A Virginia District Court recently held that a negotiated and executed teaming agreement was unenforceable; it was merely an agreement to agree in the future.1
The plaintiff, Cyberlock Consulting (“Cyberlock”), and the defendant, Information Experts (“IE”), had a history of working together. In fact, they had teamed together for other federal projects. It was during one such project that the parties learned the same federal agency would be seeking bids for a new project involving similar work. The parties then negotiated and entered into a new teaming agreement.
The stated purpose of the teaming agreement was “to set forth the arrangement between [IE] and [Cyberlock] to obtain an [IE] prime contract…and to set forth the basis for a subcontract between [IE] and [Cyberlock].” The parties were to exert reasonable efforts to obtain the prime contract for IE and to negotiate a subcontract. The teaming agreement also indicated that the eventual subcontract would state that IE was to perform 51% of the scope of work, with Cyberlock obtaining 49%.
IE did win the procurement and was awarded the prime contract. However, the parties were unsuccessful in negotiating the subcontract. Cyberlock sued IE, alleging breach of contract, fraud and unjust enrichment. The court found against Cyberlock.
After reviewing the terms of the teaming agreement, the court opined that the parties did not have an enforceable agreement. Per Virginia law, an agreement to negotiate at some point in the future is unenforceable. As such, a teaming agreement that contains terms stating that the parties will “negotiate open issues in good faith” or “reach a contractual objective within an agreed timeframe” in the future is viewed as an agreement to agree rather than as a valid contract.
Here, the parties expressly stated in the teaming agreement that they would negotiate a subcontract once IE was awarded the prime contract. In essence, all the teaming agreement did was state the objectives or framework for the parties to negotiate a subcontract; it did not bind or obligate the parties to actually execute a subcontract.
The takeaway from this case is that you should make sure that you are very comfortable with your choice of a teaming partner, i.e., do your due diligence. In addition, be aware that, should there be a dispute between teaming partners, asking a court to enforce a teaming agreement may not achieve the expected results—depending upon how the teaming agreement is worded.