A Practical Guide To Teaming Agreement Drafting and Enforcement in Virginia and Maryland

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1 A Practical Guide To Teaming Agreement Drafting and Enforcement in Virginia and Maryland Presented by: Anand V. Ramana, Partner, McGuireWoods LLP Douglas P. DeMoss, Division Counsel, Northrop Grumman Systems Corporation Eric L. Yeo, Associate General Counsel, Booz Allen Hamilton

2 Anand Ramana Anand is an experienced first-chair trial lawyer. He regularly appears in the federal and state courts of Northern Virginia and the District of Columbia. Although his practice mainly consists of preparing for and conducting bench and jury trials, he devotes a significant portion of his time to briefing and arguing appeals. Partner McGuireWoods LLP (202) aramana@mcguirewoods.com Anand prosecutes and defends lawsuits related to a wide variety of commercial contract and business disputes. In recent years, he has litigated disputes involving banking and foreclosure practices, property acquisition and development/construction contracts, commercial leases and other conveying instruments, UCC matters, insurance coverage, commercial landlord-tenant relationships, zoning and land use matters, and consumer protection matters. Anand s commercial litigation practice often extends to representing government prime contractors and subcontractors of all sizes. His government contracts experience primarily includes litigating teaming agreement and subcontractor disputes between government contractors. In 2016, he led the appellate team that successfully argued to the Virginia Supreme Court that a seven-figure jury verdict enforcing a teaming agreement should be vacated. One month later, he obtained a $12 million jury verdict involving fraud and breach of a teaming agreement. Anand also counsels clients on a wide range of issues, has litigated contract award disputes before the Government Accountability Office and federal and state agencies, and has prosecuted and defended federal contract claims before boards of contract appeals. McGuireWoods 2

3 Doug DeMoss Corporate Director and Division Counsel Northrop Grumman Mission Systems (703) Doug DeMoss is a co-chair of the ACC National Capital Region s Government Contracts Forum. Since 2013, he has been a division counsel with Northrop Grumman Corporation, supporting complex technology programs in its Information Systems and the Mission Systems sectors. From 2005 to 2013, Doug was the general counsel of General Dynamics Armament and Technical Products, where he managed the company s litigation, acquisitions and divestitures, business transactions, labor and employment, intellectual property, and corporate compliance activities. Before joining General Dynamics, Doug was a senior counsel with Northrop Grumman, supporting its Intelligence Systems and Surveillance & Reconnaissance divisions. Prior to that position, he supported Northrop Grumman Newport News, a builder of nuclear-powered aircraft carriers and submarines for the U.S. Navy. Doug started his legal career as an Army JAGC officer, holding a variety of acquisition and litigation positions, including serving as Assistant to the Army General Counsel for acquisition matters, supporting missile, intelligence, electronic warfare, communications, and information technology programs. Prior to law school, Doug was an officer in the Army Corps of Engineers. He received his B.S. degree from the United States Military Academy at West Point, and his J.D. degree from the College of William & Mary, where he served as a Law Review editor and was inducted into the Order of the Coif. From 1999 to 2004, Doug taught at William & Mary as an adjunct professor of government contract law. He holds an LL.M. degree with a concentration in contract law from the Army JAG School, and he is a past president of the Charlotte Chapter of the Association of Corporate Counsel. McGuireWoods 3

4 Eric Yeo Eric Yeo is a Principal/Director and Associate General Counsel at Booz Allen Hamilton Inc., in McLean, VA. Eric joined Booz Allen in His duties and responsibilities have included: serving as a lead attorney for the Defense Group, with primary responsibility for the Navy/Marine Corps, Air Force, Joint Combatant Commands, and Infrastructure & Military Health accounts; managing and supervising the Organizational Conflicts of Interest (OCI) Program Office, a team of attorneys and compliance professionals who provide OCI analysis and counsel across all accounts; and managing internal investigations. His areas of focus include intellectual property, claims, and litigation. Associate General Counsel Booz Allen Hamilton Before Booz Allen, Eric served as in-house counsel for IBM U.S. Federal for more than five years where he supported IBM s Federal Civilian accounts, including the GSA Schedules. Prior to that, he was in private practice with Holland & Knight in Northern Virginia. (703) yeo_eric@bah.com Education! Boston University (B.A., 1997)! American University Washington College of Law (J.D. 2000) McGuireWoods 4

5 The Business Quandary With Teaming Offeror/Proposed Prime Contractor! Need: To exclusively secure all team members for bid! Risk: A binding promise to award work to a subcontractor that the government may not require Proposed Subcontractor! Need: To secure a binding promise of future work! Risk: Being used to win a bid with little/no reward McGuireWoods 5

6 The Legal Solutions Proposed Prime Contractor Draft a teaming agreement that secures the team member while retaining flexibility as a prime to address unknown future events and manage the contract Legal Translation: Draft post-award subcontract award obligations subject to potential changes or specific events (e.g., government requirements, pricing changes, prime contractor discretion, etc.) McGuireWoods 6

7 The Legal Solutions Proposed Subcontractor Draft a teaming agreement that binds the prime contractor to some or all of amount of work or revenue for its participation in the winning team Legal Translation: Draft post-award subcontract award rights as non-negotiable and with clarity and specificity McGuireWoods 7

8 The Law of Teaming Agreements General Contract Law To be enforceable, there must be a mutual assent of the contracting parties to terms reasonably certain under the circumstances Should specify a sum or a method or formula alleged for determining the amount payable in [the transaction]. The agreement must provide a reasonable basis for affording a remedy for its breach Allen v. Aetna Casualty & Surety Co., 222 Va. 361 (1981) McGuireWoods 8

9 The Law of Teaming Agreements Notable Teaming Agreement Cases Agostini v. Consolvo, 154 Va. 203 (1930) Prime contractor accepts letter offer from subcontractor to perform masonry work subject to a future formalized subcontract Prime contractor reneges on obligation to award masonry work and subcontractor sues Court enforces the letter agreement and enters judgment against prime contractor notwithstanding the future formalized agreement W.J. Schafer Assocs. v. Cordant, Inc., 254 Va. 514 (1997) Prime enters into teaming agreement with proposed subcontractor for digitizers Teaming agreement does not include price and indicates that digitizers may not be available in time Prime contractor reneges on obligation to purchase digitizers from teaming partner and teaming partner sues Trial court enters judgment for subcontractor, Supreme Court reverses because no mutual commitment for sale of digitizers given the lack of material terms McGuireWoods 9

10 The Law of Teaming Agreements Notable Teaming Agreement Cases EG&G, Inc. v. The Cube Corp., 63 Va. Cir. 634 (Fairfax Cir. Ct. 2002) Prime contractor enters into teaming agreement for engineering services No language about negotiating in good faith Trial court took evidence beyond the four corners of the agreement to establish parties intent to be bound Court enforced the teaming agreement, mandated specific performance Cyberlock Consulting, Inc. v. Info. Experts, Inc., 939 F. Supp. 2d 572 (E.D. Va. 2013), aff d 549 Fed. Appx. 211 (4th Cir. 2014) Prime contractor enters into teaming agreement for 49% workshare Language includes obligation to negotiate in good faith and indicates flexibility in future subcontract terms Court holds post-award teaming agreement obligations unenforceable Court cited an earlier teaming agreement where a subcontract was attached McGuireWoods 10

11 The Law of Teaming Agreements Notable Teaming Agreement Cases Advance Telecom Process LLC v. DSFederal Inc., 224 Md. App. 164 (2015) Subcontractor contacts prime contractor and enters teaming agreement for two immigration programs Teaming agreement language indicates that parties would negotiate subcontract in good faith after award Prime contractor wins award, then terminates subcontractor Court holds agreement unenforceable because no intent to be bound to definite terms Navar, Inc. v. Fed. Bus. Council, 291 Va. 338 (2016) Prime contractor teams with proposed subcontractor Teaming agreement obligates a workshare up to 49% and indicates subcontract would be negotiated in good faith after award Jury awards $1.25 for subcontractor; award reversed and vacated on appeal McGuireWoods 11

12 The Law of Teaming Agreements Notable Teaming Agreement Cases CGI Federal Inc. v. FCI Federal, Inc., 94 Va. Cir. 138 (Fairfax Cir. Ct. 2016) Prime contractor teams with incumbent prime (as subcontractor) for work being transitioned to 8(a) program Teaming agreement promises subcontractor 41% workshare, specific management positions, and specific scope of work by CLIN Prime submits proposals without these requirements before signing amended teaming agreement with the knowledge that it does not intend to perform teaming agreement Prime obtains the award, terminates teaming partner, takes most work for itself Proposed subcontractor sues on breach of contract and fraud theories Jury awards proposed subcontractor $3.5M (breach) and $8.5M (fraud) Trial judge acknowledges fraud, but vacates both awards based on Cyberlock; currently on appeal to Virginia Supreme Court McGuireWoods 12

13 Considered Factors In Reported Decisions Factor One: Future Negotiations Proposed Prime: Ensure teaming agreement includes language that expressly contemplates subcontract negotiations after prime award Use terms like shall negotiate a subcontract or will try to agree on a subcontract arrangement Proposed Subcontractor: Ensure teaming agreement does not in any way contemplate future negotiations Eliminate all negotiation terms or any provisions indicating that other subcontract terms will be discussed at a later date McGuireWoods 13

14 Considered Factors In Reported Decisions Factor Two: Uncertainty of Subcontract Existence Proposed Prime: Ensure teaming agreement reflects that there is no certainty of executing of a subcontract Include a provision that end parties relationship unless a fully integrated subcontract is agreed and executed within 60 or 90 days Incorporate a term that permits prime to use another subcontractor if team member s product or services are unavailable when needed Proposed Subcontractor: Include an express provision that a team member shall begin performance on a date certain Teaming agreement should read like it is the subcontract, or attach the subcontract as an Exhibit to be executed after prime award McGuireWoods 14

15 Considered Factors In Reported Decisions Factor Three: Scope of Work (For Proposed Prime Contractor) Retain discretion and/or authority to define and assign scope of work Include a provision that permits prime to define or adjust the proposed scope of work after prime award either unilaterally (preferred) or after any government requirements change Incorporate a term that permits prime to use another subcontractor if team member s product/service is unavailable when needed Provide that any subcontract with team member shall include, among other things, a subcontract approvals provision McGuireWoods 15

16 Considered Factors In Reported Decisions Factor Three: Scope of Work (For Proposed Subcontractor) Specific tasks and portion (percentage) of work should be precise Clearly define scope by identifying percentage of work by CLIN or some other contractual category (e.g., SOW/PWS section), FTEs, or incumbent work First right of refusal? Eat what you kill? If possible, include a provision that expressly states that team member shall begin certain tasks once the government awards the prime contract McGuireWoods 16

17 Considered Factors In Reported Decisions Factor Four: Pricing Proposed Prime: Subcontractor pricing should not be included in teaming agreement (preferred) or should be flexible Include NTE levels instead of prices Incorporate a provision that permits parties to adjust subcontractor pricing after prime award Proposed Subcontractor: Clearly identify pricing technique and price figures Specify firm fixed price, T&M, CPFF, etc. Identify labor prices, any fees, firm fixed price items, markups, etc. McGuireWoods 17

18 Other Legal Considerations for Drafters! Liquidated damages! Arbitration! Choice of law provision: Delaware Must be a nexus of the parties or transaction to Delaware! Exclusivity and non-exclusivity Antitrust concerns Practical concerns: separate teams, firewalls, key personnel! Intellectual property Use rights in background IP Ownership and possible use restrictions if any jointly-developed IP McGuireWoods 18

19 Other Legal Considerations for Drafters! Termination events! Non-solicitation of employees! Working with international teammates! Alternatives to teaming (MOUs, subcontracts, quotes, IP licenses, etc.)! OCIs McGuireWoods 19

20 Questions or Comments? McGuireWoods 20