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Procurement Lawyer Newsletter

Winter 2025

Why the Recent Supreme Court Loper Bright Decision Leaves Government Contracts Disputes Unchanged

Marit Bank, Kelly Dulgarian, Adrianne L Goins, Joseph Patrick McCool, and Edward R Murray

Summary

  • The Supreme Court’s conclusion in Loper Bright—that courts should not defer to agency interpretations of ambiguous statutes—is unlikely to affect government contract disputes.
  • Loper Bright was based on a provision of the Administrative Procedure Act that is inapplicable to government contract disputes.
  • The policy considerations that arise when the government acts as a sovereign regulator are different than those that arise when the government acts as a contracting partner.
  • Courts should continue to defer to government contracting regulations based on unambiguous congressional delegations of authority.
  • Auer deference remains unaffected, and courts will continue to defer to agency interpretations of their regulations.
Why the Recent Supreme Court Loper Bright Decision Leaves Government Contracts Disputes Unchanged
Stefano Madrigali/Moment via Getty Images

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In light of the US Supreme Court’s decision in Loper Bright Enterprises et al. v. Raimondo, Secretary of Commerce, et al., which overruled the long-standing precedent of Chevron, U.S.A., Inc. v. NRDC, Inc., some in the government contracts bar are heralding a new era of contract disputes in which courts will entertain requests to invalidate regulations governing the federal government’s acquisition of goods and services—specifically, provisions of the Federal Acquisition Regulation (FAR), agency supplements such as the Defense Federal Acquisition Regulation Supplement (DFARS), and the Cost Accounting Standards (CAS)—that are incorporated as contract clauses into the terms and conditions of government contracts. Those celebrating the demise of Chevron predict that courts will uphold contractors’ challenges to agency interpretations of government contracting regulations.

In this article, after reviewing Chevron deference and its application to government contracting regulations, we explain why the Supreme Court’s conclusion in Loper Bright—that courts should not defer to agency interpretations of ambiguous statutes—is unlikely to affect government contract disputes. First, in Loper Bright, the Supreme Court focused on a specific provision of the Administrative Procedure Act (APA), which is not applicable to the resolution of government contract disputes. Second, courts should not apply the Court’s reasoning in Loper Bright to government contract disputes because the policy considerations that arise when the government promulgates regulations in its sovereign capacity, such as the regulation at issue in Loper Bright, differ significantly from the policy considerations that arise when the government acts as a contracting partner. Third, even if courts were to entertain challenges to government contracting regulations in this new era, courts should continue to defer to regulations based on unambiguous statutory delegations of rulemaking authority. Finally, Loper Bright does not change the doctrine under which courts defer to agency interpretations of ambiguous regulations.

Chevron Deference and Its Application to Government Contracting Regulations

Review of Chevron Deference

On June 28, 2024, the US Supreme Court decided Loper Bright, overruling Chevron. To understand the impact of the Loper Bright decision, it is necessary to first understand the Chevron decision.

In Chevron, the question presented to the Supreme Court was whether the interpretation of the Clean Air Act Amendments of 1977 by the Environmental Protection Agency (EPA), as reflected in certain regulations, was reasonable. The Court explained that in reviewing an agency’s interpretation of a statute, the first step is to ask “whether Congress has directly spoken to the precise question at issue.” If Congress’s intent is clear, the inquiry ends because “the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” The Court explained that Chevron deference arose at a second step, only if “Congress had not directly addressed the precise question at issue.” When “the statute is silent or ambiguous” on the issue, a court would determine “whether the agency’s answer is based on a permissible construction of the statute.” If the agency’s interpretation was reasonable, a court would defer to the agency’s interpretation under the doctrine that became known as “Chevron deference.” In Chevron, the Court explained that “considerable weight should be accorded to an executive department’s construction of a statutory scheme it is entrusted to administer” and “a court may not substitute its own construction of a statutory provision for a reasonable [agency] interpretation.” The Court held that the interpretation of the statute by the EPA was permissible because it was reasonable and entitled to deference.

Though the EPA promulgated the rules at issue in Chevron under the procedures required by the APA, the Supreme Court did not rely on the APA in creating the doctrine of Chevron deference. The Supreme Court later explained that Chevron deference applied where “Congress delegated authority to the agency generally to make rules carrying the force of law” and the agency followed formal procedures in doing so. Federal courts employed Chevron deference to assess the validity of regulations promulgated under the APA and other rulemaking procedures with similar notice-and-comment requirements.

Chevron Deference and Government Contracting Regulations

In deciding government contracts disputes, the US Court of Appeals for the Federal Circuit, the US Court of Federal Claims, and the boards of contract appeals applied Chevron deference and upheld government contracting regulations incorporated into government contracts when the court or board determined that an agency’s interpretation of the relevant statute was reasonable.

For instance, the Federal Circuit applied Chevron deference to the cost disallowance provisions in the FAR known as the “cost principles.” The cost principles are incorporated into government contracts through the FAR’s Allowable Cost and Payment Clause. Contracting officers’ disallowances of costs under the cost principles frequently lead to contract disputes with contractors. In Brownlee v. DynCorp, the Federal Circuit applied Chevron deference to review the cost principle disallowing reimbursement of a contractor’s legal costs related to criminal proceedings. The court asked whether the interpretation of the definition of “contractor” by the Secretary of Defense was consistent with 10 U.S.C. § 2324, the statute addressing allowable costs under defense contracts, as amended by the Major Fraud Act of 1988. The Federal Circuit found the statute to be ambiguous. Applying Chevron deference, the court held that the cost principle was a “reasonable interpretation” of the statutory language. The court emphasized that “FAR regulations are the very type of regulations that the Supreme Court in Chevron and later cases has held should be afforded deference.”

The Court of Federal Claims also accorded Chevron deference to government contracting regulations. For example, in AEY, Inc. v. United States, the court considered a DFARS clause prohibiting the contractor from acquiring supplies “‘from a Communist Chinese military company.’” Relying on Chevron, the court explained that though the relevant statutory language was “open to varying interpretations,” “the government’s interpretation . . . is entirely reasonable and well within the boundaries of the text.” The court held that because the contractor breached the DFARS clause “explicitly incorporated” into the contract, the Army was entitled to terminate for default.

Like federal courts, the boards of contract appeals applied Chevron deference to determine whether agencies’ interpretations of statutes were permissible and therefore enforceable. For example, in Sundstrand Corporation, the Armed Services Board of Contract Appeals (ASBCA) applied Chevron deference in determining that the FAR Council properly implemented provisions of the Federal Acquisition Streamlining Act of 1994 when the FAR Council issued a standard contract clause on installment payments under commercial contracts.

With Chevron deference eliminated by the Supreme Court in Loper Bright, the question becomes: What effect, if any, will Loper Bright have on judicial review of FAR clauses and other regulations incorporated into government contracts? As noted above, many commentators predict that Loper Bright heralds a new era of challenges to government contracting regulations. For several reasons, we disagree.

The Loper Bright Decision Should Not Affect Obligations Under Government Contracts

Loper Bright Is Based on the APA and Is Inapplicable to Government Contracting Disputes

In Loper Bright, the Supreme Court focused on the “Scope of Review” provision of the APA, 5 U.S.C. § 706, which provides the parameters for judicial review of agency action under the APA. The Court’s decision is explicitly based on the APA and grounded in the Court’s reading of this provision in particular.

The petitioners in Loper Bright were commercial fishing companies subject to the Magnuson-Stevens Fishery Conservation and Management Act (MSA). The MSA allowed the National Marine Fisheries Service to require that “one or more observers be carried on board” fishing vessels “for the purpose of collecting data necessary for the conservation and management of the fishery.” The Service published a rule requiring that, where the agency declined to provide a government-paid observer, the companies were required to contract with and pay for a government-certified observer. The companies challenged the rule, which had been promulgated under the APA. The below courts, relying on Chevron, found the Service’s interpretation of the MSA to be reasonable.

In Loper Bright, the Supreme Court overruled Chevron and vacated and remanded the decision below. The Supreme Court relied entirely on the APA, declaring: “The deference that Chevron requires of courts reviewing agency action cannot be squared with the APA.” The Court focused on the Scope of Review provision of the APA, 5 U.S.C. § 706, noting that, “[i]n addition to prescribing procedures for agency action, the APA delineates the basic contours of judicial review of such action.” The Court observed that the APA “prescribes no deferential standard for courts to employ” in reviewing agency actions. Instead, the Court explained, the APA’s Scope of Review provision “requires courts to ‘hold unlawful and set aside agency action, findings, and conclusions found to be . . . not in accordance with law.’” The Court ultimately concluded that “Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires.”

Loper Bright relies entirely on the text of the APA and does not address whether its holding overruling Chevron impacts cases beyond those brought under the APA. The APA is not applicable to the resolution of government contracting disputes. Different statutes—the Contract Disputes Act and the Tucker Act—give contractors the right to bring contract claims against the government and provide jurisdiction to courts and boards to decide such disputes. Because it is cabined to the APA, the Loper Bright decision should have no impact on government contracts disputes.

In Loper Bright, the Supreme Court interpreted Section 706 of the APA, which provides the scope of review for a court deciding a Section 702 action. Section 702 of the APA grants a “right of review” for “a person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute.” A right of action under Section 702, however, has many limitations: Section 702 is not an independent grant of jurisdiction; Section 702 actions are available only when “there is no other adequate remedy in a court”; and Section 702 is expressly limited to actions “seeking relief other than money damages.” As the Ninth Circuit summarized in Tucson Airport Authority v. General Dynamics Corporation, “the APA waives sovereign immunity for [the contractor’s] claims only if three conditions are met: (1) its claims are not for money damages, (2) an adequate remedy for its claims is not available elsewhere and (3) its claims do not seek relief expressly or impliedly forbidden by another statute.” Actions brought under Section 702 of the APA are unrelated to disputes arising under government contracts.

Aggrieved federal contractors have an adequate remedy for their claims against the government based on two statutes waiving sovereign immunity. First, the CDA gives a contractor the right to appeal a government contacting officer’s final decision to the boards of contract appeals or to bring an action in the Court of Federal Claims. Second, the waiver of sovereign immunity under the Tucker Act confers jurisdiction in the Court of Federal Claims for claims against the United States “founded . . . upon any express or implied contract with the United States.” Tucker Act jurisdiction is further limited to cases seeking money damages against the United States. As noted above, Section 702 of the APA applies only to actions seeking relief other than money damages.

Accordingly, courts have repeatedly rejected plaintiffs’ attempts to bring government contract actions under the APA. In Eagle-Picher Industries, Inc. v. United States, for instance, the US Court of Appeals for the Tenth Circuit opined that “the waiver of sovereign immunity in the APA does not extend to actions founded upon a contract with the United States.” Recently, the Federal Circuit reiterated this distinction in Boeing Company v. United States, where Boeing challenged the validity of FAR 30.606, a FAR provision implementing the CAS. The Court of Federal Claims had decided it lacked jurisdiction to review the FAR provision under the APA and dismissed the action. The court found that the Court of Federal Claims was only partially correct and reversed, explaining that challenges to non-procurement regulations fall under the APA and must be brought in federal district court, while challenges to government contracting regulations in contract cases must be resolved under the CDA and, per the Tucker Act, may proceed in the Court of Federal Claims:

The trial court erred when it determined that, pursuant to § 702 of the APA, it lacked jurisdiction to determine the validity of FAR 30.606. The trial court is correct that, in general, for actions that do not involve contract-related claims, the Court of Federal Claims’s limited jurisdiction under the Tucker Act does not authorize review of pure challenges to the validity of a regulation. Instead, such regulations are properly challenged in a district court under the APA. See 5 U.S.C. §§ 702–06. However, . . . when the action is a contract case—and more importantly, a contract case that is subject to the CDA—the Court of Federal Claims has exclusive jurisdiction to review the validity of the challenged regulation.

Thus, the Federal Circuit found that the Court of Federal Claims had jurisdiction to review Boeing’s challenge to the regulation—but under the CDA, not the APA.

The APA provision the Supreme Court interpreted in Loper Bright, 5 U.S.C. § 706, is inapplicable to government contract disputes because government contract disputes are brought under different statutes. Rights of action outside of the APA are not addressed in the Loper Bright decision.

Government Procurement Policymaking Differs from Sovereign Rulemaking

The preceding analysis explained that Loper Bright is not applicable to government contracting disputes brought under the CDA. This begs the question, however, of whether courts should extend the reasoning in Loper Bright—that courts should not defer to agency interpretation of ambiguous statutes—to the review of government contracting regulations like the FAR and the CAS, under the CDA. We believe that courts should not. Government contracting rules are fundamentally different from rules promulgated under the APA. When the government issues government contracting regulations, it is acting in its contracting capacity, rather than its sovereign capacity.

The Government’s Roles as Contractor and Sovereign

In United States v. Winstar Corporation, the Supreme Court reiterated “the general principle that, ‘when the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.’” This was not a new or original principle, but one that had been expressed during a series of Supreme Court decisions beginning in the early twentieth century that recognized the “sovereign acts doctrine.” In Horowitz v. United States, the Court recognized “the two characters which the government possesses as a contractor and as a sovereign.” The Horowitz Court thus established that “the United States when sued as a contractor cannot be held liable for an obstruction to the performance of the particular contract resulting from its public and general acts as a sovereign.” Winstar somewhat modified this understanding, holding that there were instances where these two characters were “fused,” but for purposes here, the point is clear: Government action comes in two flavors—as the sovereign governing the behavior of its citizens and as an entity entering into contracts, where its rights are the same as those of private parties.

This context illuminates the different statutory authorities for rulemaking under the APA, where the government acts as the sovereign, and rulemaking under Title 41 of the US Code, where the government sets its procurement rules and policies. Government contracting regulations are not regulations by which the government limits the freedoms, or regulates the behavior, of its citizens like regulations promulgated under the APA. Rather, procurement rules identify the conditions under which the government, in its commercial capacity, will agree to do business. The government, like any private contracting party, has a right to set the terms and conditions it will agree to in its contracts. Creating standard clauses (and the rules, like the CAS, referenced in those clauses) is not sovereign rulemaking; it is using the government’s leverage to set the terms and conditions to which the government requires its contracting partners to agree. Contractors, for their part, receive compensation for agreeing to those terms.

Unlike abiding by regulations promulgated by the government as sovereign, participation in federal procurement is discretionary. If an entity finds untenable the policies and terms it must agree to in order to contract with the government, then it may choose not to enter into federal government contracts. This concept should be familiar to many large private government contractors, who demand that their subcontractors agree to standard terms and conditions to obtain their business.

Undoubtedly, the government cannot create procurement rules that violate the statutes that govern the federal procurement process. If the government is to be treated the same as private contracting parties, however, the procurement rules promulgated by the federal government must continue to be accorded deference, i.e., treated like the procurement policies of private entities, which would be something like Chevron deference. In other words, when the government is setting its own procurement policies, those policies should be accepted by the courts as reasonable so long as they do not clearly violate the applicable statutes. A court cannot and should not substitute its judgment for that of the government’s procurement policymakers, who are setting policies designed to gain the most advantageous government contracts for the American taxpayer.

The history of the FAR system and the CAS underscores the status of the government as a contracting party and supports the point that government contracting regulations should continue to be accorded deference in the post-Chevron era.

The Federal Acquisition Regulation System

Congress has long recognized the need to separate government procurement and contracting regulations from other types of regulations. The modern regulations date back to the period following World War II, when Congress passed the Armed Services Procurement Act of 1947 and consolidated the military departments under a newly created Department of Defense (DoD). The Armed Services Procurement Regulations (ASPR) were promulgated shortly thereafter, in 1949. Although the ASPR provided some guidance, agencies largely followed their own procurement procedures, often adopting different practices that evolved due to the culture within an agency and the types of requirements involved.

Decades later, Congress began to pursue standardization of federal contracting with uniform and predictable rules. In 1974, Congress created the Office of Federal Procurement Policy (OFPP) “to provide overall direction of procurement policies, regulations, procedures, and forms for the executive agencies.” In 1978, the OFPP began establishing what would become the FAR system, which encompasses the FAR and agency supplemental acquisition regulations. In 1979, Congress took the first step in expanding the authority it delegated to the OFPP by authorizing the Administrator to issue policies promoting the implementation of a more uniform procurement system. The OFPP issued guidance in 1980 providing that the General Services Administration (GSA), DoD, and the National Aeronautics and Space Administration (NASA) would jointly issue one FAR system and other executive agencies would issue supplementing acquisition regulations. This issuance also established a FAR Council with responsibility for the development of the procurement regulations composed of the principal acquisition officials of the major procuring agencies and chaired by the OFPP Administrator.

In 1983, Congress again increased the powers of the OFPP with the passage of the Office of Federal Procurement Policy Act Amendments of 1983. The OFPP exercises significant regulatory authority through issuance of the FAR. The FAR, in its current form, was established on September 19, 1983, with an effective date of April 1, 1984. In 1988, the FAR Council was formally created to issue the FAR and ensure it remained effective in meeting the procurement needs of the federal government and complying with legislative and policy changes.

The Federal Acquisition Policy Division of GSA, working with DoD and NASA, writes and maintains the FAR. The division coordinates with the OFPP and other agencies to implement laws, executive orders, other agency regulations, and government-wide policies into the FAR. The FAR Council plays a critical role in this continuous process, collaborating with various stakeholders to ensure the FAR remains effective and relevant, adapting to changes in laws, policies, and procurement needs, to ensure the government’s acquisition system operates smoothly and effectively.

The Cost Accounting Standards

The CAS—the rules under which contractors accumulate and report their costs on government contracts—also deserve deference by courts considering the validity of government contracting regulations. Congress granted the CAS Board “exclusive authority to prescribe, amend, and rescind cost accounting standards, and interpretations of the standards, designed to achieve uniformity and consistency in the cost accounting standards governing measurement, assignment, and allocation of costs to contracts with the Federal Government.” Between 1972 and 1980, the Board promulgated 19 Cost Accounting Standards.

The original CAS Board was dissolved in 1980 and later reestablished by Congress as an independent Board within the OFPP. The application of the CAS was expanded from defense contracts to civilian agency contracts, with the goal of achieving greater consistency across federal contracting.

Congress’s delegation of authority to the CAS Board remains unchanged. In the National Defense Authorization Act for Fiscal Year 2017, Congress included a provision amending 41 U.S.C. § 1501, requiring the CAS Board to meet quarterly, to review CAS-related disputes, and to conform the CAS with generally accepted accounting principles (GAAP) where practicable. While directing the CAS Board to make compliance less burdensome for industry, Congress did not alter the CAS Board’s broad and exclusive authority to use its expertise to determine the extent to which such conformance could be made.

Courts Defer to Government Contracting Regulations Based on Clear Congressional Delegations of Authority

As noted above, Loper Bright does not and should not apply to government contracting disputes, given the distinction between the government’s sovereign and contracting capacities. But even if a court were to extend the reasoning in Loper Bright to government contracting regulations, those regulations would survive without Chevron deferencebecause they are based on statutes unambiguously authorizing the executive branch to develop and issue them. Such clear delegations of rulemaking authority “never needed the protections of Chevron deference.”

In Loper Bright, the Court clarified that “when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring the agency acts within it.” The Loper Bright majority acknowledged:

In a case involving an agency, of course, the statute’s meaning may well be that the agency is authorized to exercise a degree of discretion. Congress has often enacted such statutes. For example, some statutes “expressly delegate[]” to an agency the authority to give meaning to a particular statutory term. Batterton v. Francis, 432 U.S. 416, 425 (1977) (emphasis deleted). Others empower an agency to prescribe rules to “fill up the details” of a statutory scheme, Wayman v. Southard, 10 Wheat. 1, 43 (1825), or to regulate subject to the limits imposed by a term or phrase that “leaves agencies with flexibility,” Michigan v. EPA, 576 U.S. 743, 752 (2015), such as “appropriate” or “reasonable.”

When the best reading of a statute is that it delegates discretionary authority to an agency, the role of the reviewing court under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to constitutional limits. The court fulfills that role by recognizing constitutional delegations, “fix[ing] the boundaries of [the] delegated authority,” H. Monaghan, Marbury and the Administrative State, 83 Colum. L. Rev. 1, 27 (1983), and ensuring the agency has engaged in “‘reasoned decisionmaking’” within those boundaries, Michigan, 576 U.S., at 750 (quoting Allentown Mack Sales & Service, Inc. v. NLRB, 522 U.S. 359, 374 (1998)); see also Motor Vehicle Mfrs. Assn. of United States, Inc. v. State Farm Mut. Automobile Ins. Co., 463 U.S. 29 (1983). By doing so, a court upholds the traditional conception of the judicial function that the APA adopts.

In the very paragraph where the Supreme Court announces “Chevron is overruled,” the Court recognizes an exception that “when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it.” In the months since the Supreme Court issued the Loper Bright decision, lower courts have interpreted Loper Bright consistent with this direction, recognizing that the decision does not affect judicial review of an agency’s interpretation of a statute that expressly delegates interpretive authority to the agency.

As explained above, most, if not all, FAR, DFARS, and CAS provisions are derived from these types of express statutory delegations from Congress. In fact, this exception appears to apply to government contracting regulations as a whole. As discussed above, the Federal Procurement Policy Act includes a mandate to the executive branch to “establish policies, procedures and practices” to ensure that the government acquired property and services “of the requisite quality and within the time needed at the lowest reasonable cost.” The FAR system was born from this direct delegation from Congress. Arguably then, government contracting regulations fall within the express delegation exception identified in Loper Bright.

Even if the entire FAR system does not fall within this exception, many of its individual regulations unquestionably do. Many FAR and agency supplement provisions and clauses result from express direction by Congress to regulate. The annual National Defense Authorization Act (NDAA) is replete with this type of direction to agencies in the area of procurement. For example, Section 893 of the 2011 NDAA mandated the development of the Contractor Business Systems DFARS regulations. This resulted in the creation of numerous DFARS provisions and mandatory clauses implementing this direction. Under Loper Bright, courts “must respect” the Defense Acquisition Regulations Council’s interpretation and implementation of these DFARS clauses and provisions.

For the CAS, as explained above, there is no ambiguity in the statute to interpret—Congress’s delegation to the CAS Board is broad, express, and unambiguous. This is equally true of the statutes governing the allowability of costs, which are addressed in FAR Part 31. The Allowable Costs Statute identifies 16 types of contractor costs that are unallowable, and also states that “[t]he provisions of the Federal Acquisition Regulation implementing this chapter may establish appropriate definitions, exclusions, limitations, and qualifications.” The statute then grants broad authority to the drafters of the FAR cost principles, stating that “[t]he Federal Acquisition Regulation shall contain provisions on the allowability of contractor costs. Those provisions shall define in detail and in specific terms the costs that are unallowable, in whole or in part, under covered contracts.” It is difficult to imagine a more express delegation of authority to agency rulemaking than the statutes governing the CAS and the cost principles. Accordingly, as recognized by the Supreme Court in Loper Bright, the interpretations provided in the CAS and the cost principles must be accorded deference by reviewing courts and boards.

Courts Defer to Agency Interpretations of Ambiguous Regulations

Finally, it is important to remember that Loper Bright is about how agencies interpret statutes in the rules they promulgate. Under the separate doctrine of “Auer deference,” courts defer to agency interpretations of ambiguous regulations. The doctrine of Auer deference provides that an agency’s interpretation of its regulations is controlling unless it is plainly inconsistent with the regulation. An agency is free to resolve ambiguities and construe its own regulations, so long as the regulations themselves were written consistent with statutory limits.

This doctrine was articulated a half century before Auer, in Bowles v. Seminole Rock & Sand Co., in which the Supreme Court explained that an agency’s interpretation of a regulation “becomes of controlling weight unless it is plainly erroneous or inconsistent with the regulation.” The Supreme Court has consistently distinguished regulatory interpretation from statutory interpretation, explaining: “When the construction of an administrative regulation rather than a statute is in issue, deference is even more clearly in order.”

The Supreme Court recently reaffirmed and clarified Auer deference in Kisor v. Wilkie. First, the Court explained that Auer deference applies only if the regulation being interpreted is “genuinely ambiguous, even after a court has resorted to all the standard tools of interpretation.” “If uncertainty does not exist, there is no plausible reason for deference.” Second, the Court explained that Auer deference is based on the presumption “that Congress intended for courts to defer to agencies when they interpret their own ambiguous rules.” This presumption applies—and courts follow Auer deference—when the agency’s regulatory interpretation is “authoritative,” implicates the agency’s “substantive expertise,” and reflects the agency’s “‘fair and considered judgment.’” When that presumption does not apply, the Court explained, a court should defer to an agency’s interpretation of a regulation only if it is persuasive.

In Perry v. Martin Marietta Corporation, the Federal Circuit deferred to the intent of the CAS Board when it reviewed CAS clauses incorporated into government contracts through FAR clauses. Interpreting FAR 52.230-3 and FAR 52.230-4, through which the CAS were incorporated into the contractor’s CAS-covered contracts, the court explained that because “the CAS [was] the source for the language and authority for these provisions of the FAR,” the court’s “task in interpreting the meaning of these FAR provisions [was] ultimately to ascertain the CAS [Board]’s intended meaning when it promulgated the CAS.” The court looked to guidance from the CAS Board “to aid in interpretation.”

The Court of Federal Claims applied the same deferential standard for reviewing CAS clauses in General Electric Co. v. United States and Raytheon Company v. United States. In Raytheon, the court determined that even the CAS Board’s failure to regulate—its decision not to promulgate a proposed rule on allocation of post-retirement benefit costs—was entitled to deference. While recognizing that generally proposed regulations have no legal effect and are not entitled to deference, the court noted that the CAS Board issued a final agency decision explaining its decision not to finalize the rule. The court explained, “a reasoned decision of an agency to maintain the status quo and not to regulate is entitled to deference.”

Government contract disputes about the interpretation of FAR, DFARS, and CAS provisions, or the standard clauses incorporated into contracts, typically do not involve the interpretation of statutes. Instead, they focus on the meaning of the regulations. Where a court or board finds a regulation to be ambiguous, the doctrine of Auer deference requires the court or board to defer to an agency’s reasonable interpretation of the regulation. This approach is unaffected by the Supreme Court’s Loper Bright decision overruling Chevron.

Conclusion

While the Supreme Court’s decision in Loper Bright represents a monumental shift in judicial review of sovereign rulemaking, the decision is unlikely to significantly impact government contract disputes. The decision, focused on the APA, does not apply to the adjudication of government contract disputes governed by the CDA. Government contracting rules, rooted in the government’s role as a contracting partner rather than a sovereign regulator, are premised on distinct statutory frameworks and policy considerations. Moreover, even if the Loper Bright reasoning were extended to procurement rules, the vast majority of regulations would withstand scrutiny because they were created based on unambiguous statutory authority. Importantly, the doctrine of Auer deference, which governs the interpretation of ambiguous regulations, remains unaffected. Consequently, while Loper Bright shines brightly in the realm of administrative law and sovereign rulemaking, its glow fades when it comes to disrupting the established principles underpinning government contracting disputes.

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