SOVEREIGN ACT DEFENSE TO SEQUESTRATION CLAIMS

The sovereign act defense was developed by the courts to shield the government from liability for breach of contract and, therefore, arguably all contract claims arising under or related to government contracts.  The government indeed has a dual role as a contracting party and as a regulator making laws for the public good. In the latter role, and when the government acts solely as regulator (through the executive or legislative branches, it can successfully assert the sovereign acts defense in the case of inadvertent breach of its contracts.  But that's the extent of the defense.  Pure and Simple.

There's a lot of talk going around inside the beltway that contractor changes and termination claims arising from the Budget Control Act (BCA) sequestration will be defeated by the sovereign act defense.  Shame on the government for asserting it, if it does.  That is not the kind of behavior we expect from our representatives.  The BCA was not enacted for the general public welfare without any intent of affecting government procurement.  Quite the contrary.  One of the specific purposes of the BCA was to curtail government procurement.

If federal actions are taken for the public welfare and the effect on individual contracts is merely incidental, the defense can apply.  For example, closing a national park during fire season may impact a construction contractor's contract incidentally.  The defense, in such a case, has been applied.  The most significant case was decided by the Supreme Court in 1996.  The Supreme Court held that the defense did not apply in the so-called Winstar case where a savings and loan company sued the government for breach of its contract.  The government had passed legislation having the effect of changing agreements entered into between the government and the company.

So, the question is whether the government's action through the BCA had a general welfare purpose and effect or whether its purpose was to curtail procurement spending. And, even if the BCA was general welfare legislation, the defense will not apply if the legislation was "tainted by a government object of self-relief."  The greater the government's self-interest, the more unlikely it is that the defense will work.  You be the judge.  It seems to us, the BCA principally and primarily was self-relief by the government to cut back on procurement (and other) expenditures.

So let's be sure to tell this side of the story.  Contractor claims for changes, stoppages and terminations are alive and well but it may take another run through the courts to put the sovereign act defense in its place.

bill@spriggslawgroup.com           www.govconalert.com