Is Your Company Using a Generic Contractor Teaming Agreement Template? Beware.
Under FAR 9.6, government contractors can submit bids using teaming agreements that allow subcontractors to perform under the upcoming contract. This strategy is beneficial for at least two reasons when looking for a potential subcontractor.
First, small businesses can use this strategy to reach larger projects because the source selection team can consider the past performance of the teaming partner (unless the solicitation expressly states otherwise).
Second, the agency can consider utilizing a teaming partner as having less risk in the overall ability to technically perform.
Purpose of Teaming Agreement When Bidding
A contractor Teaming agreement is a general contractor-subcontractor agreement between two companies that intend to work on a federal government project. They are allowed simply for federal contracting agencies to see that the prime and subcontractor have some level of commitment for purposes of proposal evaluation. Sometimes the RFP may even ask bidders to submit commitment letters from the teaming partner (who is actually a subcontractor).
When deciding whether your teaming agreement is enforceable in court, judges suggest that the document is simply an agreement to contract if the agency awards the contract to the prime contractor. Therefore, it is nothing more than half-baked subcontractor agreement with the general contractor.
Possible Solution When Trying to Enforce Your Rights
To make sure that each party’s legal rights are protected, some attorneys suggest that you draft a separate subcontract in addition to the teaming agreement (subcontracts are governed by state laws).
Others suggest that you incorporate the subcontract into teaming agreements. Logic suggests that drafting a doing both would strengthen the relationship and any legal rights.
- The subcontract contract would have all of the requisite clauses such as liquidated damages, forum clauses, the duties of the parties etc.
- The subcontract should also reference the Prime Contract number and contain the right flow-down clauses such as ethics requirements etc. A teaming agreement does not have these clauses.
As noted in the Cyberlock case, the court found that teaming agreements “ lacked the essential elements of a contract.
The court also noted that since there was not yet an award the parties were not in a position to specify the terms of the “anticipated contract.” See also the limitations on subcontracting requirements and related FAR clauses.
Avoid Generic Subcontractor Teaming Agreement Templates for Government Contracts – Legal Pitfalls to Avoid
When using generic subcontractor teaming agreements or teaming contract, or some other form of a subcontractor agreement, government contractors should be aware that the teaming contract is not by itself enforceable in court. In other words, allowability under the FAR is not intended to create legal rights between a prime and subcontractor.
This can be a costly legal mistake without putting other contracting vehicles in place to protect the legal rights of each party. There are court decisions that reinforce this point. Failing to adhere to these court decisions can cost companies large amounts of legal fees all for nothing.
For example, in the case of Cyberlock Consulting Inc., a court decided that teaming agreements by themselves are not enforceable contracts. A closer look at a contracting teaming arrangement would show that the dispute is between the prime and subcontractor. Therefore, courts cannot enforce them as binding agreements without the requisite legal contract law requirements in place. Teaming agreements by themselves as outlined in SBA regulations do not have all of the elements of a contract. Therefore, courts cannot enforce them as binding agreements.
Important Aspects of Your Subcontractor Teaming Agreement
Although government contractors are not sure about the enforceability of the teaming subcontractor agreement as compared to a joint venture, the government will still require one in its solicitations. This shows the agency some level of commitment between the prime contractor/offeror and the subcontractor. One thing that each contractor team arrangement should include is the “choice of law” clause. Why is this important?
There is a national state of confusion as to whether your teaming agreement is enforceable in court or could be viewed as a standard subcontractor agreement. Many small businesses are not quite certain of the differences in a teaming agreement vs subcontract. If you are in a state that believes that the contracting teaming arrangement is enforceable, then picking such a state as the “choice of law” could be beneficial. However, you will have the burden of knowing how that particular state looks at teaming agreements.
As federal contractor team arrangement attorneys, we tend to agree with the Cyberlock case analysis, Cyberlock Consulting, Inc. v Information Experts, Inc., 939 F. Supp. 2d 572 (E.D. Va. 2013). The Virginia Court, in that case, ruled that the subcontractor agreement was not enforceable. The legal analysis was that the teaming agreement did not have sufficient details to meet the elements of a contract.
This is why our federal subcontractor relationships attorneys suggest government contractors draft separate subcontractor agreement that links to the teaming agreement after the government awards the contract. The teaming agreement is primarily for use by the government to evaluate your proposal. To say otherwise would mean that since the FAR provides for teaming agreements, then the prime contractor or subcontractor should be able to use federal law to enforce the contract.
- There is no indication from any federal contracting court that you have sufficient legal rights to enforce the teaming agreements.
If you are in a state that finds a teaming agreement enforceable, there could be some improvements to the generic teaming agreement template that most federal contractors use. Some items to include may be to:
- Add agreed-upon pricing in the addendum;
- Add language of a ‘condition precedent” – contract award
- Lay out the details of each party’s role and responsibility.
- Include the SBA requirements to avoid affiliation and limitation of subcontracting violations
- Any specific damages in the event of a breach
- Flow down clauses
- Percentage of work for each party
- Listing the subcontractor as a named person in the government’s contract
These are but a few possibilities. Speaking to a government contracts attorney that understands the ins and outs of a government subcontractor agreement can be of benefit.
Tip: If you are a named subcontractor in a government bid, the prime would also have to go back to the Contracting Officer to advise them of a change. Find out more about contractor teaming agreement best practices.
For additional questions about federal contractor relationships, joint venture applications or about whether your teaming agreement is an enforceable contract in court, Call Watson’s Government Contract Teaming Agreements lawyers at 1-866-601-5518 for additional information.