Is Your Teaming Agreement Enforceable?
Teaming agreements are a key part of putting together a winning team. Unfortunately, once a prime contract is awarded, team members often learn that the prime contractor wants concessions in exchange for a subcontract or the prime contractor makes the terms of the subcontract untenable. Although teaming agreements are ubiquitous in the government contracts arena, their enforceability should be considered each time from both a practical and legal standpoint.
Just because the team is successful and a prime contract is awarded, does not necessarily mean the teaming partner will be awarded a subcontract. For instance, many teaming agreements require the parties to exert good faith efforts to negotiate a subcontract once a prime contract is awarded. After receiving the prime contract award, the prime contractor may decide it doesn’t want to be exclusive to the teaming partner or that the partner’s pricing is too high. From a practical standpoint, if the prime contractor wants to avoid awarding a subcontract to the teaming partner, it can cause the negotiations to fail by insisting the subcontractor agree to unacceptable terms while claiming it is acting in good faith.
If the prime contractor refuses to award a subcontract to a teaming partner, the partner may find that the courts refuse to enforce the teaming agreement. The enforcement of teaming agreements by courts is mixed. They have been called unenforceable “agreements to agree” by some courts, and enforced by others. The more ambiguous the agreement, the less likely it is to be enforced. Conversely, a teaming agreement is likely to be enforced if it clearly shows the parties intent to be bound by the agreement and the terms of the agreement are sufficiently definite. To be enforceable, an agreement must identify the duration and scope of the agreement, as well as the compensation to be paid.
Companies that carefully draft their teaming agreements will greatly increase their chances of having a contract that is enforceable. Key terms to consider are any requirements and exceptions to the award a subcontract, the term of the subcontract, as well as definitive pricing and scope of work. Also, attaching a draft subcontract as an exhibit to the teaming agreement may help avoid conflicts over subcontract terms after the prime contract is awarded