Avoiding Teaming Agreement Uncertainty in Maryland
Teaming Agreements are created to allow prime contractors and subcontractors to agree to combine resources to bid on major government contracts. A properly-drafted teaming agreement addresses just how the prime contractor and subcontractor will combine their respective resources in pursuit of the government contract. A teaming agreement is particularly useful for smaller companies wanting to obtain access to business that would otherwise be beyond the company’s reach or capacity. Larger companies are attracted to a teaming arrangement to achieve greater control over costs and ensure more certainty. Whether prime or sub, each party is well advised to exercise caution. Not all teaming agreement arrangements are created equal, and not all end amicably.
Advance Telecom Process (“ATP”), a certified Small Disadvantaged Business 8(a) Contractor, learned this lesson the hard way in a case which started in Montgomery County Circuit Court, but ultimately was addressed by the Maryland Court of Special Appeals.
ATP had entered into a teaming agreement with DSFederal, Inc. in Maryland anticipating that they would work with each other in pursuit of a large federal government contract. However, when DSFederal terminated the agreement prior to granting ATP its subcontract, ATM filed suit against DSFederal in Montgomery County Circuit Court claiming that the termination was unlawful. The case was ultimately appealed, and the Maryland Court of Special Appeals affirmed the Circuit Court’s dismissal of the case reasoning that the teaming agreement was nothing more than an “agreement to agree,” and not an enforceable contract. In support of his conclusion, the Court of Special Appeals zeroed in on a provision stating that if a contract were awarded to DSFederal, the parties would negotiate in good faith a subcontract agreement. This provision, along with a provision stating that the client’s approval of the subcontract may be required, sounded the death knell for ATP. The problem for ATP is that the parties left material terms open for future negotiation, and thus no contract had been formed. There simply was nothing in the agreement requiring DSF to issue the subcontract to ATP.
With a bit of guidance and forethought, the result for ATP could have been materially different. Properly drafted, ATP’s teaming agreement should have reinforced the concept of “team,” and leave no doubt as to the true intent of the parties. Here are five suggestions which, if properly implemented, can help your business avoid the uncertainty that ultimately sunk ATP’s ship.
The whole must be greater than the sum of its parts.
An effective teaming agreement should identify and emphasize the respective strengths of the teaming parties. The teaming agreement should demonstrate that the parties intended to pursue the resulting contract as a collective effort – rather than the individual effort by either contractor. It should be clear that the parties are teaming because each believes the other brings something to the table it is unable or unwilling to duplicate. By touting the respective skills and experience the parties will provide, it is less likely that the teaming agreement will be considered an agreement to agree, and far more likely that the parties’ complementary strengths form the basis of a relationship designed to result in a subcontract.
Let’s stay together.
An effective teaming agreement should also seek avoid language providing for “good faith efforts” to negotiate the resulting subcontract. Instead, the parties should agree on positive language making it clear that upon the award of the subject contract, the parties will enter into a subcontract. At the same time, the parties should avoid the word “negotiate” as it lends itself to a finding of an “agreement to agree.” Finally, the parties should anticipate disagreements and provide for a process for resolving those disagreements with a provision that allows for mediation to resolve the disputes, or an agreement to choose a third party to resolve anything material to the parties’ agreement.
2. Participate meaningfully in the proposal.
Often, the party that is intended to be the prime contractor takes the lead on responding to the RFP, while the intended subcontractor sits on the sidelines. The better approach from the sub’s perspective is to play an active role in the submission of the proposal. That way, the would-be subcontractor reinforces the idea that it is a crucial part of the proposal and that a subcontract is the ultimate goal of the parties.
3. Make it exclusive.
Parties to a teaming agreement can further eliminate doubt by agreeing to exclusivity. In effect, the parties are promising to each other that they intend to only work with the other to pursue the subject contract. Exclusivity reinforces the idea that neither team member will look elsewhere in pursuit of the contract, and eliminates the possibility of an “agreement to agree.”
4. Create a joint venture.
While this is the more complex and expensive option, creating a joint venture erases all doubt as to the intent of the parties. A joint venture ensures that to the extent the contract is awarded, it will be awarded to the joint venture. The terms of the joint venture agreement are extremely important, but are beyond the scope of this article. Nonetheless, the moral of the story here is that the problems encountered by ATP would have been virtually eliminated with a joint venture agreement in place.
Planning and foresight make all the difference with teaming agreements!
Taking the steps recommended in this article can make your teaming effort secure from beginning to end. Forethought can spare your business the potential hassle and expense of litigation while at the same time providing a measure of comfort and confidence.
Litigation over a teaming agreement can be complicated and costly. If you would like to discuss either drafting a teaming agreement or litigation related to teaming agreements, contact attorney Julian Haffner.