How Enforceable Are Teaming Agreements?

• Author: Johnson, Dan
• Position: Government Contracting Insights

Experienced government contractors know that teaming agreements are often a critical component of the procurement process. But ensuring the enforceability of such agreements can be complicated, as illustrated by a recent Virginia Supreme Court case, CGI Federal Inc. v. FCi Federal, Inc.

In 2012, CGI signed a teaming agreement with FCi to jointly prepare a proposal for a State Department contract for which FCi would act as the prime contractor and CGI as the subcontractor. FCi retained exclusive rights to finalize the proposal and negotiate any resulting prime contract with the government.

The teaming agreement said CGI "will receive" a 45 percent workshare of the awarded total contract value, but the "commitment may not be exactly 45 percent each year." It required the parties to enter into "good faith negotiations" for a subcontract after prime contract award. If the parties could not mutually agree on a subcontract within 90 days, the teaming agreement would expire.

The companies worked together on the proposal. The government identified weaknesses in it and invited a revised version. CGI agreed to help FCi with the revisions if FCi committed to give CGI a 41 percent workshare and 10 management positions on the resulting project.

The parties signed an amended teaming agreement with those new terms, but the other terms of the original teaming agreement did not change. With CGI's help, FCi prepared a revised proposal to the government.

The government awarded the prime contract to FCi, but a competing bidder filed a series of protests. FCi resolved the last protest by giving the competitor and its affiliates part of the workshare and, without CGI's knowledge, submitted a second revised proposal to the government reflecting a reduced CGI workshare. The government then awarded FCi a prime contract with a potential value of $145 million.

The two companies began negotiations for a subcontract, with FCi offering only a 22 percent workshare. They never agreed on a final subcontract, and FCi terminated the relationship.

CGI sued FCi in Fairfax County, Virginia, circuit court, alleging breach of the amended teaming agreement, unjust enrichment and fraudulent inducement. A jury awarded CGI $3.5 million for breach of contract, and $8.5 million for lost profits from fraudulent inducement, but the trial judge set aside both awards and granted summary judgment for FCi on the unjust enrichment claim.

CGI appealed to the Virginia Supreme Court, but it...