Competition for federal contracts often involves the formation of a team arrangement. Companies with complementary capabilities and mutual interests may seek to join forces and work together in an arrangement that is memorialized in a teaming agreement. The importance of team formation to a federal contractor’s business success is understood, and the Federal Acquisition Regulation (FAR) recognizes the validity of team arrangements. However, the teaming agreement negotiated by the parties may not adequately address how the parties’ will handle certain issues. This shared understanding is particularly important because a team arrangement often brings together in a “marriage of convenience” companies that may be competitors in other situations.
A recent case illustrates what can happen when a “marriage of convenience” encounters problems. In this case, the teaming partners disagreed over whether the prime contractor was required to file a bid protest following the award of the contract to another bidder. In a summary judgment decision released on October 11, the US District Court for the Southern District of Florida found that a prime contractor did not breach its teaming agreement when it refused to protest the government’s selection of another bidder for award. (TYR Tactical, LLC v. Protective Products Enterprises, LLC and Point Blank Enterprises, Inc., Case No. 15-cv-61741).
TYR Tactical (TYR), the prospective subcontractor, sued Point Blank Enterprises (Point Blank), the prospective prime contractor, for breach of their teaming agreement. TYR’s complaint said that the parties “executed a written ‘teaming agreement’ dated September 13, 2013 . . . , to ‘team’ . . . to submit a proposal under a US government procurement for designs for protective vests for military personnel.” The court’s order dismissing the case on summary judgment noted that the two parties also are competitors in other situations.
The Point Blank-led team lost the competition to the US Army Natick Soldier Research, Development and Engineering Center (NSRDEC). The loss resulted in a disagreement between the teammates as to filing a protest against that award. TYR felt that the teaming agreement required Point Blank to protest the buying agency’s decision to select NSRDEC, but Point Blank refused to file a protest.
TYR argued in its complaint that “a protest would have rectified the US Army’s unfair treatment of [Point Blank] and unfair favoritism to the Army Natick design,” but Point Blank did not want to protest “claiming that it ‘did not want to get on the Army’s bad side.’” When Point Blank did not protest, TYR filed an agency-level protest by itself, which was dismissed by the buying agency because TYR, as a subcontractor, lacked standing to file a protest.
The court’s order is an interesting review of the parties’ teaming agreement and provides useful lessons for companies entering into team arrangements. The issues discussed below are enforceability of this teaming agreement, whether the agreement’s terms were breached by the prime’s refusal to protest the selection of a competitor, and whether the agreement’s exclusivity clause, a common clause in teaming agreements, was breached.
Was This Teaming Agreement Enforceable?
The first question that usually comes up in a dispute under a teaming agreement is whether the teaming agreement is enforceable. For example, recent cases from Virginia continue to raise the question whether a teaming agreement constitutes a valid contract or is nothing more than an unenforceable agreement to agreement. (See our earlier advisories: Virginia Supreme Court Highlights Teaming Agreement Enforceability Issues and Teaming is Not Dead – But Contractors Must Heed Decisions on Enforceability).
In this case, the court stated that the parties agreed that the teaming agreement constituted a valid contract and thus proceeded to consider whether Point Blank breached the agreement under Florida law, which the parties also agreed applied. The parties did not challenge the enforceability of the teaming agreement.
Was Refusal to Protest a Breach of the Teaming Agreement?
The court ruled that Point Blank did not breach the teaming agreement. A key part of the teaming agreement, §5(d) states that:
In the event the Prime Contractor or the Subcontractor concludes that a protest is in order, either protesting the solicitation, the acquisition process, or an award or contemplated award, the Prime Contractor shall be the protesting party, supported as appropriate by the Subcontractor.
TYR wanted to protest NSRDEC’s award decision. However, Point Blank refused to file a protest and argued that the above language did not require it to file a protest. The court agreed and held that the teaming agreement required only that Point Blank be the protesting party, supported (as appropriate), by TYR. The court noted federal bid protest precedent that a subcontractor was not an “actual or prospective bidder” and thus lacked standing to file a bid protest. It also noted that the General Accountability Office will not consider a protest of the award of a subcontract except where the agency awarding the prime contract requests in writing that the subcontract protest be decided. (In this competition, the agency awarding the contract dismissed the protest filed by TYR).
The court also noted that § 5(d) uses the word “shall,” which connotes “a mandatory intent,” but that “shall” was placed at the conclusion of § 5(d), directly before the delineation of the parties’ respective roles in the event that a protest was filed. As a result, the court held that it “requires nothing of the parties than for Point Blank to serve as a protesting party, and for TYR to support Point Blank as appropriate” and did not create an independent duty for Point Blank to file a protest. The court also stated that if the parties had intended to grant TYR authority over Point Blank to require that it file a protest, the parties could have made that intention expressly clear, and the court’s interpretation of § 5(d) was consistent with other provisions of the agreement, allocating the authority and responsibilities between the parties.
Was the Exclusivity Provision Breached?
TYR also alleged a breach of the teaming agreement’s exclusivity provision. In that provision, the parties agreed that they:
shall be exclusively restricted from individually or jointly with one or more third parties entering into an agreement with or offering any other proposal to the government with respect to this project.
TYR alleged that Point Blank violated this provision by “teaming” with MilTech, a company that supplied items to support the NSRDEC bid. Point Blank conceded that it had manufactured certain products for MilTech in accordance with MilTech’s design specifications, and that some of those items were provided to NSRDEC and used in the design that it submitted in response to the solicitation. The court found that Point Blank did not breach the exclusivity provision of the teaming agreement. It held that the plain language meant that Point Blank could not, individually or with another entity, enter into an agreement with the buying agency or offer any other proposal to the buying agency with respect to this program. The court went on to find that Point Blank’s fulfillment of an order from MilTech did not offer a proposal to the government and thus, “Point Blank did not violate the plain language of [the teaming agreement].” This aspect of the decision indicates that companies need to consider other ways in which their teammate might support someone else’s bid and ensure that the language used is sufficiently broad to cover support that would be objectionable.
Contractor team arrangements are part of the fabric of government contracting and, as the FAR notes, a team arrangement can “offer the government the best combination of performance, cost, and delivery for the system or product being acquired.” Disputes such as this one highlight the value of careful drafting of teaming agreements.