The U.S. Supreme Court's decision in Loper Bright Enterprises v. Raimondo upended decades of precedent that required courts to defer to agencies' interpretations of statutes. This, known as the Chevron doctrine, allowed for agencies' interpretations of statutes to control when statutes were vague or did not speak to a specific topic. Now that the Supreme Court has specifically overruled Chevron, litigants are free to argue for the best interpretation of an ambiguous statute rather than tied to an agency's merely reasonable interpretation of it.
As Holland & Knight's Chevron Deference Working Team has described in great detail, this change could upend how courts interpret regulations for a number of highly regulated industries. This, of course, includes the government contracting industry.
Before exploring how courts have built outcomes of government contracting disputes utilizing Chevron deference over the last few decades, it is important to note a separate but related line of cases known at times as Auer deference after Auer v. Robbins, 519 U.S. 452 (1997), where courts have given agencies deference to interpret their own ambiguous regulations (as opposed to ambiguous statutes under Chevron). This originally came from Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, and other similar cases, even before Chevron. In Seminole Rock, the Supreme Court held that agency interpretations should be given "controlling weight unless it is plainly erroneous or inconsistent with the regulation." Auer and other cases citing Chevron reinforced this deference and held that an agency's interpretation of its own ambiguous regulations is "controlling unless 'plainly erroneous or inconsistent with the regulation.'" More recently, this was limited by the Supreme Court in Kisor v. Wilkie, 588 U.S. 558, where the Court required a more rigorous test when assessing agency deference for interpreting ambiguous regulations.
Even so, how courts treat litigants will see some significant differences under a Loper analysis as opposed to a Chevron analysis.1 With some small exceptions, the rules of engagement for the entirety of the government contracts industry operates under the Federal Acquisition Regulation (FAR) and other agency supplemental regulations such as the Defense Federal Acquisition Regulations Supplement (DFARS). The U.S. Court of Appeals for the Federal Circuit has long held that the FAR has been entitled to Chevron deference. For instance, in Brownlee v. Dyncorp, the court found that "[t]he FAR regulations are the very type of regulations that the Supreme Court in Chevron and later cases has been held should be afforded deference." This was not a one-time conclusion by the Federal Circuit: In Info Tech. & Applications Corp. v. United States, the Federal Circuit gave provisions of the FAR deference when defining clarifications and discussions. Similarly, in Newport News Shipbuilding and Dry Dock Co. v. Garrett, the Federal Circuit found the regulations interpreting the Contract Disputes Act were afforded deference, and in another case, the circuit court, citing Chevron, allowed the Office of Federal Procurement Policy to fill in the gap about which employee or officer of a contractor could certify a claim when the controlling statute was silent on the issue.
Taken together, the Federal Circuit has a long history of giving FAR-based regulations deference because of Chevron. Indeed, the FAR oftentimes uniquely fills in a lot of holes left by vague statutes that impose restrictions upon contractors. Contractors are already noticing: a party in a case pending before the Federal Circuit is arguing that Loper requires reconsideration of the underlying merits involving an agency's interpretation as to whether local labor laws were violated by the contractor. Whether that longstanding deference is imperiled will be dependent on how the courts view the Administrative Procedures Act and interpret Loper.
To start to understand what may come next, it is helpful to go back in time to the formation of the FAR, which, in its current form, was established on Sept. 19, 1983 (but effective in April 1984). This was authorized by the Office of Federal Procurement Policy Act of 1974, which required 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 act did not dictate specific parts of the FAR; that often came later in the form of statutes passed by U.S. Congress or executive orders issued by the president dictating new procurement policies. Where Chevron could have the most impact is where FAR and supplemental agency regulations interpret or fill in statutory holes.
Numerous procurement policies have come subsequently. Take, for instance, the McNamara-O'Hara Service Contract Act (now called the Service Contract Labor Standards) that requires nonexempt service workers on government contracts to be paid a minimum salary and benefits.2 The Service Contract Act itself is just four pages long. Its rulemaking grant to the secretary of labor is written narrowly. Yet the regulations and interpretive guidance issued by the U.S. Department of Labor clarifying and detailing the requirements are hundreds of pages long. Will those regulations be entitled to deference any more if there is an equally plausible or better explanation of congressional intent? What if there is a dispute over an ambiguity in the Service Contract Act regulations themselves (which there are many) under potential Auer deference? Will there be a difference because some of these regulations are agreed to by contractors contractually?
Even so, it does not seem like the absence of Chevron deference will stop rulemaking in its tracks. Initiatives like the U.S. Department of Defense's (DOD) Cybersecurity Maturity Model Certification (CMMC) will probably continue as normal, though an enterprising litigant may try to use Loper as a basis to challenge its legality by arguing DOD somehow overstepped its statutory authority. Other initiatives, such as the Chinese telecommunications ban and the TikTok ban, should withstand scrutiny because the regulatory clauses created by the FAR Council closely mirrored the statutes on which they were based.
Overall, the answer will not be easy to define because the federal contracting system relies on a confluence of statutes (such as the Administrative Procedure Act and the Tucker Act) and various bodies of regulations that get their authority from a myriad of sources. One thing is certain: each dispute between a contractor and the government will be looked at with a different lens to determine whether a contractor's interpretation of a statute is best – and in those circumstances, the contractor's view may win out.
Certainly, as the cadence of the government contracting system carries on, its future may be radically different with agencies unable to rely on Chevron to backstop their actions to fill in statutory holes or resolve ambiguities.
Footnotes
1 Before Chevron, the Supreme Court held in Skidmore v. Swift, 323 U.S. 134, that agency interpretations "constitute a body of experience and informed judgment to which courts and litigants may properly resort to for guidance." (Emphasis Added)
2 The Service Contract Act pre-dated the FAR, but the regulations implementing it (found at 29 CFR Part 4) were not established until a month after the FAR was created. And the FAR clause placing the requirement in contracts came after that.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.