Workshare disputes are among the most common issues between prime contractors and subcontractors servicing the United States government. The workshare provision in the subcontract is often the most important term because it dictates the magnitude of payment to the subcontractor and may impact the ultimate scope of work. This article discusses how best to address workshare provisions in the subcontract to ensure protection and certainty, as well as what to do if a prime contractor fails to adhere to its workshare obligation.

Workshare Terms in the Subcontract

The best way for a subcontractor to protect its workshare is by having a clear, well defined workshare provision. Courts in Virginia interpret contracts “as written” and do not “add terms the parties themselves did not include.” The workshare provision in the subcontract will typically supersede any prior agreements, including teaming agreements.

The clearer the terms of the subcontract, the stronger the argument a subcontractor will have if it believes it is being shorted on its workshare rights. Precision is important, including what the workshare percentage is and what it measures: revenue, labor hours, or specified tasks. Be specific about whether option periods count and ask for reporting obligations that allow the workshare calculations to be checked. Subcontractors should be wary of aspirational terms, such as a prime contractor’s obligation to make “best efforts” or “good faith efforts” to reach a certain workshare target, which are often unenforceable.

The importance of clear workshare provisions was elucidated in the case of Dexis Interactive, Inc. v. Int’l Bus. & Tech. Consultants, Inc.[1] In Dexis, the subcontractor was promised a target of 40% with a maximum of 41.5% and a minimum floor of 38.5%, which was qualified by the “total cost of work” the subcontractor was to perform. The workshare provisions did not address option years and did not contemplate a material change in the total cost of work. After award, the government added $55M to the existing $70M contract. The prime notified the subcontractor it would be entitled to a mere 15% workshare for the additional $55M. The trial court, as affirmed by the Court of Appeals, ruled in favor of the prime contractor, finding that the workshare provision was insufficiently specific to entitle the subcontractor to what it believed it was entitled to. Dexis represents a real-world example where ineffective drafting cost the subcontractor nearly $13,000,000.

[1] Dexis Interactive, Inc. v. Int’l Bus. & Tech. Consultants, Inc., 2024 Va. App. LEXIS 388, 2024 WL 3331536 (July 9, 2024).

Negotiating, reviewing and understanding the terms of your subcontract’s workshare provisions, in conjunction with Virginia law, is critical to protecting your workshare and assessing any potential claims. Ideally, the workshare provision terms are clearly and definitively negotiated up front, resulting in concise contract language that avoids later disputes.

Do Not Rely On Your Teaming Agreement

Teaming agreements typically precede a subcontract and outline how the parties will pursue a contract, often including the anticipated workshare split. But getting a percentage into the teaming agreement does not necessarily support a subsequent claim. Under Virginia law, if that commitment depends on later negotiations over subcontract terms, or is later superseded by a subcontract, it is likely not enforceable or even admissible as evidence.

For example, in CGI Federal Inc. v. FCi Federal, Inc., the parties’ teaming agreement’s explicit inclusion of a 41% workshare was insufficient to sustain the subcontractor’s workshare claim against the prime. That is because the teaming agreement stated it was “subject to the final solicitation requirements” and subject to “good faith negotiations.” The Supreme Court of Virginia affirmed the overturning of a jury verdict of approximately $12M, finding that the teaming agreement was merely an agreement-to-agree.

Other Virginia rulings have reached similar results, including finding that a teaming agreement’s language that a contractor would “receive, at a minimum, 51% of the labor hours and labor dollars” was unenforceable,[2] or that a teaming agreement’s provision that “upon contract award,” the contractor would receive “51% of the scope of work” was similarly unenforceable.[3]

The terms of a teaming agreement are important to establish a meeting of the minds and joint plan to pursue a government contract. But just because something is agreed to in a teaming agreement does not mean it will be later enforceable, particularly if a subcontract is later executed. It is critical to ensure that material terms from a teaming agreement get properly documented in your subcontract.

[2] Navar, Inc. v. Federal Business Council, 291 Va. 338, 347 (2016).

[3] Cyberlock Consulting, Inc. v. Information Experts, Inc., 939 F. Supp. 2d 572, 580–82 (E.D. Va. 2013).

Ensure Compliance with Your Dispute Resolution Obligations

Once a dispute arises, the first thing to review is your subcontract’s dispute resolution provisions. For example, check: how notices of default must be delivered; who notices are sent to; the deadlines for issuing or responding to a notice; if opportunities to cure are required; whether good faith negotiations are required; and lastly, what legal recourse is available if all else fails.

Failing to comply with notice and dispute provisions can result in a lawsuit getting promptly dismissed after filing, resulting in wasted time and legal fees.

A well-supported notice of default can also start a useful negotiation. Identify the contractual obligations, quantify the shortfall, and make a demand that comports with the law and your contract. Often, parties have a mutual interest in resolving the dispute outside of litigation, and a well-drafted and compliant notice can facilitate that resolution.

To summarize, workshare fights are often the result of uncertain terms contained in a teaming agreement or subcontract. If a dispute arises, understanding the implications of your terms in conjunction with Virginia law will best serve your interests.

If your prime contractor has reduced or eliminated your workshare, or your subcontractor has claimed impermissible reductions, Harrison Clinton (703-526-5587; hclinton@beankinney.com) or Stephen Caruso (703-284-7242; scaruso@beankinney.com) can help evaluate your claims and agreements.

This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.