I have discussed teaming agreements in this past here at Construction Law Musings. These agreements are most typically where one of two entities meets a contracting requirement but may not have the capacity to fulfill a contract on its own so brings in another entity to assist. However, these agreements are contracts and are treated as such here in Virginia with all of the law of contracts behind them.
One illustrative case occurred here in Virginia and was decided by the Virginia Supreme Court. That case is CGI Fed. Inc. v. FCi Fed. Inc. While this is not strictly a “construction” case, it helps lay out some of the pitfalls of teaming agreements in general.
In this case, the parties entered into a fairly typical small business (FCI) Big Business (CGI) teaming arrangement for the processing of visas for the State Department. The parties negotiated the workshare percentage (read payment percentage) should FCI get the work and the teaming agreement set out a framework for the negotiation of a subcontract between FCI, the proposed general contractor, and CGI, the proposed subcontractor. After a while working together, FCI submitted a proposal to the State Department and as part of the negotiations of this proposal, the work percentage for CGI was lowered in exchange for some management positions for CGI relative to the work by amendment to the original teaming agreement. However, one day later FCI submitted a proposal to the State Department that not only didn’t include the management positions, but further lowered CGI’s workshare.
However, FCI did not stop there. After resolving some bid protests, FCI began negotiations with CGI at an even lower percentage than that of the proposal or the amended teaming agreement. CGI began work under a temporary agreement, was paid more than $2 million for its work and was subsequently terminated by FCI for cause. CGI filed suit against FCi, asserting: (1) breach of contract because FCi failed to extend a subcontract with a 41 percent workshare and 10 management positions to CGI; (2) unjust enrichment because CGI allegedly spent $300,000 assisting FCi on the proposal that would result in a $6 million profit for FCi; and (3) fraudulent inducement, seeking lost profits. The jury awarded CGI close to $12 million but the Circuit Court vacated the verdict and entered judgment for FCI and CGI Appealed.
The Court affirmed the Circuit Court on all counts. First it found that the teaming agreement (the details of which are well laid out in the opinion) contained too many contingencies to be an enforceable contract for any particular subcontract provisions and that:
Taken together, these provisions make clear the parties never agreed to the final terms of a subcontract and expressly conditioned the formation of a subcontract on future events and negotiations. Thus, just as FCi could not have relied on this agreement to require CGI to perform work as subcontractor, CGI could not rely on the agreement to obtain work from FCi as a subcontractor. The court will not impose a subcontract on parties to a teaming agreement when they have expressly agreed to negotiate the material terms of a subcontract in the future.
Therefore, no breach of contract action could be sustained.
The Court then went on to find any possible damages for fraud in the inducement to be speculative because any lost profits by CGI based on its inducement to agree to a subcontract in the future (namely the teaming agreement) had no provision by which any lost profits could be quantified.
FInally, the Court affirmed the vacation of the verdict for unjust enrichment by finding that the teaming agreement was an enforceable, mutual, express contract and that
CGI elected to sue for tort and contract damages and as a consequence, “affirme[d] the contract” and “consent[ed] to be bound by its provisions.” Ewig v. Dutrow, 128 Va. 416, 424, 104 S.E. 791, 793 (1920). Accordingly, the parties’ express contract remains in effect. FCi’s conduct in procuring this contract does not change the nature of CGI’s unjust enrichmentclaim — an alternative cause of action for breach of contract. CGI may not recover on a quasi-contractual claim that is otherwise precluded by a contract which CGI has affirmed.
The Court then reasoned that because CGI affirmed the express contract, the method of inducing CGI into the teaming agreement (whether fraudulent or otherwise) is irrelevant. An express contract cannot be the basis for an unjust enrichment or other quasi contractual claim.
In short, the Court is telling all of us that until the subcontract is executed and the terms made plain, perform at your own risk.
Of course I recommend that you read the opinion in its entirety and perform your own analysis of the case and any teaming agreement with the help of experienced construction counsel.
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