Government Contractors Beware: Federal Court Declares Teaming Agreement Unenforceable

Two government contractors entered into a Teaming Agreement for the purpose of working together towards securing a prime contract from the Federal government. The companies, Information Experts, Inc. (“IE”) and Cyberlock Consulting, Inc. (“Cyberlock”), successfully put forward a persuasive bid, and the government awarded the prime contract to IE. Despite the Teaming Agreement, IE refused to use Cyberlock as its subcontractor and went on to perform the contract without it. Not surprisingly, Cyberlock sued IE for breach. The U.S. District Court for the Eastern District of Virginia determined, however, that IE did not breach the Teaming Agreement because it was not enforceable.

The case is Cyberlock Consulting, Inc. v. Information Experts, Inc., and serves as a cautionary tale for any Virginia-based government contractor that enters into such an agreement with another company. If a teaming agreement states that the parties will agree on additional terms in the future, or after the Government Contract is awarded, the agreement may not be enforceable.

The Teaming Agreement in this case stated that its purpose was “to set forth the arrangement between [IE] and [Cyberlock],” and that “[u]pon Contract Award, [IE] will perform 51% of the scope of work with [Cyberlock] performing 49%.” Despite the fact that these are fairly standard provisions in the government contracts realm, the Court held that this arrangement was merely an agreement to agree in the future, and was thus too vague and too indefinite to be enforceable. The Court even reasoned that the parties’ mere act of calling the document a “teaming agreement,” rather than a “subcontract” for example, implied that the document was more similar to a letter of intent, or was a non-binding expression of a future agreement. Accordingly, the Court declared the parties’ Teaming Agreement unenforceable as a matter of law and granted summary judgment to IE. Interestingly, the Court declared that it erred by not dismissing the case earlier in the litigation, at the motion to dismiss stage.

Based on this opinion, contractors should consider reviewing their teaming agreements, and consulting with legal counsel for guidance.