Teaming Agreement Enforced Prime Enjoined from Terminating Sub
 
April 15, 2003
 
John Rowley - Northern Virginia
Jennifer A. Short- Northern Virginia

In late December 2002, a trial court in Fairfax County, Virginia, ordered The Cube Corporation, a prime contractor with the Navy and NASA, to honor its teaming agreement and continue working with its teaming partner and primary subcontractor, EG&G Inc.  EG&G Inc. v. The Cube Corporation, Chancery No. 178996 (Fairfax Cir. Ct. Dec. 23, 2002).  In a scholarly, 25-page, written letter opinion, Judge Terrence Ney distinguished the case from a 1997 decision by the Virginia Supreme Court that had declared a teaming agreement an unenforceable “agreement to agree.” 

Applying general principles of contract law in Virginia, Judge Ney held that parties to a contract are entitled to receive the benefit of their bargain, and that the courts will enforce the parties’ contractual obligations.  Specifically, in this case, the teaming agreement promised EG&G that it would be given a subcontract if Cube succeeded in obtaining the prime contract with the government.  When, in fact, Cube was awarded the prime contract, it was obligated to fulfill its obligations under the teaming agreement and grant EG&G the anticipated subcontract.  Contrary to what many had believed previously, Virginia law does not distinguish between the enforceability of a so-called “teaming agreement” and any other contract. 

The case is also notable for the relief that was granted to EG&G – the court permanently enjoined Cube from terminating EG&G’s subcontract (except for “good cause”) for the life of the prime contract, a term of up to 10 years.  In the past, other state courts have upheld teaming agreements such as the one at issue here, but in all other cases, the terminated subcontractor received money damages as compensation for the prime contractor’s breach.  The EG&G decision is precedent-setting in this regard, however, Judge Ney reasoned that, given the nature and terms of the prime government contract, money damages were too speculative to afford EG&G full relief.  Moreover, the court took notice of the collateral effects that termination from the particular Navy/NASA contract that the parties were performing might have on EG&G’s ability to bid on similar government contracts in the future. 

At bottom, Judge Ney’s decision sends a very strong, clear signal to those who enter into contractual agreements, including teaming agreements, that the Virginia courts will enforce the bargain that private parties reach for themselves.  Cube saw this message so clearly in the decision that it chose not to appeal.  For businesses who frequently enter into teaming arrangements, the decision is instructive as to how to strengthen the enforceability (or how to increase the flexibility) of a written agreement.  The case stands for the proposition that contractors and subcontractors get what they negotiate in teaming agreements.  If the subcontractor negotiates that it will receive a subcontract in exchange for its proposal efforts, the courts are likely to enforce that bargain.  However, if the parties agree to engage in future negotiations of a subcontract, the courts will mandate only good faith negotiations.

For more information, call John P. Rowley or Jennifer A. Short, toll free, at 1-888-688-8500.