A recent case from the Eastern District of Virginia provides another reminder that teaming agreements subject to Virginia law must include specific details of the envisioned future subcontract in order to be upheld by courts as enforceable contracts. In Cyberlock Consulting, Inc. v. Information Experts, Inc., the court held that a proposed subcontractor could not enforce its teaming partner’s/proposed prime contractor’s promise to negotiate a subcontract for a particular percentage of work subsequent to the award of the prime contract. See --F.Supp.2d --, 2013 WL 1395742 (E.D. Va. Apr. 3, 2013). Although Cyberlock does not create new law in Virginia, it is an important reminder that teaming partners who execute agreements subject to Virginia law need to identify scope and pricing terms with some degree of specificity in order to create a binding obligation on both the proposed prime contractor to award a subcontract, as well as on the proposed subcontractor to accept a subcontract.
Ideally, teaming partners will reach agreement on these terms prior to execution of a teaming agreement, and they may even exchange standard subcontract forms and reach agreement on most of the terms to be included in the desired subcontract. It is not unusual, however, for teaming partners to execute teaming agreements that lack such specificity. In many cases, teaming agreements are hurriedly executed in order to lock in promises of exclusivity that are often prerequisites to the sharing of technical and pricing information. But in those instances, Cyberlock reminds us that teaming partners should continue definitizing the scope and pricing terms that are necessary to create binding obligations to award and accept a subcontract. In most cases, the parties should be able to reach agreement on these terms by the time the proposal has been submitted to the customer, and the teaming agreement should be promptly amended.
The teaming agreement at issue in Cyberlock was between Information Experts, the proposed prime, and Cyberlock Consulting, the proposed subcontractor. The agreement contained a “Responsibilities and Performance” section, in which the parties agreed “to exert reasonable efforts to obtain an [Information Experts] prime contract for the Program and to negotiate a subcontract for the Program in accordance with Exhibit A.” Exhibit A, however, was speculative, listing only an anticipated set of tasks “as presently understood by the parties” and providing generally that Cyberlock would “perform 49% of the functions and scope of work as relayed by the Government in the prime contract awarded to [Information Experts].” Further, although Information Experts “agree[d] to execute a subcontracting agreement to provide [Cyberlock] 49% of the prime contract for the work anticipated to be performed by Subcontractor,” the teaming agreement included a termination clause whereby the agreement would terminate if there was a “failure of the parties to reach agreement on a subcontract after a reasonable period of good faith negotiations.” The teaming agreement also contained an integration clause, stipulating that the agreement “constituted the entire agreement of the parties.”
After the Government awarded Information Experts the contract, Cyberlock and Information Experts began subcontract negotiations. After those negotiations broke down, Cyberlock sued for breach of the teaming agreement. The court ruled that the teaming agreement was an unenforceable “agreement to agree” under Virginia law. Looking first to the terms of the agreement, the court concluded that the agreement was unambiguous and, given the integration clause, refused to consider any extrinsic evidence regarding the parties' intentions. Next, examining the terms of the agreement, the court determined that, although “there is some language suggesting that Information Experts was obligated to provide 49% of the prime contract to Cyberlock . . . the agreement as a whole indicates that this particular language was not meant to provide a binding obligation.” Instead, the court determined that the teaming agreement “set forth a contractual objective and agreed framework for the ‘negotia[ion] [of] a subcontract in the future along certain established terms,’” which Virginia law considers to be merely an agreement to agree. The court based its conclusion on four factors:
- the award of a 49% portion of the prime contract “would require the negotiation and execution of a future subcontract”;
- this future subcontract “was dependent on the success of such future negotiations”;
- any potential executed subcontract “was subject to the approval or disapproval of” the Government; and
- the provisions of the teaming agreement suggested “that the framework set out for the work allocation in a future subcontract potentially could change as it merely was based on the work anticipated to be performed by Cyberlock as then-presently understood by the parties.”
Read together, these nebulous, qualifying aspects of the teaming agreement signified that the parties’ intention—as expressed in the agreement—was only to agree to negotiate at a later time. Unfortunately for Cyberlock, such an agreement is not enforceable in Virginia.
Although Cyberlock involved a suit by the proposed subcontractor against the proposed prime contractor, the rules on which the decision turned apply equally to both parties to a teaming agreement subject to Virginia law. Proposed subcontractors can potentially avoid their obligation to accept a subcontract if they can demonstrate that a teaming agreement is sufficiently speculative and undefined that it must be regarded as an unenforceable agreement to agree.