Is Your Teaming Agreement Enforceable?

Teaming agreements are a key part of assembling a winning team.  Unfortunately, once a prime contract is awarded, team members often learn that the prime contractor wants concessions in exchange for a subcontract or the prime contractor makes the terms of the subcontract untenable.   Although teaming agreements are ubiquitous in the government contracts arena, their enforceability should be considered each time from both a practical and legal standpoint.

Just because the team is successful and a prime contract is awarded, does not necessarily mean the teaming partner will be awarded a subcontract.   For instance, many teaming agreements require the parties to exert good faith efforts to negotiate a subcontract once a prime contract is awarded.  After receiving the prime contract award, the prime contractor may decide it doesn’t want to be exclusive to the teaming partner or that the partner’s pricing is too high.  From a practical standpoint, if the prime contractor wants to avoid awarding a subcontract to the teaming partner, it can cause the negotiations to fail by insisting the subcontractor agree to unacceptable terms while claiming it is acting in good faith.

If the prime contractor refuses to award a subcontract to a teaming partner, the partner may find that the courts refuse to enforce the teaming agreement.  The enforcement of teaming agreements by courts is mixed.  They have been called unenforceable “agreements to agree” by some courts, and enforced by others.  The more ambiguous the agreement, the less likely it is to be enforced.  Conversely, a teaming agreement is likely to be enforced if it clearly shows the parties intent to be bound by the agreement and the terms of the agreement are sufficiently definite.  To increase the likelihood of enforcement, an agreement must identify the duration and scope of the agreement, as well as the compensation to be paid.

Companies that carefully draft their teaming agreements will greatly increase their chances of having a contract that is  enforceable.  Key terms to consider are any requirements and exceptions to the award a subcontract, the term of the subcontract, as well as definitive pricing and scope of work.  Also, attaching a draft subcontract as an exhibit to the teaming agreement may help avoid conflicts over subcontract terms after the prime contract is awarded.

Intellectual Property Rights in Government Contracts

A company’s intellectual property is often its most valuable asset. Companies that are not vigilant may unknowingly lose rights in their intellectual property when entering into a contract with an agency of the U.S. Government. What intellectual property rights are granted to the Government will depend upon various factors, including whether the item qualifies as a “commercial item”, was developed at Government or private expense, which regulations apply to the procurement and whether the company complied with those regulations to limit the Government’s rights to the intellectual property. Depending upon the circumstances, the Government’s rights to a company’s intellectual property will be subject to the company’s standard commercial license, Limited Rights (Restricted Rights for software), Government Purpose Rights, or Unlimited Rights.

 

Commercial item procurements by the Government are streamlined and allow the contractor to use its standard commercial license when granting intellectual property rights to the Government. It is therefore in a company’s best interest to have an item qualify as a commercial item, as defined in FAR 2.101. In general, to qualify an item must (i) have been sold, leased, or licensed to the general public or offered for sale, lease, or license to the general public; and (ii) have been developed at private expense.

 

A company may retain greater rights in an item that is developed solely at private expense. If no Government funds are used in the development of an item, the item may qualify as a commercial item or, at minimum, the Government will only obtain Limited Rights (Restricted Rights for software), as defined in FAR 52.227-14 and applicable agency supplements, in the underlying intellectual property. If an item was developed at private expense and a Government contract requires that it be customized or modified, the company should be careful to evaluate whether such changes will provide the Government with greater rights in the item than expected.

 

The Government will obtain either Government Purpose Rights or Unlimited Rights, as defined in FAR 52.227-14 and applicable agency supplements, in items that are not developed solely at private expense. In general, the Government will obtain Government Purpose Rights in items developed with a mixture of company funds and Government funds. The Government will obtain Unlimited Rights in items developed solely with Government funds.

It is imperative that companies act diligently prior to entering into a contract with the Government and undertake ongoing steps to maximize their intellectual property rights. These steps include –

· Claim commercial item treatment when applicable.
· Develop items at private expense when they have commercial application and may result in a competitive advantage.
· Properly mark all data and software with the appropriate protective legend before delivering to the Government.
· Provide written notice to the Government of all items that will be delivered with less than Unlimited Rights, and obtain agreement from the Government that such items may be delivered with less than Unlimited Rights.

· If you are acting as a subcontractor, ensure that you understand what intellectual property rights the Government requires in your item and that the prime contractor has adequately limited the Government’s rights to the rights you granted.