Government Contacts Update – Teaming Agreement Ruled an Unenforceable “Agreement to Agree” by Virginia Federal Court
On April 3, 2013, the U.S. District Court for the Eastern District of Virginia decided a case with significant implications for contractors considering a teaming agreement to pursue a government contract. In Cyberlock Consulting, Inc. v. Information Experts, Inc., the Court refused to enforce a teaming agreement between a proposed prime contractor, Information Experts (“IE”) and IE’s proposed subcontractor, Cyberlock Consulting (“Cyberlock”). The Court concluded that the teaming agreement was merely an “agreement to agree” and not an enforceable contract.
In Cyberlock, the parties executed a teaming agreement in connection with IE’s proposal seeking an Office of Personnel Management prime contract and to establish the basis for a subcontract between IE and Cyberlock. The agreement included terms often used in teaming agreements including: (1) in the event IE is awarded a prime contract, IE agrees to execute a subcontract with Cyberlock; (2) IE will perform 51% of the scope of work with Cyberlock performing 49%; and (3) the agreement would terminate if the parties failed to agree on a subcontract after good faith negotiations.
Despite this language, the Court decided that the agreement was not an enforceable contract, but instead merely an “agreement to agree.” At most, the parties agreed to negotiate in good faith to enter a future subcontract — a type of agreement unenforceable under Virginia law. Cyberlock signals that a Court will not enforce a teaming agreement that does not include the details of the anticipated subcontract and clearly indicate an intent to bind the parties.
The extent to which Cyberlock will affect the interpretation of teaming agreements remains uncertain because Cyberlock has appealed the case. Nonetheless, Cyberlock could limit contractors’ ability to rely on teaming agreements if the ruling is upheld. This case reinforces the need for contractors to draft teaming agreements carefully to be sure the agreement will be enforced should a dispute arise between the parties.
For more information, please contact Terry Murphy and Karla Soloria of the Kaufman & Canoles Government Contracts and Construction Practice Group.
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2022.