Featured Article: Governing the Enforceability of Teaming Agreements

Teaming arrangements, where contractors agree to bid on certain government procurements as team members—often in the form of a prime contractor/subcontractor relationship, are a staple of the government contracting industry and are even specifically encouraged by the Federal Acquisition Regulations (FAR)[1].

Although many government contractors are aware of the viability and benefits of teaming agreements, many are unaware that such agreements may be rendered unenforceable by the seemingly boilerplate governing law provisions included in those agreements.  This is because teaming agreements are contractual relationships that are governed by state law, and not all states have enforced these agreements.  In fact, courts across the country have reached conflicting results in deciding whether teaming agreements are enforceable, with some finding them to be enforceable contracts while others ruled that they were unenforceable agreements to agree.

For instance, in Cyberlock Consulting, Inc. v. Info. Experts, Inc., Cyberlock and Information Expert (IE) entered into a teaming agreement which provided that if Cyberlock won the prime contract, the parties would negotiate a subcontract in which IE would perform 49% of the work [2]. Although Cyberlock was awarded the prime contract, the parties could not agree on the terms of the prospective subcontract, and IE did not receive 49% of the work.  IE subsequently filed suit in federal district court.  The court, however, held that the teaming agreement was governed by Virginia contract law and was, therefore, an unenforceable agreement to agree.  Conversely, in ATACS Corp. v. Trans World Commc'ns, Inc., Transworld and ATACS entered into an exclusive teaming agreement which provided that Transworld would be the prime contractor and ATACS the subcontractor [^3]. When Transworld won the prime contract, but failed to award ATACS a subcontract, ATACS brought sought in federal district court.  The court in ATACS applied Pennsylvania law and held that the teaming agreement was an enforceable contract that Transworld breached by subcontracting work to a third-party.

Contractors may specifically provide which state’s law will determine the enforceability of the teaming agreement without even knowing it.  In fact, such a designation is often relegated to the “Miscellaneous” section of the agreement and labeled as a “Governing Law” provision.  Despite its boilerplate nature, the governing law provision dictates which state’s law will control the interpretation and enforceability of the teaming agreement.  Generally, if there is an express governing law provision in a contract, courts will enforce that choice unless they find it contrary to public policy, there is no rational relation to the chosen state, or there was unconscionability, fraud, or mistake [4]. The problem, however, is that many contractors often select their home state’s law without first considering whether teaming agreements are enforceable under such law. Although enforceability may be determined on a case-by-case basis, avoiding states that tend to find these agreements unenforceable, such as Virginia [5], is the best practice. In fact, contractors are well advised to choose the law of a state that has found teaming agreements to be enforceable, such as Pennsylvania [6], Massachusetts [7], California [8] and Texas [9] to avoid the trouble of negotiating such an agreement only to find out later that it is unenforceable.

For concise and practical information about teaming arrangements and other important government contracts-related topics, we invite you to listen to our podcast, Williams Mullen GovCon Perspectives. You can access all of the brief episodes, each of which is less than 15 minutes in length, by clicking here.

About the Author

Shayn Fernandez is a government contracts lawyer at Williams Mullen, where he assists government contractors at the federal, state and local levels with teaming strategy and agreements, bid and proposal review, contract negotiation and formation, corporate reorganization, regulatory compliance and more. He can be reached at (757) 629-0713 or sfernandez@williamsmullen.com.

[1] FAR 9.602(a)(2).

[2] 939 F. Supp. 2d 572 (E.D. Va. 2013), aff'd, 549 F. App'x 211 (4th Cir. 2014) (applying Virginia law).

[3] 155 F.3d 659 (3d Cir. 1998) (applying Pennsylvania law).

[4] See, e.g., Restatement (Second) of Conflict of Laws § 187 (1971), Tate v. Hain, 181 Va. 402, 25 S.E.2d 321 (1943).

[5] Navar, Inc. v. Fed. Bus. Council, 291 Va. 338, 784 S.E.2d 296 (2016).

[6] See ATACS Corp., 155 F.3d 659.

[7] See Air Tech. Corp. v. Gen. Elec. Co., 347 Mass. 613, 199 N.E.2d 538 (1964).

[8] See Cable & Computer Tech. Inc. v. Lockheed Sanders, Inc., 214 F.3d 1030 (9th Cir. 2000) (applying California law).

[9] See X Technologies, Inc. v. Marvin Test Systems, Inc., 719 F.3d 406 (5th Cir. 2013) (applying Texas law).

« Return to Newsletter