A US district court’s recent default judgment awarding a million dollars in a situation where a government contractor left its partner at the altar and terminated the relationship after receiving an Army prime contract highlights some of the legal issues that can arise when contractors come together to pursue government contracts.

The district court found that the parties entered into what it described as a “joint venture,” and that the defendant used its partner’s bid information in the proposal that it submitted to the Army. Then, after receiving a contract from the Army, the defendant terminated the agreement with its partner to find a less expensive supplier. As a result, the district court also ordered the defendant to pay $1.2 million in damages and costs to its partner due to the failure to recognize their unwritten agreement.

The case is Premier Gaming Trailers, LLC v. Luna Diversified Enterprises, Inc. Case No. 8:16-cv-3378-T-33TGW before the United States District Court for the Middle District of Florida, Tampa Division.

What was the Arrangement Between the Companies?

Premier Gaming Trailers LLC (Premier), a mobile gaming trailer fabricator located in Tampa, Florida, and Luna Diversified Enterprises Inc. (Luna), an equipment supplier and consulting firm, entered into an agreement for the submission of bids to government agencies. Although there were written communications regarding the arrangement, there was no formal written agreement. Under their arrangement, Premier would provide Luna with plans consisting of designs, features, and specifications, as well as production timetables and costs of production, and Luna would formally submit the bids. If Luna received a contract, Premier was to fabricate the trailers and deliver them to the procuring agency. The arrangement provided that each party would receive a share of any contract proceeds from the joint venture.

The parties had previously submitted three unsuccessful bids and, for the bid at issue, Premier believed it would receive $1,196,183, if the Army contract was awarded to Luna. When Luna did not inform Premier of the result of the competition, Premier contacted the Army and learned that Luna had been awarded the contract. Premier also learned that its information was part of Luna’s bid. When confronted, Luna acknowledged that it had been awarded the contract, but told Premier that it was terminating the agreement in order to find a less expensive fabricator than Premier.

Premier then filed this action against Luna and asserted claims for breach of contract, unjust enrichment, and fraud in the inducement. Luna avoided service of process, and Premier effected service of process by having the Florida Secretary of State accept service on behalf of Luna.

Default was entered against Luna on February 2, 2017, and after Luna failed to appear or make a motion to set aside the default, the court instructed Premier to proceed with moving for default judgment. In granting such a motion, a court must ensure that there is a sufficient basis in the pleadings for the judgment to be entered. Such a judgment establishes as fact the plaintiff’s allegations and bars the defendant from contesting those facts on appeal.

The “Joint Venture” is a Contractor Team Arrangement

The Federal Acquisition Regulation (FAR) at 9.601 defines “contractor team arrangement” as an arrangement in which

(1) Two 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 government contract or acquisition program.

In this case, the arrangement was not reduced to writing, but was described in the plaintiff’s complaint as a “joint venture,” and that term was used by the district court in its order. However, the email attached to the complaint to establish the “joint venture” uses the term “teaming.”

Team arrangements, as defined in the FAR, can be vertical or horizontal. Although the arrangement in this case is described as a “joint venture,” it also resembles a vertical team arrangement, as defined in FAR 9-601(2), where the parties intend that the prime contractor will subcontract work to the other party, if the government awards a contract to the prime contractor. A true joint venture under FAR 9-601(1) would be a horizontal team arrangement. In that type of arrangement, it is common for the joint venture, if selected, to receive the contract award and not one of the teammates.

The Court Found that Premier Was Entitled to Judgment on its Complaint and Damages

Florida law governed this action. Under Florida law, a breach of contract arises when there is (1) a valid contract, (2) a material breach of that contract, and (3) resulting damages. The elements of a valid contract require that there exist (1) an offer, (2) acceptance of the offer, (3) consideration, and (4) sufficient specification of the essential terms of the agreement.

Disputes involving a teaming agreement may need to examine the presence of an enforceable agreement. Recent cases from Virginia have addressed enforceability and whether, under Virginia law, the teaming agreement is 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). The resolution of this issue can focus existence of essential terms, such as scope of work and price, which are sufficient to indicate an agreement capable of enforcement. Enforceability was not an issue examined in this case.

A claim for unjust enrichment in Florida has three elements – (1) the plaintiff has conferred a benefit on the defendant, (2) the defendant voluntarily accepted and retained that benefit; and (3) the circumstances are such that it would be inequitable for the defendants to retain it without paying the value thereof.

Cases that have involved a successful unjust enrichment claim in a teaming situation seem to indicate unjust enrichment may be appropriate if the contract would not have been awarded but for the nonbreaching party’s work, including information that it provided for the successful proposal effort. This situation seems to be evident here because the Army acknowledged that the proposal included information from Premier, the nonbreaching teammate.

After reviewing what the court said were well-pled allegations in Premier’s complaint and its attachments, including a Luna email that mentioned “teaming together” for government contracts, and examining the elements of the causes of action asserted by Premier, the court found that Premier was entitled to the entry of a final default judgment. It also held that Premier was entitled to damages of $7,619.00 for each unit, which totaled $1,196,183.

Conclusion

Contractor team arrangements are common and important tools for companies seeking government contracts. FAR 9.602 notes

(a) Contractor team arrangements may be desirable from both a government and industry standpoint in order to enable the companies involved to—

(1) Complement each other’s unique capabilities; and

(2) Offer the government the best combination of performance, cost, and delivery for the system or product being acquired.

However, when a partner is left at the altar without a subcontract, the result can be a lawsuit for breach of the agreement, as well as other claims.