Teaming agreements have become common and crucial contracts that seemingly bind contractors and subcontractors during the bidding process. These agreements are intended to help assure the bidding team that all members will fulfill their reciprocal commitments should the team’s bid proposal be accepted.
The problem is that basic contract law often treats these agreements as unenforceable “agreements to agree” (i.e., the parties agree that if, in the future, the bid proposal is accepted, then at that time the parties will negotiate the terms regarding the work to be performed). As such, contractors and subcontractors are placed in the unenviable position of needing an agreement that is frequently worth no more than the paper it is written on.
This was the case in Cyberlock Consulting, Inc. v. Info. Experts, Inc., which held that a teaming agreement “constitute[s] an unenforceable agreement to agree.” However, Cable & Computer Tech. Inc. v. Lockheed Sanders, Inc. held that an oral teaming agreement could be found enforceable if there was evidence of “an exchange of promises, supported by consideration, to be a team…and as a team submit a bid.”
The likelihood that a court will find these agreements to be enforceable can be greatly increased by crafting them to include specific and definable terms and commitments by all parties, relating to matters such as duration, bidding obligations and competition among team members. The inclusion or absence of these specific and definable terms is critical to a court’s determination of enforceability. As the following cases show, courts and jurisdictions vary widely in their treatment of teaming agreements—meaning the more specific and definable terms included in the agreement, the better the chances that it will be found to be enforceable.
In ATACS Corp. v. Trans World Commc’ns, Inc., a federal court of appeals held that a teaming agreement is enforceable if there is a clear intent by the parties to enter into a binding contractual relationship and if the agreement contains sufficiently definite terms to enforce. The court of appeals found that the teaming agreement contained a clear intention to be bound because the record contained numerous communications stating that the parties were part of a team that would undertake the project if the defendant was chosen as prime contractor.
Further, the teaming agreement contained sufficiently definite terms. In particular, the subcontractor had promised to assist in the prime contractor’s bid; introduce the prime contractor to a local agent to help with the RFP; and work exclusively with the prime contractor in return for good faith and exclusive negotiations with the subcontractor to execute a subcontract. Additionally, the terms of the teaming agreement were not subject to final execution of the subcontract.
In a subsequent case, Trianco, LLC v. Int’l Bus. Machines Corp., that same federal court of appeals held that a teaming agreement was unenforceable under New York law because the agreement left a material term—the price for performing the subcontract work—to future negotiations. The court held that the teaming agreement was merely an unenforceable agreement to agree because it failed to provide any sort of objective method for determining the price of performing the subcontract work. Notably, the court stated that the teaming agreement could have been saved if it had contained a pricing range or method for determining price in the teaming agreement (e.g., setting forth a range that the parties would consider “competitive”).
At times, teaming agreements for government contracts have been more readily enforced. This was the case in Probado Techs. Corp. v. Smartnet, Inc., which held that the Federal Acquisition Regulations only require two material terms for teaming agreements to be enforceable, namely: an agreement between companies to pursue a government contract and an agreement to pursue a specific government contract. The court held the subcontractor properly alleged an agreement to work together with the prime contractor to pursue a specific request for quotes. The court also noted that the subcontractor provided additional evidence of a valid teaming agreement, which included promises to work exclusively with one another, agreement about which party would be the prime contractor, and statements by the prime contractor to the government agency that the parties were part of a team.
Specific And Definable Terms
As these cases show, teaming agreements often find themselves in a legal gray area. The agreements are crucial to the contracting parties, which often have a strong desire to be bound, but they can run afoul of the traditional legal ban on “agreements to agree.” Because of their importance to both prime contractors and subcontractors, teaming agreements should be crafted to include as many “specific and definable” terms as possible. These terms include:
- an agreement among the parties to pursue a specific contract as a team;
- language setting forth which party will be the prime contractor and which will be the subcontractor;
- promises to work exclusively with the prime contractor in return for good faith and exclusive negotiations with the subcontractor to execute a subcontract;
- additional promises by the subcontractor to assist the prime contractor in successfully bidding on the contract;
- a clause explicitly stating that the terms of the teaming agreement are not contingent upon the execution of a subcontract; and
- an acceptable price range or method for determining price for the subcontract work.
In addition, prime contractors or subcontractors should be explicit in their respective communications to one another and third parties that they consider themselves to be part of a team and bound by the teaming agreement.
Although this process may seem cumbersome, an enforceable teaming agreement can be incredibly valuable, as was shown in J.M. Neil & Associates, Inc. v. Alexander Robert William, Inc., which affirmed a jury award in a team member’s favor for punitive damages when the other team member breached a teaming agreement’s covenant not to compete.
Contractors and subcontractors should consult an attorney on how best to draft their teaming agreements in order to maximize the likelihood of enforceability. If a prospective teammate puts forward a teaming agreement, parties should postpone signing it until conferring with legal counsel to determine whether the agreement could later be declared legally meaningless as an unenforceable “agreement to agree.”