Government Contracts Monitor

Your Team Members May Not Be All Yours -- How Far Does “Exclusivity” Extend?

April 20, 2015

Troubling facts surfaced in a recent bid protest before the Government Accountability Office (GAO) raising significant questions as to the effect and reach of exclusivity language in a teaming agreement. The protest also demonstrates the difficulties in getting an agency or GAO to interpret and enforce exclusivity provisions. ERIMAX, Inc., B-410682, Jan. 22, 2015.

ERIMAX, Inc. negotiated an exclusive bilateral teaming agreement with ASI Government, Inc. (ASI), under which ASI would serve as ERIMAX’s principal subcontractor. ASI had two individuals employed under the incumbent contract, and ERIMAX believed the procuring agency regarded ASI as “the preeminent provider in the acquisition support industry.” ASI’s exclusive teaming commitment thus was central to ERIMAX’s bidding strategy and, ERIMAX believed, was a critical differentiator between it and other offerors. ASI participated as an integral member of “Team ERIMAX” throughout the procurement process including, in person, in both ERIMAX’s oral presentation and post-award debriefing.

Imagine ERIMAX’s surprise when, during the debriefing, the agency told ERIMAX that ASI was listed as a “potential subcontractor” by the winning offeror, Veterans Management Services, Inc. (VMSI).

ERIMAX immediately objected and told the agency it had an “exclusive teaming agreement” with ASI, ASI could not have been part of VMSI’s team, and VMSI had proposed ASI as a subcontractor without ASI’s knowledge or consent. The contracting officer agreed to keep the debriefing open while the agency investigated ERIMAX’s allegations.

The agency subsequently informed ERIMAX that the agency believed “the agreement was only binding on the parties for pre-award activities as they related to this procurement.” The agency further stated that (i) VMSI’s quote depicted ASI only as a “proposed subcontractor,” and did not indicate that ASI was “an active team member,” had a role in preparing the quote or would perform any specific role upon award and (ii) VMSI was not evaluated more favorably due to its proposed subcontractors. In the GAO’s words, “the agency indicated that the exclusive teaming agreement was ‘an external matter’ between ERIMAX and ASI which did not involve the government” and, therefore, rejected ERIMAX’s allegations and declared the debriefing closed.

ERIMAX understandably protested to the GAO, claiming that VMSI’s quotation contained a material misrepresentation. ERIMAX supported this position with a letter from ASI’s President/CEO stating that “ASI teamed exclusively with ERIMAX for this … proposal, and did not have any agreement—written, verbal, or otherwise—in which ASI Government permitted any other company to use ASI’s name ….” ERIMAX also submitted sworn affidavits from two of its employees describing two separate conversations in which an ASI employee said he had participated in a telephone conversation during which ASI told VMSI that “ASI was on another team exclusively, and that VMSI could not use ASI or its information in their proposal.”

VMSI intervened in the protest. VMSI stated that it also had been negotiating an exclusive teaming agreement with ASI. When those negotiations fell through, VMSI asked, and ASI’s President reportedly authorized VMSI to use ASI’s name in VMSI’s quotation, so long as VMSI did not make any statements as to any exclusivity or established pre-award teaming agreement. VMSI submitted four substantiating declarations, including one by its CEO and two by other VMSI employees who participated in or were in the room during the telephone discussion with ASI’s President. VMSI also submitted several emails between VMSI and ASI immediately following the award, indicating that they were negotiating to reach a post-award subcontracting arrangement.

GAO acknowledged that a vendor’s material misrepresentation in its quotation can provide a basis for disqualification of the quotation and cancellation of an award based on the quotation. However, GAO stated that, for a protestor to prevail, the record must show that the information at issue is false. Here, GAO concluded that ERIMAX’s evidence was not persuasive and sufficient to establish that VMSI was not authorized to use ASI’s name. GAO specifically noted that (1) ERIMAX’s affidavits were by its own employees, not ASI personnel, and (2) ASI’s letter was not under oath and was submitted directly to ERIMAX, and further was self-serving and was not persuasive given the directly contrary VMSI declarations. GAO also noted the post-award subcontracting negotiations. In short, GAO believed that ASI likely did authorize VMSI to use its name. GAO therefore denied the protest.

This case reflects the always present friction between the offeror/team head’s desire for proposed team partner(s) to commit to exclusivity, while the team partner(s) want(s) to retain the flexibility to work for the eventual awardee should someone else win the award. The facts here caution that, at a minimum, the teaming agreement should explicitly bar a teaming partner from (1) discussing post-award work possibilities with any other offeror prior to award, and (2) permitting any other offeror to use the teaming partner’s name in any way in connection with the subject procurement.

The bottom line is that a mere exclusive teaming commitment may not be sufficient, without more, to stop what occurred here. Think carefully and creatively about how to lock in up-front, while you have negotiating leverage, the exclusivity competitive advantages. As evidenced here, you cannot count on the agency or GAO to enforce a teaming agreement or resolve disputes between the parties. You need to protect yourself!