Once again a Teaming Agreement subject to the law of State of Virginia has been declared unenforceable because it did not contain any requirement that the prime member of the team award subcontracts to the other team members, and it did not contain contract sum or reasonable method for determining a sum. The Supreme Court of Virginia concluded that, “The rules of contract law do not apply to the Teaming Agreement because it is merely an agreement to agree to negotiate at a future date.” Navar, Inc. v. Federal Business Council, 291 Va. 338 (2016).
This case involves a dispute by two contractors (Federal Business Council (“FBC”) and Worldwide Solutions Inc. (“Worldwide”) that desired to bid on a contract being awarded by the United States Defense Threat Reduction Agency to use private contractors to provide labor and materials for conferences and events it hosts. Because those were ineligible to bid the work themselves under the Small Business Act, they approached another firm (Concentric, LLC, a wholly owned subsidiary of an Alaska Native Corporation (“ANC”) which was later substituted by its corporate affiliate, Navar. They asked Navar to serve as the prime contractor for submitting a bid. They entered into a non-disclosure agreement with Navar and a separate Teaming Agreement that provided that if Navar were awarded the prime contract it would negotiate in good faith with the FBC and Worldwide and “upon arriving at prices, terms and conditions acceptable to the parties,” enter into subcontracts. The Teaming agreement stated that it would expire if the parties were unable, “negotiating in good faith to reach agreement on the terms of a subcontract.” An exhibit to the agreement provided that Navar will receive, at a minimum 51% of the labor hours and labor dollars in accordance with directed [section] 8(a) awards.
Negotiations broke down over the division of the work through subcontracts and Navar failed to extend subcontracts to FBC and Worldwide. Navar submitted a bid to the government without the subcontractors and was awarded the contract. The jilted subcontractors then filed suit against Navar alleging breach of the NDA by Navar using their confidential information to obtain the contract; and breach of the teaming agreement by failing to award a subcontract to them. A jury found that Navar breached the teaming agreement and awarded the plaintiffs damages. The trial court set aside the verdict on the breach of the Teaming Agreement.
On appeal the Supreme Court held that the trial court did not err in finding the Teaming Agreement was unenforceable. Cased cited as authority by the court included W.J Schafer Associates v. Cordant, Inc., 254 Va 514 (1997) and Cyberlock Consulting, Inc. v. Information Experts, Inc., 939 F.Supp.2d 572 (E.D. Va 2013), aff’d, 549 Fed. Appx. 211 (4th Cir. 2014). Here, said the court, “the 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.” With regard to whether a contract amount could be determined from the Teaming Agreement, the court stated, “plaintiffs did not present any expert evidence to support their argument that the standard in the industry was the subcontractors were guaranteed 49% of the work share. The evidence showed email exchanges mentioning workshare percentages, but no written documents were produced regarding any actual agreement governing the workshare split.
Comment: Virginia appears to be somewhat unique in how strict it is with the requirements for the enforceability of Teaming Agreements. In any event, when using Teaming Agreements in Virginia, it is important to follow the strict requirements for contracts that there be an absolute obligation of the parties to perform and that a method be clearly established for calculating the contract sum to be paid.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 19, No. 1 (January 2017).
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