of Virginia State court decisions, you will see that teaming agreements have almost universally been treated as agreements to agree and are not binding. I know of two cases out of Fairfax County in the last ten years that have addressed this point. The issue you need to be considering is that Virginia has not considered them to be contracts. If they are considered contracts, there can be some surprising consequences for contractors. For example, see

United States ex rel. Richard D. Bagley v. TRW, Inc., No. CV 95-4153 AHM, 2000 U.S. Dist. LEXIS 21716 (C.D. Cal. Dec. 12, 2000).

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Far Fetched, if you do a search of Virginia State court decisions, you will see that teaming agreements have almost universally been treated as agreements to agree and are not binding. I know of two cases out of Fairfax County in the last ten years that have addressed this point. The issue you need to be considering is that Virginia has not considered them to be contracts. If they are considered contracts, there can be some surprising consequences for contractors. For example, see

United States ex rel. Richard D. Bagley v. TRW, Inc., No. CV 95-4153 AHM, 2000 U.S. Dist. LEXIS 21716 (C.D. Cal. Dec. 12, 2000).

This is totally different. This was a qui tam case about TRW (now Northrop) inflated costs and billed the government for commercial projects.

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I think you misread the case. One of the issues was whether an agreement TRW held with another company was a contract. If it was a not a contract, TRW could have charged its Odyssey costs to IR&D, whereas if it was a contract, the costs would have had to have been charged to the contract. TRW argued that it was not a contract, but the court held otherwise, exposing TRW to potential False Claims Act liability. My point being, if you want to argue that a teaming agreement is a contract, there can be some unanticipated consequences to making that argument.

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I am very familiar with teaming agreements and deal with them frequently. I also am familiar with this case as I was working with Northrop Grumman when it was acquiring TRW and this was an issue that had to be dealt with in the acquisition. If I am so way off, why don't you explain my ignorance? Are you saying that Odyssey costs being treated as B&P instead of contract costs was not an issue in Bagley?

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So much for intellectual discourse.

For those who might be interested in the particular issue, see a brief discussion of this aspect of the Bagley case in the related ASBCA case TRW, ASBCA No. 51530 (May 17, 2002).

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The decision that FAR Fetched and Retread are fighting about is an unreported decision of the Federal District Court for the Central District of California, U.S. ex rel Richard D. Bagley v. TRW, CV 95-4153, Dec. 12, 2000, 2000 WL 33400196. It is one of several decisions in that case, and you have to be careful to read the right one in order to understand the kerfuffle between our fellow Wifcon members.

The decision is on cross motions for summary judgement. Most of it is devoted to interpretation of FAR 31.205-18, but a pivotal matter was whether a "memorandum of agreement" between TRW and another firm was or was not a contract as defined in FAR 2.101. If it was, then certain costs incurred by TRW should have been allocated to that contract and should not have been allocated to government contracts as bid and proposal costs under FAR 31.205-18. If it was not a contract, then those costs could properly have been allocated to government contracts.

The government and TRW agreed that the MOA was a contract as defined by FAR and the court concurred without much discussion -- just four or five short sentences. Retread was wrong to say that the legal status of the MOA was an issue in the decision. It had been an issue earlier in the case, but TRW conceded the point in its opening brief to the court. It did not argue that the MOA was not a contract. It hung its hat on its interpretation of the cost principle. I don't think the decision sheds any light on the case that FAR Fetched was talking about, but the only point that Retread was making was that surprising consequences might come from asserting that a teaming agreement is a contract.

Whether any agreement is a contract or not depends pretty much on the common law of contracts. If the issue depends on the law in a particular state, then the decision will depend on the decisions of that state's courts in applying the common law. I don't see anything new or particularly surprising about the Cyberlock v. Information Experts decision. Maybe I'm missing something.

Anyway, I agree with Don that FAR Fetched has been unfair to Retread. Keep calm and carry on.

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I think the appropriate resolution to this soufflé kerfluffle is a beer summit.

Do you both live in the DC Metro area ?

I don't, not any more. Colorado.

Maybe someone who still lives there - a neutral third party - could referee the beer consumption ?

-

And Mr. Edwards might not be the right guy for that particular job.

His Basic Airborne logo/ avatar suggests that he served either:

  • with Jimi Hendricks and P4 in the Jumpin' Junkies / puking buzzards (Aerosol,) meaning he can't handle his liquor, or
  • with the All American (Airborne,) meaning he will drink the other two under the table.

Is this comment too "inside baseball ?"

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FAR Fetched, I think you were on to something in your post #3. FAR Subpart 9.6 talks about teaming arrangements, but deals with the relationship between the government and contractor members of those arrangements. But as you alluded to, the legal effect of teaming agreements is governed by state law. Not being an expert on contract law in every jurisdiction in the U.S. I don't know how each jurisdiction would treat teaming agreements. You appear to have done some research that shows that one state may treat them as enforceable agreements depending on how they are written while others may not. This diversity of approach can make life interesting for contractors who want to enter into teaming agreements with partners from other states and shows that a one size fits all or standard teaming agreement may not always be the best course.

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