Government Contracts, Investigations & International Trade Blog : Government Contracts Lawyer & Attorney : Sheppard Mullin Law Firm : Bids, Licenses, Awards, Conflict of Interest.

By John W. Chierichella 

In 1997, the Virginia Supreme Court sent a chill down the spines of many companies operating under teaming agreements with a Virginia choice of law provision. In W.J. Schafer Associates, Inc. v. Cordant, Inc., 493 S.E. 2d 514 (Va. 1997), that court held a teaming agreement to be unenforceable on the ground that “agreements to agree in the future” are “too vague and too indefinite to be enforced.” After an initial outpouring of articles and commentaries on the future of teaming agreements under Virginia law, the dust appeared to have settled and, in 2002, the Virginia courts actually issued an affirmative injunction compelling specific performance of a teaming agreement in EG&G, Inc. v. Cube Corp., 63 Va. Cir. 634, 2002 WL 31950215 (Va. Cir. Ct. Dec. 23, 2002).

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By David S. Gallacher

On September 27, 2010, President Obama signed into law the Small Business Jobs and Credit Act of 2010 (Pub. L. No. 111-240). The Act is intended to free up capital by providing tax cuts for small businesses (some of which are temporary) and to promote exports of U.S. products, all with a view to stimulating the small business sector as an engine of job creation.  But, as usual, the Administration’s efforts to improve the economy through stimulus measures also give rise to new risks for companies doing business with the federal Government – whether as a prime or a subcontractor, as a large or a small business.
 

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Even experienced contractors can find themselves in unfamiliar waters when delving for the first time in the world of government contracts. In many cases, the first step for a commercial company may be acting as a subcontractor (the "Subcontractor") for another company (the "Prime") that is contracting directly with the Government. Even though the Subcontractor's contract is with the Prime and not the Government, certain federal regulations and policies may still apply and place obligations on the Subcontractor. For various reasons, including promoting federal policy and protecting itself contractually, the Government may require that certain clauses included in its contract with the Prime also be included in the subcontract between the Prime and Subcontractor. Similarly, the Prime, for reasons of consistency, to ensure that the Subcontractor's performance will allow the Prime to meet its own contractual requirements, or to protect itself, may include provisions from the prime contract in the subcontract. Such clauses are colloquially known as "flowdown" clauses.
 

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Do

• Execute a Confidentiality/Nondisclosure agreement before exchanging any proprietary data and ensure that such agreement survives termination and/or expiration of teaming agreement
• Carefully define the scope of the information subject to the Confidentiality/Nondisclosure agreement to ensure that both written and orally communicated data is protected
• Carefully consider not only a potential teammate’s skills and resources, but also its performance history to ensure that you will not be caught off-guard by OCI, cost control, or poor past performance issues
• Consider the advantages and disadvantages of exclusivity and the need for “off ramps”
• Anticipate Government intervention in or interference with the relationship
• Clearly define the rights, roles, and responsibilities of each of the parties to the Agreement
• Clearly articulate the scope of the Agreement – one product line? one contract? an entire program? or a line of business?
• Include disputes provisions in the Agreement, defining procedure (arbitration or court proceeding), causes of action (contract and/or tort) and available remedies (indemnity, specific performance, injunctions, liquidated damages, limitations on damages)
• Include a termination provision, inclusive of termination for convenience if desired

Don’t

• Accept a so-called “standard” Teaming Agreement
• Ignore the “boilerplate” – e.g., choice of law, limitation of liability, key personnel clauses
• Narrowly define the information subject to the Confidentiality/Nondisclosure Agreement and ignore the need to protect your know how
• If you are the prime contractor, include provisions imposing an absolute duty to execute a subcontract
• Ignore the cost accounting and tax implications of the potential business structure of your teaming relationship
• Include provisions that may run afoul of the antitrust laws
• Ignore implications of affiliation rules when teaming with a small business to obtain access to small business set-asides

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