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Non-Competition Covenants in Government Contracts

In Preferred Systems Solutions, Inc. v. GP Consulting, LLC, Virginia Supreme Court has enforced a covenant not to compete in the context of a federal government contract. The contract at issue was a blanket purchase agreement, or “BPA,” under which each of ten information technology companies agreed to provide system solutions work for the Defense Logistics Agency (“DLA”) in connection with the latter’s business systems modernization program. The BPA did not guarantee work to any of the companies, but rather set up a structure under which DLA could issue task orders to any of them. One of those companies, PSS, retained GPC, a consulting firm, to provide systems solutions assistance on any such task orders issued to PSS. The subcontract between PSS and GPC contained a non-competition covenant stating that for a one year period following any termination of that subcontract, GPC would not provide the type of service which PSS was providing on the modernization program to any of the other nine companies working on that program. GPC subsequently terminated its subcontract with PSS and days later began providing systems solutions assistance on the modernization program to Accenture, which was one of those other companies. In PSS’ lawsuit seeking enforcement of the non-competition covenant and damages from GPC, the Virginia Supreme Court held that the non-competition covenant was enforceable, because it was narrowly drawn to prohibit GPC from performing work on one particular government program. The Court also upheld a lower court’s finding that, because of its breach of the non-competition covenant, GPC was liable to PSS for lost profits damages and that the amount of such damages could be determined based on evidence of PSS’ established profit margin and the amount of time that GPC had spent performing work for Accenture in violation of the non-competition covenant.