Poorly Drafted Subcontract “Work Share” Clauses Can Be Costly

Work share – how much work a prime contractor is guaranteeing a subcontractor -- is perhaps one of the most important clauses in a subcontract. It is a mistake, therefore, to draft this critical clause without considering the language of the other subcontract clauses. Language in a subcontract’s “Definitions” section can severely limit a subcontractor’s work share.

After winning an Army contract for interpreter and translation services, a prime contractor in a recent case signed subcontracts with various linguist providers. One linguist subcontract established a work share of “15% of the services to be provided under the Prime Contract.”  That subcontractor believed that it was entitled to 15% of all prime contract revenue. However, the prime contractor pointed out that the Definitions clause defined “services” in a more severely limited way -- to mean “all linguist services” to be provided under the Prime Contract. The court concluded that the prime’s interpretation had merit.

As this case shows, it is not wise to focus solely on any one subcontract provision-- here the work share provision. Nor is it wise to routinely rely on “model” or template subcontracts. Time spent thinking more clearly about subcontract clauses, especially critical clauses like work share clauses, is time well spent.  

Terrence O'Connor is the Director of Government Contracts for Berenzweig Leonard, LLP, a DC regional business law firm. Terry can be reached at toconnor@berenzweiglaw.com. 

Teaming Agreement’s Promise of Future Subcontract Was Not Enforceable

Enforcing vague provisions in a Virginia teaming agreement is difficult. Courts continue to consider some teaming agreement provisions to be an unenforceable “agreement to agree” as seen in a recent decision of the Federal District Court in Alexandria. Although finding the teaming agreement’s promise of a subcontract was unenforceable, the court did honor the teaming agreement’s choice of law provision. Thus, not all teaming agreement provisions are automatically unenforceable. To the extent that the parties can make teaming agreements precise, they may be enforceable.

The recent case involved Information Experts (IE) trying to get a contract with the Office of Personnel Management with the help of team member Cyberlock Consulting. Their teaming agreement contained standard provisions committing the parties, if successful in winning the contract, to a specific work-share (51 percent of the work to IE, 49 percent to Cyberlock), tasks each would perform, promises of good faith negotiations to enter into a subcontract if the proposal effort was successful, and a clause identifying Virginia law to be applicable to the teaming agreement.

After the IE-Cyberlock team won the OPM contract, their efforts to negotiate a subcontract acceptable to both parties failed. Cyberlock then sued IE for breaching the teaming agreement by alleging that IE failed to negotiate a subcontract in good faith. The court concluded that the promise of a subcontract was too vague to be enforceable.

Because an enforceable contract needed “terms reasonably certain under the circumstances … mere agreements to agree in the future are too vague and too indefinite to be enforced.” And in Virginia, “agreements to negotiate at some point in the future are unenforceable … Accordingly, an agreement to negotiate open issues in good faith to reach a contractual objective within [an] agreed framework will be construed as an agreement to agree rather than a valid contract.”

Looking at the title of the document itself—a teaming agreement—the court said: “calling an agreement something other than a contract or subcontract, such as a teaming agreement or letter of intent, implies that the parties intended it to be a nonbinding expression in contemplation of a future contract. Moreover, even if the parties are fully agreed on the terms of their contract, the circumstance that the parties do intend a formal contract to be drawn up is strong evidence to show that they did not intend the previous negotiations to amount to an agreement which is binding.”

Although admittedly the teaming agreement contained some very specific language such as the 51/49 work share, the court considered the teaming agreement as a whole, which “indicates that this particular language was not meant to provide a binding obligation but rather to set forth a contractual objective and agreed framework” for negotiating a subcontract “in the future along certain established terms.” For example, any seemingly mandatory teaming agreement language to award Cyberlock a portion of the prime contract “was modified by provisions indicating that: (1) the award of such work would require the negotiation and execution of a future subcontract; (2) the award of such work was dependent on the success of such future negotiations; (3) any future executed subcontract was subject to the approval or disapproval of OPM; and (4) that the framework set out for the work allocation in a future subcontract potentially could change as it merely was based on the work anticipated to be performed by Cyberlock as then-presently understood by the parties.”

To the court, the teaming agreement “was an agreement to negotiate in good faith to enter into a future subcontract” and “such an agreement is precisely the type of agreement to agree that has consistently and uniformly been held unenforceable in Virginia.”

The court’s decision does not mean that all teaming agreement provisions are unenforceable, only those that are too vague to enforce. Because the teaming agreement provision identifying Virginia law as applicable to the teaming agreement was specific and not vague, that provision was enforced.

If you want to put teeth into a teaming agreement, let Berenzweig Leonard help you tailor teaming agreement language that will be enforced.

Terry O’Connor is the Director of  Government Contracts with Berenzweig Leonard, LLP, a DC region business law firm. Terry can be reached at toconnor@BerenzweigLaw.com.