Is an Unenforceable Teaming Agreement a Valid FAR Team Arrangement? American Bar Association Subcontracting, Teaming, and Strategic Alliances Committee July 6, 2016 Michael W. Mutek
1. Enforceability Recent cases: Outline of Presentation U.S. District Court for the Eastern District of Virginia in A-T Solutions Inc. v. R3 Strategic Support Group, Inc. Virginia Supreme Court in Navar, Inc. v. Federal Business Council 2. What does a valid FAR team arrangement require? 3. Considerations A agreement ultimately deemed unenforceable may still be a valid team arrangement under the FAR Issues arise when the team arrangement is relied upon in the source selection process Michael W. Mutek 2
1. Enforceability Team formation may be a critical competitive strategy The FAR s regulatory regime supports team arrangements Teaming is part of the custom of our industry Enforceability is an issue: In Cyberlock Consulting, Inc. v. Information Experts, Inc., the US District Court for the Eastern District of Virginia held that a teaming agreement without specificity may be unenforceable That teaming agreement said, in words common to teaming agreements, that the parties would negotiate a subcontract if the team was awarded the contract The District Court found that this negotiation in the future made the teaming agreement just an agreement to agree and that it was therefore unenforceable Michael W. Mutek 3
Because of that finding, Cyberlock, which was to be a subcontractor and receive forty-nine percent of the work, could not bind the prime, Information Experts, to the agreement Another way of reading Cyberlock is that an agreement that has specificity will be enforceable That said, getting specificity into a teaming agreement, particularly if entered into early in a competition, perhaps before a formal RFP and a definitive scope of work, can be challenging It also is worth recalling the 1997 decision of the Virginia Supreme Court in W.J. Schafer Assocs., Inc. v. Cordant, Inc., which involved another dispute under a teaming agreement In W.J. Schafer Assocs., the Virginia Supreme Court held that agreements to agree in the future are too vague and too indefinite to be enforced Michael W. Mutek 4
Recent cases: U.S. District Court for the Eastern District of Virginia in A-T Solutions Inc. v. R3 Strategic Support Group, Inc. U.S. District Court judge in Virginia refused to stop a teammate from becoming a competitor by teaming with another company Relied on prior cases finding teaming agreements without specificity to be unenforceable agreements to agree Michael W. Mutek 5
Recent cases: Virginia Supreme Court in Navar, Inc. v. Federal Business Council Put an exclamation point on the principle that teaming agreements that lack specificity will be treated as mere agreements to agree under Virginia law A jury found in favor of the two aggrieved teammates and awarded each of them $500,000 for breach of the teaming agreement and awarded one teammate an additional $250,000 for breach of a non-disclosure agreement Virginia Supreme Court found that the Navar teaming agreement does not contain a sum, or any reasonably certain method for determining a sum, or any requirement that Plaintiffs and Navar mutually agreed that Plaintiffs would be the actual subcontractors hired by Navar once the prime contract was awarded Michael W. Mutek 6
2. What does a valid FAR team arrangement require? FAR subpart 9.6 Contractor Team Arrangements does not mandate a particular form of agreement The FAR subpart uses team arrangement and not teaming agreement A teaming agreement can be oral and several disputes have arisen under oral teaming agreements The FAR recognizes that team arrangements are an important part of the fabric of government contracting One reason, as the FAR states, is that a team arrangement can offer the government the best combination of performance, cost, and delivery for the system or product being acquired Michael W. Mutek 7
Subpart 9.6 Contractor Team Arrangements Supports contractor team arrangements when the teaming partners complement each other s capabilities and offer the Government the best combination of performance, cost and delivery. The Government can hold the prime contractor fully responsible for contract performance. Is enforceability discussed at all in the FAR? Michael W. Mutek 8
9.601 Definition. Contractor team arrangement, as used in this subpart, means an arrangement in which (1) Two or more companies form a partnership or joint venture to act as a potential prime contractor; or (2) A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program. Michael W. Mutek 9
9.602 General. (a) Contractor team arrangements may be desirable from both a Government and industry standpoint in order to enable the companies involved to (1) Complement each other s unique capabilities; and (2) Offer the Government the best combination of performance, cost, and delivery for the system or product being acquired. (b) Contractor team arrangements may be particularly appropriate in complex research and development acquisitions, but may be used in other appropriate acquisitions, including production. (c) The companies involved normally form a contractor team arrangement before submitting an offer. However, they may enter into an arrangement later in the acquisition process, including after contract award. Michael W. Mutek 10
9.603 Policy. The Government will recognize the integrity and validity of contractor team arrangements; provided, the arrangements are identified and company relationships are fully disclosed in an offer or, for arrangements entered into after submission of an offer, before the arrangement becomes effective. The Government will not normally require or encourage the dissolution of contractor team arrangements. Michael W. Mutek 11
9.604 Limitations. Nothing in this subpart authorizes contractor team arrangements in violation of antitrust statutes or limits the Government s rights to (a) Require consent to subcontracts (see Subpart 44.2); (b) Determine, on the basis of the stated contractor team arrangement, the responsibility of the prime contractor (see Subpart 9.1); (c) Provide to the prime contractor data rights owned or controlled by the Government; (d) Pursue its policies on competitive contracting, subcontracting, and component breakout after initial production or at any other time; and (e) Hold the prime contractor fully responsible for contract performance, regardless of any team arrangement between the prime contractor and its subcontractors. FAR Takeaway: No Discussion of Enforceability or of a Form of Agreement Michael W. Mutek 12
3. Considerations A agreement ultimately deemed unenforceable may still be a valid team arrangement under the FAR Why? o o o o Timing: If entered into in good faith it should be given recognition (intent was to team existed when the parties entered into the agreement) Importance of teaming to government contracts is a consideration (custom and usage in our industry is established) FAR recognition of teaming (but, no specific FAR requirement as to form) No FAR limitation to enforceable teaming agreements (but, is it implied?) Michael W. Mutek 13
Issues may arise when the team arrangement is relied upon in the source selection At the 2002 ABA Annual Meeting, the Section presented a program on Innovative Teaming in Today s Environment A topic was How Customers View Teams and a senior Army attorney discussed the customer s interest in seeing actual teaming agreements, particularly when the past performance and experience of the teammate will be used to evaluate the prime The customer lacks privity with the subcontractor and expects the prime to review the teammate s capabilities, responsibility and, as noted during the panel, enter into a valid teaming agreement that assures the teammate will work on the contract Some customers have required the provision of teaming agreements or other manifestations of an intent to team with the proposal Does an unenforceable teaming agreement satisfy this requirement? Michael W. Mutek 14
Issues can be raised when the team arrangement is relied upon in the source selection Protests have involved the past performance evaluations of team members o In The Analytic Sciences Corporation (TASC) (B-259013, February 28, 1995), which was discussed at the ABA Annual Meeting, the GAO found that an agency s consideration of a subcontractor s capabilities was proper where the offeror proposed performance as a team o The RFP made it clear that the evaluation would consider the team As the contracting officer points out, team includes both the potential prime contractor and other companies when the potential prime contractor and those other companies have agreed that those companies will act as subcontractors. Does have agreed mean an enforceable agreement? Michael W. Mutek 15
Team Arrangements as a Source Selection Factor Requests for Proposal have included team arrangements as a source selection criterion o o o Example: Enterprise Acquisition Gateway for Leading Edge solutions, known as EAGLE, an omnibus procurement to consolidate IT services and solutions purchased by the Department of Homeland Security This multiple award ID/IQ procurement included the ability to achieve results through teaming as a source selection factor When team arrangements are a source selection criterion, is the existence of enforceable teaming agreements implied? Michael W. Mutek 16
QUESTIONS Michael W. Mutek 17