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Avoiding a Contract Drafting Pitfall: Teaming Agreements and Agreements to Agree

In light of a recent decision published by the Maryland Court of Special Appeals, if your business is attempting to secure a future subcontract relationship with another business, a teaming agreement may not provide the assurances you expect.  Until this recent decision, the Maryland appellate courts had not addressed the enforceability of teaming agreements.

“Teaming agreements” are agreements in which a prime contractor and subcontractor “team up” to bid a project, with the subcontractor ordinarily providing technical expertise and assistance in the prime contractor’s bid in return for the prime contractor’s promise to award the subcontract to the subcontractor when the bid is accepted.  The problem with teaming agreements arises when the parties fail to execute the anticipated subcontract.   When that happens, we now know that the subcontractor can be left with no recourse if the teaming agreement is not sufficiently specific, and the reason is simple: a mere agreement to agree is not an enforceable contract provision in Maryland.

In Advance Telecom Process LLC v. DS Federal, Inc., decided by the Court on July 30, 2015, a prime contractor and subcontractor entered a teaming agreement to secure a government contract for the prime contractor.  The subcontractor sued for breach of contract when the prime contractor failed to execute the expected subcontract.   The Court held that there was no breach of contract, reasoning that the parties did not reach mutual assent to reasonably certain terms with regard to the subcontract.  The Court made this holding even though the teaming agreement at issue included “some language suggesting an obligation by [the prime contractor] to issue a subcontract to the subcontractor.”  Instead, the Court determined that, when read as a whole, the remainder of the teaming agreement indicated that the parties only reached an agreement to negotiate a future subcontract.  In other words, since the terms of the teaming agreement envisioned that future negotiations were required before a subcontract would be executed, the parties had merely reached an “agreement to agree” on a future subcontract.  While some terms of the teaming agreement were deemed enforceable, the parties mere “agreement to agree” on a future subcontract was unenforceable.  The parties could have avoided this litigation and secured their contractual relationship by carefully drafting the teaming agreement with definite terms that demonstrated an intent to be bound by a subcontract.

The Advance Telecom Process LLC v. DS Federal, Inc. opinion is available at:
http://www.mdcourts.gov/opinions/cosa/2015/1371s14.pdf.

Proper contract drafting can be essential in securing a future contractual relationship with a person or business.  The Kagan Law Group assists in thorough and competent contract drafting and review.  The Kagan Law Group is a business, employment and civil litigation firm located in Annapolis, Maryland.  Contact us at (410) 216-7900 or visit our website at kaganlawgroup.com for more information about how our firm can help your business.

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