Less than two months after the United States District Court for the Eastern District of Virginia found that a teaming agreement was unenforceable based on Virginia law,1 the United States Court of Appeals for the Fifth Circuit2 affirmed a jury verdict finding that a teaming agreement was enforceable and had been breached, and it awarded $336,000 in damages plus attorney’s fees to the excluded team member.3
This teaming agreement was for an Air Force procurement set aside for small business. Geotest wanted to compete but wasn’t a small business, so it entered into a teaming agreement with X Technologies (“X Tech”), a small business, to submit a proposal. The relevant portion of the teaming agreement provided:
"This is an exclusive agreement between X-Tech and Geotest. X-Tech will submit Geotest's workshare as part of X-Tech's proposal as a response to this RFP. Geotest will not team up with any other company for solicitation FA8224-09-R-0104 except that Geotest may provide prices for the TS-217 tester only (without any software licenses, support or training) to other potential bidders."
X Tech submitted a proposal that included Geotest. However, the Air Force found that X Tech, the only offeror, submitted an offer that was too high. As a result, the Air Force decided to amend the solicitation to change it from a small business set aside to one that was open to all businesses, regardless of size. X Tech resubmitted its proposal that included Geotest. Geotest also submitted a proposal, separate from its teamed proposal with X Tech. The Air Force awarded Geotest the contract.
Following the contract award, X Tech sued Geotest in state court for breach of contract, arguing that Geotest had teamed with another company (Raytheon) in submitting a proposal for the solicitation in violation of the terms of the teaming agreement. Geotest argued that it had not “teamed” with Raytheon but instead had merely purchased a license for software from Raytheon. Geotest removed the case to federal court in Texas.
Following a trial, the jury found for X Tech on the breach of contract claims and awarded $336,000 plus attorney’s fees and court costs.
The Fifth Circuit affirmed the verdict, finding that:
“the jury was presented with evidence that Geotest teamed with Raytheon, including Geotest's use of the term 'team' in its technical proposal to USAF to describe its relationship with Raytheon, as well as internal Raytheon emails in which Raytheon characterizes its affiliation with Geotest on the bid as teaming.”
The takeaways from this case are two-fold: (1) ensure that you and your teaming partner understand the degree of exclusivity to which you both agree for the particular solicitation or project; and (2) ensure that any limits to the exclusivity of your relationship are clearly set forth in the language of your teaming agreement. For example, many teaming agreements between small businesses and large businesses for small business set-aside procurements provide that the teaming agreement will automatically terminate (including the exclusivity) if the project ceases to be a small business set-aside procurement. Clearly, the X Tech/Geotest teaming agreement did not contain such a provision. Further, if the language in the teaming agreement between X Tech and Geotest had not explicitly limited the right to team and submit proposals with other companies under the same procurement/project, X Tech may have been out of luck.