Alert 01.09.24
Alert
Alert
02.29.24
The U.S. District Court for the Southern District of New York (Crotty, J.) partially denied a motion to dismiss several claims brought by BAE Systems asserting a breach of contract by L3 Harris challenging, among other things, the enforceability of the parties’ teaming agreement. The contract relates to a Department of the Navy prime contract won by L3 Harris. BAE Systems Information and Electronics System Integration Inc. v. L3 Harris Cincinnati Electronics Corporation, S.D.N.Y. 23-cv-01860 (Feb. 9, 2024).
In many states, teaming agreements entered into in pursuit of prime contracts are often found to be unenforceable “agreements to agree,” leaving teaming partners with little recourse if the parties fail to negotiate a subsequent subcontract. In denying L3 Harris’s motion to dismiss, however, Judge Crotty held that New York law recognizes the enforceability of two types of “preliminary” agreements:
BAE Systems argued for the existence of a Type I agreement. Following New York precedent, the Court stated that it is guided by four factors that are relevant in discerning the ultimate question of whether the parties intended to be bound: (1) whether there is an expressed reservation of the right not to be bound in the absence of a writing; (2) whether there has been partial performance of the contract; (3) whether all the terms of the alleged contract have been agreed upon; and (4) whether the agreement at issue is the type of contract that is usually committed to writing.
The Court ruled that BAE Systems had sufficiently alleged a Type I agreement. In analyzing the four-factor test, the Court found: for factor (1), the agreement was not contingent on the result of further negotiations; for factor (2), BAE Systems had already begun performance under a UCA; for factor (3), the absence of specified contract type, price, payment terms and time of performance could be rendered certain through extrinsic evidence in discovery; and, for factor (4), the Federal Acquisition Regulation encourages the use of teaming agreements.
The Court also refused to dismiss BAE Systems’ claim that L3 Harris had failed to negotiate the subcontract in good faith, citing L3 Harris’s alleged demand that BAE Systems cut labor costs by 60% and accept a 33% price reduction. Additionally, the Court refused to dismiss the allegation by BAE Systems that L3 Harris misappropriated its trade secrets in violation of the federal Defend Trade Secrets Act.
The Court’s opinion and order denying L3 Harris’s motion to dismiss the claims is instructive for government contractors that seek to increase the likelihood that their teaming agreements will be found enforceable.