Teaming agreements are practical and useful agreements on public projects where a prime contractor teams with a subcontractor for purposes of submitting a bid or proposal in response to a solicitation. The prime contractor and subcontractor work together to pursue that solicitation and have the government award the contract to the prime contractor. The teaming agreement allows for information to be confidentially shared (estimating and pricing, construction methodologies, systems, and suggestions, value engineering, etc.) where the subcontractor agrees that it will only pursue the solicitation with the prime contractor. In other words, the subcontractor ideally is not going to submit pricing to another prime contractor proposing or bidding on the same project and is not going to share information the prime contractor has furnished to it. Likewise, the prime contractor is not going to use the subcontractor’s information for purposes of finding another subcontractor at a lower price and is agreeing to use its good faith efforts or best attempts to enter into a subcontract with the subcontractor if it is awarded the project. This is all memorialized in the teaming agreement.
The potential problem lies with language that requires the parties to use their good faith efforts or best attempts to enter into a subcontract if the project is awarded to the prime contractor. In essence, this can become a disfavored “agreement to agree” to a future contract that could allow either party to create an argument to back out of the deal under the auspice that they could not come to terms with the subcontract.
In a partially concurring opinion in Alpha Data Corp. v. HX5, L.L.C. 139 So.3d 907 (Fla. 1st DCA 2013) (Thomas, J., concurring in part and dissenting in part), dealing with an unsigned teaming agreement, the teaming agreement required the prime contractor to “execute its best effort to negotiate a subcontract agreement that meets the intent of this Teaming Agreement within 30 days after the contract award.” The judge noted that this is nothing more than an “agreement to agree” to something in the future rendering it unenforceable per Florida, Department of Corrections v. C&W Food Service, Inc., 765 So.2d 728, 729-30 (Fla. 1st DCA 2000) (internal quotations omitted), which found in the context of a renewal provision in a public contract that allowed renewal by mutual agreement:
Even if the contract could be construed to incorporate the good faith negotiation requirement from the manual, C & W would be without a remedy. The obligation to negotiate renewal in good faith is, at most, an agreement to agree on something in the future. Because the parties have not yet agreed on the essential terms for the period in which the contract could be renewed, they do not have an enforceable contract for that period. An agreement to negotiate the terms of a renewal does not create a contractual right to renew. The court could not afford a remedy for the breach of a promise to negotiate a contract, because there would be no way to determine whether the parties would have reached an agreement had they negotiated.
Id. at 729-30 (internal citations omitted).
This does not mean teaming agreements should not be utilized. They absolutely should. What it means is that the teaming agreement should be clear as to obligations and terms. One suggestion is to negotiate the general conditions of the subcontract and attach as an exhibit leaving items such as amount and scope of work to be subject to the teaming communications leading to the bid or proposal, as that will be ironed out during the estimating and scope review process prior to submitting the bid. Importantly, there is authority across the country as to the enforceability of such agreements in that they give rise to the breach of the negotiation aspect in the contract versus purely an agreement to agree to something idefinite in the future, to wit:
[C]ourts have distinguished between “three different but similar types of agreements:” (1) traditional “agreements to agree”—that is, agreements “to do something which requires a further meeting of the minds of the parties and without which it would not be complete;” (2) “agreements with open terms,” pursuant to which “the parties intend to be bound by the key points agreed upon with the remaining terms supplied by a court or another authoritative source;” and (3) contracts to negotiate, pursuant to which “the parties exchange promises to conform to a specific course of conduct during negotiations, such as negotiating in good faith, exclusively with each other, or for a specific period of time.” “In contrast to an agreement to agree, under a contract to negotiate, no breach occurs if the parties fail to reach agreement on the substantive deal. The contract to negotiate is breached only when one party fails to conform to the specific course of conduct agreed upon.”
See Crystal Steel Fabricators, Inc. v. AMEC Foster Wheeler Programs, Inc., 349 F.Supp.3d 1364, 1370 (N.D. Ga. 2017) (internal citations omitted) (discussing teaming agreements and how certain courts around the country treat the enforceability of such agreements as contracts to negotiate).
If entering into a teaming agreement, make sure you work with counsel as to the language in the agreement to ensure it is clear and there is an effort to remove any undefined terms that could be defined at the time of the teaming agreement. This way the objective of the teaming agreement if the public body awards the contract to the prime contractor is either a) a failure to perform a specific obligation under the teaming agreement or b) a failure to negotiate the subcontract per the terms of the teaming agreement.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.