Recent Dispute Between Teaming Partners Teaches Lessons about Drafting Protest Provisions in Teaming Agreements

A Florida federal court has ruled that a teaming agreement for a government contract did not compel an unsuccessful prime contractor to protest a lost award, despite the demand by its subcontractor teaming partner. TYR Tactical, LLC v. Protective Products Enterprises, LLC and Point Blank Enterprises, Inc., Case No. 0:15-cv-061741 (S.D. Fla., Oct. 13, 2016). The decision shows some of the challenges involved when drafting and negotiating provisions of teaming agreements intended to address the parties’ roles and responsibilities with respect to possible protests if the team is not successful.

Teaming agreements are fixtures of modern U.S. Government contracting and subcontracting. For a variety of reasons, contractors and subcontractors often pool their resources in efforts to improve their chances of winning a competitive procurement. The teaming agreement typically contains provisions designating which of the two companies will be the prime contractor and which will be the subcontractor, the parties’ respective scopes of work if awarded the contract, the respective roles in putting together the proposal or bid, how decisions will be made to modify the proposal and which party has the ultimate responsibility to determine whether to bid or decline to bid on the procurement.

The teaming agreement also frequently addresses what happens in the event the bid or proposal is unsuccessful and a decision must be made whether to file a bid protest with the agency, the GAO, the Court of Federal Claims or any other protest forum. The U.S. District Court for the Southern District of Florida examined one such provision and determined that Point Blank Enterprises, Inc., the unsuccessful prime contractor, did not breach the parties’ teaming agreement when TYR Tactical, LLC, its proposed subcontractor, wanted to protest the loss of award and Point Blank refused to do so.

The language of the Teaming Agreement in the TYR case provided as follows:

In the event the Prime Contractor or the Subcontractor concludes that a protest is in order, either protesting the Solicitation, the acquisition process, or an award or contemplated award, the Prime Contractor shall be the protesting party, supported as appropriate by the Subcontractor. . [sic]

TYR interpreted this language as requiring Point Blank to protest and TYR to support the protest should either of them decide that “a protest is in order.” After the Government awarded the contract to another offeror, Point Blank declined to file a protest. TDR filed a protest with GAO in its own name, which was summarily dismissed due to lack of standing (because TDR was only a proposed subcontractor). TYR then filed suit against Point Blank for breach of contract and sought damages for the lost profits it would have earned had the protest been successful.

The Court dismissed the breach of contract claim on summary judgment, ruling that the language of the teaming agreement did not require Point Blank to file a protest at the request of TYR. The Court reasoned that the clause in the teaming agreement merely addressed the respective roles of Point Blank and TYR in the event that Point Blank exercised its unilateral discretion to protest, i.e., that Point Blank must “be the protesting party, supported (as appropriate) by TYR.” This result makes sense, the court concluded, since “a subcontractor cannot file a bid protest under the relevant law of Government contracts.” Even though the clause used mandatory language (“shall”), the only mandatory intent applied to the respective roles of the two parties, not to the decision whether to file a protest in the first place. The Court further reasoned that this conclusion is reinforced by the fact that the clause was placed in a section of the teaming agreement labeled “Subcontractor Responsibilities,” which also contained a companion clause requiring TYR to provide information in a timely manner when requested by Point Blank.

Looking at the rest of the teaming agreement, the court said that the parties’ intent to give Point Blank the discretion to protest or not protest was made clear by numerous other provisions giving Point Blank the right, for example, to: “(1) decline to submit a Proposal at all, at its sole discretion; (2) solely determine the form, content and pricing of the Proposal; (3) solely negotiate a contract with the government; and (4) terminate the Agreement at will, simply by notifying TYR ‘in writing of [its] decision not to submit the Proposal.’” To rule as TYR requested would, the Court held, “make the express authority provided to Point Blank . . . largely “useless or inexplicable,” and impermissibly fail to ‘give[ ] a reasonable meaning to all provisions of a contract.’”

Despite the Florida court’s ruling, nothing stops the parties from drafting a teaming agreement that gives the subcontractor the right to require the prime to protest, either before or an award, if that’s what they really want to do. As the Court’s decision demonstrates, however, the parties must take exceptional care in drafting any such provisions, since they run counter to typical teaming agreement clauses giving the prime broad discretion about the form and content of the proposal, pricing, and even whether to submit a proposal at all.

More importantly, the team leader—typically the proposed prime contractor—should carefully consider whether it should, under any circumstances, give the subcontractor the right to compel a protest, in the event there is a disagreement, and if so, under what conditions. Depending on the circumstances, it is possible that giving a subcontractor the right to direct and require the filing of a protest may conflict with the prime contractor’s marketing plans or strain its relationship with the agency.

Below are some issues for parties to a teaming agreement to consider when drafting a protest provision:

• Who decides? The parties should clearly state who has the right to decide whether or not to protest. Does the prime contractor retain sole and unilateral discretion? Does filing a protest require mutual consent, at least when protest costs will be shared by the parties? Does the subcontractor have any right to require a protest to be filed over the prime’s objection? The parties should address the same issue in the event the team receives the award but has the option of intervening in a protest filled by another unsuccessful offeror.
• Who selects counsel? The parties should clearly state who has control over the proceeding, including who has the authority to select legal counsel. The options are: the prime has unilateral authority to hire legal counsel; the decision must be the subject of a mutual agreement at the time of the protest; or the parties could identify the firm in the teaming agreement. The parties must be mindful that any firm must either be free of conflicts as between the prime and the sub or such conflicts must be the subject of an express waiver. The prime should keep in mind that allowing the sub’s lawyers to file the protest could give the sub access to its proposal and pricing information. Again, the parties should consider addressing this issue in the context of both a protest and an intervention.
• Who pays for the protest? In the event of either a protest or an intervention, the parties should specify who is responsible for protest costs, in what proportions, and how payments will be made. This provision could assign different responsibilities depending on whether the decision to protest/intervene was unilateral or mutual.
• What is the status of the team while a protest is pending? If the teaming agreement includes a protest provision, the parties should adjust the termination provision to provide that the teaming agreement will not terminate upon award to another offeror in the event the prime contractor files a timely protest. The provision should also address the possibility of a "second bite" protest at the Court of Federal Claims following an unsuccessful GAO protest, and any subsequent appeals, since those can considerably lengthen the process.