You just need to give the finishing blow to one of your squad members. It doesn't have to be one of the main four party members, or even in combat:
* Pull right trigger to pull up the combat radial menu
* Press Y until friends are targeted
* Use Left Button / Right Button to target the victim
* Press A to attack / fire.
Do this until your target is dead, not just unconscious -- you can continue attacking them even when they are laying on the ground.
I did have to reposition my squad a time or two for the targetting to continue to work, a bug I presume. Also, be sure you are not playing on Rookie difficulty, as there is little to no friendly fire damage on that setting.