Teaming Agreements No More Enforceable than Letters of Intent

A “teaming agreement” is an agreement between two or more contractors to “team up” by combining their resources to bid on a major government contract, thereby increasing the likelihood of securing the work. Often, they will be drafted to require that the prime contractor use the subcontractor specified in the teaming agreement if the bid is accepted, but this is not always the case. Teaming agreements can be very appealing to smaller subcontractors, or subcontractors who don’t qualify to bid on a particular government contract, because they allow opportunities to work in tandem with larger or more qualified firms to gain access to lucrative government-contract work they would otherwise be excluded from. But are such agreements enforceable? Not always.

A “letter of intent,” like a teaming agreement, is a document signed by the parties that contemplates the formation of a formal contract to be executed at some point in the future. Virginia courts treat such agreements as “agreements to agree,” which basically means that the parties are agreeing to attempt in good faith to negotiate the terms of a formal agreement with respect to a particular subject matter. Letters of intent are typically short and devoid of material terms that would be necessary to make the agreement binding in court. There’s nothing preventing two parties from entering into an actual contract, intending to be bound, and calling it a “letter of intent,” but absent evidence of such an intention to be bound, such agreements will not be enforceable.

Despite the widespread popularity of teaming agreements, most courts here in Virginia treat them exactly as they would a letter of intent: as unenforceable “agreements to agree,” absent evidence to the contrary. Let’s look at a recent case.

Navar, Inc. v. Federal Business Council was a Fairfax County case involving a contract for the United States Defense Threat Reduction Agency (the “Defense Agency”) that was only made available to qualified “Alaska Native Corporations” as defined in the Code of Federal Regulations. Federal Business Council (“FBC”) and totem-1550777Worldwide Solutions, Inc., were contractors who provided the government-conference-planning services that the contract opportunity called for, but neither company was an Alaska Native Corporation, so they were ineligible to bid.

So here’s where the teaming agreement comes in. FBC and Worldwide Solutions located a company that was eligible to bid–Navar, Inc.–and partnered with them to create a proposal together to present jointly to the Defense Agency. They all worked together on a 38-page slideshow that they presented to the Defense Agency in the hopes of winning the contract. A few days after the presentation, they entered into a teaming agreement which provided that if Navar were awarded the prime contract, it would negotiate in good faith the FBC and Worldwide and, “upon arriving at prices, terms and conditions acceptable to the parties,” enter into subcontracts. The teaming agreement stated that it would expire if the parties were unable, “negotiating in good faith to reach agreement on the terms of a subcontract.”

Sure enough, the Defense Agency awarded a five-year prime contract to Navar worth $55 million. Navar proceeded to negotiate with both FBC and Worldwide, but no agreements were reached and Navar never extended subcontracts to them. FBC and Worldwide sued, claiming breach of the teaming agreement and a host of other claims.

At trial, a jury found in favor of the plaintiffs and awarded FBC and Worldwide $500,000 each for breach of both the teaming agreement and a separate non-disclosure agreement. The trial court set aside the verdict, however, finding that the teaming agreement was not an enforceable contract. The Virginia Supreme Court affirmed this ruling on appeal.

“Here, the Teaming Agreement does not contain a sum, or any reasonably certain method for determining a sum, or any requirement that Plaintiffs and Navar mutually agreed that Plaintiffs would be the actual subcontractors hired by Navar once the prime contract was awarded,” the court wrote. Like a letter of intent, the court held that “[t]he rules of contract law do not apply to the Teaming Agreement because it is merely an agreement to agree to negotiate at a future date.”

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