CGI Federal once agreed to support FCi Federal's bid for a State Department services contract as its subcontractor, under a teaming agreement that gave CGI 45 percent of the work. When FCi needed help with a revised proposal, the parties amended the agreement: 41 percent and ten management positions. FCi's later revisions to its proposal, after bid protests, cut CGI's share, and CGI was not told. FCi won. In negotiating the subcontract afterward, it offered 22 percent, and when CGI would not take it, FCi ended the relationship. A jury found FCi had fraudulently induced CGI's help and awarded about $12 million. In June 2018 the Supreme Court of Virginia left CGI with none of it. The workshare lived in a subcontract nobody signed, and in the court's words, "CGI cannot recover profits based on a bargain for a subcontract it never struck."
That was the third time in five years a Virginia court said the same thing. Cyberlock Consulting v. Information Experts in the Eastern District of Virginia in 2013, affirmed by the Fourth Circuit the next year, and Navar v. Federal Business Council in the state Supreme Court in 2016 both read teaming agreements as promises to negotiate later, which Virginia law does not enforce. A small service-disabled veteran-owned business that primes one bid and subs on the next signs these papers in both directions every year. The lesson of the cases is that the teaming agreement is the weakest document in the stack. What actually binds the prime is federal regulation, and what actually protects the sub is a subcontract negotiated before the proposal goes in.
On the prime's side of the table, the regulation does the binding
Cyberlock had a 51/49 split in writing and still failed: the court pointed to a termination clause triggered by failure to agree on a subcontract after good-faith negotiations, to wording like "work anticipated to be performed," and to the fact that the government had to approve any subcontract anyway. Navar's agreement promised the prime "at a minimum" 51 percent of labor hours and dollars and named no sum the subs could count on. A prime that keeps its teaming language loose keeps its freedom to choose subcontractors after award.
On a set-aside, that freedom is narrower than it looks, because the government has already written the workshare term the teammates left vague. FAR 52.219-14, Limitations on Subcontracting, which survives the FAR overhaul in its deviation text, makes a small business prime on a set-aside services contract agree not to pay more than 50 percent of what the government pays it to subcontractors that are not similarly situated. For an SDVOSB set-aside, a similarly situated entity is a certified SDVOSB that is also small under the NAICS code the prime assigned to the subcontract. Under 13 CFR 125.6(c), its dollars stay off the prime's subcontracted side only for work it performs with its own employees; anything it passes down a tier counts against the prime's cap. Compliance is measured over the base term and then each option period, and on a multi-agency contract, order by order. The penalty at 125.6(h) is a fine of at least $500,000, or the amount of the overage if that is larger.
The second exposure arrives before award. Under 13 CFR 121.103(h)(3), SBA treats an offeror as ineligible for an SDVOSB award if it has an ostensible subcontractor: a sub that is not similarly situated and either performs the primary and vital requirements of the work or is the firm the prime is unusually reliant on. The rule speaks directly to the incumbent. A prime may cite a subcontractor's experience and past performance, including an incumbent's, but an incumbent large business that also supplies the program manager, the staff and the customer relationship begins to look like the firm doing the primary and vital work. The same paragraph gives the way out. For a set-aside services contract, a prime that can show it will meet the limitation on subcontracting, together with its small subcontractors, is found to be performing the primary and vital work.
So for a small prime the binding document is a spreadsheet: dollars the government will pay, by period, split between the prime's own employees, certified SDVOSB teammates performing with their own staff, and everyone else. The workshare in the teaming agreement should be written in those units, and certification belongs in the file for each teammate counted as similarly situated, the same check MacZine described for goal credit in the VetCert piece. A prime with a thin record has lawful ways to borrow a teammate's, set out in our issue on winning without past performance; borrowing its staff to do the work is what this rule watches.
The vagueness that protects a prime from its own teammate is the same vagueness that leaves its subcontracting math unproven.
On the sub's side, negotiate the subcontract before the proposal
The cases tell a subcontractor exactly which words lose. "Anticipated," "presently understood," a termination right for failure to agree, a workshare stated as a floor for the prime rather than a commitment to the sub, and an integration clause that keeps the court from reading the emails where everyone agreed. Cyberlock refused to look past the four corners because the agreement was unambiguous.
The fix practitioners drew from these cases is to move the subcontract forward in time. Attach the form of subcontract to the teaming agreement. Map the statement of work task by task to the party performing it, with labor categories and hours, so the share can be computed rather than negotiated. Make the prime's obligation to issue the subcontract conditional only on two things, award of the prime contract and the government's consent, and drop the "after good-faith negotiations" escape hatch. CGI shows the floor beneath that: the Virginia court did find an enforceable duty to negotiate in good faith, but CGI never claimed FCi breached it, so the claim went nowhere. If the agreement carries that duty, keep a record of the negotiation that could prove its breach.
Exclusivity is the term a sub gives away most easily. Promising to bid only through one prime means a sub cannot join a competing team for that pursuit. Tie it to the share. CGI's share shrank in proposal revisions it did not see. A sub should require written notice of any proposal revision that changes its scope or share, and exclusivity that ends when its share falls below an agreed number.
Then read the payment clause as if the government will be slow, because some months it will. Pay-if-paid language makes the government's payment to the prime a condition of the sub ever being paid; push for pay-when-paid with a fixed outside date. Two federal clauses help at the margin. FAR 52.232-40 tells a prime that receives accelerated payments to pass them on to small business subs within 15 days, without a fee, but only "to the maximum extent practicable." FAR 52.242-5, which appears only in contracts carrying a small business subcontracting plan under 52.219-9, requires the prime to tell the contracting officer within 14 days when it short-pays a small sub, or pays more than 90 days late, for work the government has already paid for. Ask whether the prime contract has them; a sub sees only what it asks for.
Asking is the larger point. A subcontract that incorporates "all clauses of the prime contract" by reference hands the sub obligations it has never read and, since a sub has no contract with the government, no direct way to challenge the government's actions under them. Ask for the list of clauses actually flowed down, limited to what the law requires plus what governs the sub's own work, and for a commitment that the prime will sponsor a sub's claim when the government caused the cost.
A small SDVOSB will sit on both sides of these terms within the same fiscal year, which is an advantage if it uses it. Draft the teaming template as the sub you would want to be, with the subcontract attached and the share in dollars. Run the limitation ledger as the prime SBA might one day examine. And when a teammate hands over a draft that reads like Cyberlock's, fix it before the proposal is due, because that is the last day the sub has something the prime needs. ◆