Contracts

Background

The federal government contracts for a variety of goods and services, from office supplies to construction of canals or memorials.  But the government also contracts for private use of public natural resources including water collected by federal reclamation projects, oil or gas found under federal lands and along coasts, or timber logged from national forests.  And, in line with modern trends for deregulation and privatization, it increasingly turns to contracts as a means of implementing regulatory goals, as seen in habitat conservation plans. 

The authority of the federal government to enter into these various types of contracts is not in question.  Rather, the war rages over whether and how much the federal government can adapt and respond to changing societal and ecological needs without breaching its contracts.  This is not a new battle.  The Constitution specifically prohibits the states from “impairing the obligations of contracts” and as early as 1810 the Supreme Court struggled with the balance between the state’s power to change its laws and the private party’s rights received through a public contract.  The Court initially treated the private contract right as absolute.  But virtually any legislation will “impair” some public or private contract.  Consequently, the Court spent the next one hundred years developing a body of law to mitigate the debilitating consequences of an absolute contract right against state action.   

The Constitution does not contain a parallel provision inhibiting the federal government.  The federal government faces liability, constitutionally speaking, only under the takings clause ("nor shall private property be taken for public use, without just compensation") and under the due process clause, through the judicial doctrine of economic substantive due process.  History does not show that a federal contracts clause was mistakenly omitted.  Nonetheless, courts have long applied principles of private contract law to federal government contracts.  With the passage of the Tucker Act in the mid-1800’s, specialty courts (the Court of Federal Claims and US Court of Appeals for the Federal Circuit, formerly a single Court of Claims) have had nearly exclusive jurisdiction over claims for money damages against the federal government including claims based on contracts.   

Those courts have developed, with occasional input from the Supreme Court, a federal common law of contracts largely mirroring private contract law but with several mitigating public contract doctrines.  In most cases, those doctrines never come into use.  This is because the vast majority of federal government contract cases are humdrum goods and services – “procurement” – contracts with mandatory provisions that avoid the public contract doctrines.  But the federal government enters numerous non-procurement contracts in managing public lands and resources.  These contracts are governed by contract law, including the public contract doctrines.

Property right advocates have attempted to limit the law of public contracts to private law, arguing that a private party’s contract rights, once set forth in a contract with the federal government, are sacrosanct.  They claim that any attempt to lessen those rights or otherwise interfere with them are, in accordance with private contract law, a breach of the contract and the federal government is liable for the damages.  Thus, they conclude, even if the individual cannot stop a valid executive or legislative action, she can always be paid.  In Winstar (1996), a highly fragmented Supreme Court showed some sympathy for this view of government contracts.   

However, these arguments ignore the fact that the government is fundamentally unlike a private party to a contract.  Unlike a private party, the government has the primary duty and responsibility to make policy choices based on current circumstances to promote the general welfare.  In addition, the government is bound by the Constitution to leave policy choices to Congress, not to low- or mid-level executive agency employees.  In fact, the unique nature of government is exactly why the courts developed special contract law principles only for government contracts.  But the crucial issue is whether the current community can make reasonable, policy choices for the broader good of the region or nation without being effectively vetoed by individual contract holders.


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