Recent case law underscores the risk that courts will deem teaming agreements unenforceable with respect to post-award obligations.
A teaming agreement is an arrangement where two contractors join forces to bid on a single government contract. The benefit of a teaming agreement is that the contractors’ combined qualifications improve the chances of attaining the contract award.
In CGI Fed. Inc. v. FCI Fed., Inc., a large contractor (CGI) and small contractor (FCi) entered into a teaming agreement relating to bidding on a government visa processing contract. The teaming agreement set forth CGI’s rights and obligations in preparing the proposal and established a framework for negotiating the subcontract if the bid was successful. The framework included a condition of “mutual agreement of the parties,” and an expiration date if the parties were unable to agree on a subcontract. CGI and FCi did not intend to be bound regarding specific workshare and management positions until the signing of a negotiated formal subcontract.
Affirming a circuit court decision, the Virginia Supreme Court held that the teaming agreement created no post-award obligations. Contractual provisions that “merely set out ‘agreements to negotiate future subcontracts’ are unenforceable.” Therefore CGI could not recover lost revenues based on a breach of the teaming agreement.
CGI’s claims for fraudulent inducement and unjust enrichment also failed. Regarding the fraudulent inducement claim, the Court concluded that CGI could not recover lost profits “based on a bargain for a subcontract it never struck.”
The Court rejected the unjust enrichment claim because “the existence of an express contract covering the same subject matter of the parties’ dispute precludes a claim for unjust enrichment.” Though the teaming agreement created no post-award obligation for a subcontract, the teaming agreement constituted an express contract governing relationships during the bidding process.
What This Means for Contractors Considering Teaming Agreements
In short, if the post-award terms of a teaming agreement are subject to future negotiations or contingencies, the parties likely have no post-award legal obligation to form the final contract/subcontract. However, the teaming agreement constitutes an express contract governing the parties’ relationships during the bidding process and will likely prevent claims for unjust enrichment.