the sovereign acts doctrine: historical development and ...§ 50.01 the sovereign acts doctrine:...

5 Pratt's Government Contracting Law Report § 50.01

Pratt's Government Contracting Law Report > 2019 Pratt’s Government Contracting Law Report > Volume 5 Number 5 Pratt’s Government Contracting Law Report May 2019

Author

By Kevin P. Mullen and Sandeep N. Nandivada*

§ 50.01 The Sovereign Acts Doctrine: Historical Development and Relevance to Recent Wartime Contracting

This article discusses the development of the Sovereign Acts Doctrine from its inception during the Civil War, through its most seminal Supreme Court decisions, to the recent cases involving wartime contracts. It concludes with a discussion of practical lessons for contractors confronted with the dual nature of the United States as a contracting partner.

When the government acts as a contracting party, the law applicable to private entities governs the government’s contractual rights and duties. Contractors doing business with the United States, therefore, can rely on the terms of a government contract to determine the legal remedy for government actions affecting performance. The law also recognizes, however, that the actions of the United States, in its capacity as the sovereign, can affect a contractor’s performance of a government contract. In such instances, the United States is absolved from liability for damages resulting from its sovereign acts, so long as those acts are “public and general” and not taken merely to avoid contractual obligations. This common law defense to breach of contract is known as the Sovereign Acts Doctrine.

This article discusses the development of the Sovereign Acts Doctrine from its inception during the Civil War, through its most seminal Supreme Court decisions, to the recent cases involving wartime contracts. Although the law regarding sovereign acts is applicable to government contracts as a general matter, its historical evolution and most recent cases reflect its particular relevance for contractors involved in military operations. The article concludes with a discussion of practical lessons for contractors confronted with the dual nature of the United States as a contracting partner.

EMERGENCE OF THE SOVEREIGN ACTS DOCTRINE

The Sovereign Acts Doctrine has its roots in three cases at the U.S. Court of Claims:

(1) Deming v. United States, 1 Ct. Cl. 190 (1865);

(2) Jones v. United States, 1 Ct. Cl. 383 (1865); and

(3) Wilson v. United States, 11 Ct. Cl. 513 (1875).

Each of these foundational decisions involved contractor claims under wartime conditions for which the government escaped liability because the court determined the alleged contract breach constituted an act taken by the United States in its sovereign capacity.

Deming v. United States

* Kevin P. Mullen ([email protected]) is a partner at and co-chair of Morrison & Foerster LLP’s Government Contracts & Public Procurement practice and a member of the Board of Editors of Pratt's Government Contracting Law Report. Sandeep N. Nandivada ([email protected]) is a Government Contracts associate at the firm. The authors would like to thank law clerks Victoria Dalcourt Angle (JD May 2019) and David Allman (JD May 2020) for their contributions to this article.

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The court in Deming established the foundational principle of the Sovereign Acts Doctrine: “[t]he United States as a contractor are not responsible for the United States as a lawgiver.”1 During the Civil War, the United States twice contracted with Israel Deming to provide rations to the U.S. Marine Corps at a fixed price.2 In the subsequent years, Congress passed the Legal Tender Act, which increased the cost of rations across the country.3 Because this increase resulted in a loss for Mr. Deming, he brought a claim for damages against the government, stating the increase in costs unlawfully imposed new conditions on his contracts.4

The U.S. Court of Claims held the enactment of a general law could not be said to specially affect a contract between the government and a private party, resulting in government liability.5 The court based its decision on three key points.

First, the court found the law at issue—the Legal Tender Act—applied to Mr. Deming’s contract with the government as it would all similar contracts between U.S. citizens.6 Thus, the statute did not unfairly target specific contractual obligations.7

Second, the court noted that when the U.S. government entered into a contract, it was not acting in the same capacity as when the government exercised its sovereign power by providing laws for the welfare of the country.8

Third, the court observed that Mr. Deming could not possibly have brought a suit against a private party for a governmental action that the private party had no reasonable ability to prevent.9

Accordingly, Mr. Deming similarly could not bring suit against the government acting in its capacity as a contracting entity for the actions the government took in its sovereign capacity.10 As the court noted: “[i]n this court, the United States can be held to no greater liability than other contractors in other courts.”11

Jones v. United States

In Jones v. United States, the Court of Claims reiterated the principle from Deming “that the United States as a contractor cannot be held liable directly or indirectly for the public acts of the United States as a sovereign.”12 The court also extended the holding in Deming to explicitly include not only legislative enactments, but executive actions as well.

In 1865, two civil engineers entered into a contract with the U.S. Commissioner of Indian Affairs to survey land described in various treaties with Indian tribes.13 Shortly after the parties executed the agreement, the United States withdrew troops from

1 1 Ct. Cl. at 191.

2 Id.

3 Id.

4 Id.

5 Id.

6 Id.

7 Id.

8 Id.

9 Id.

10 Id.

11 Id.

12 1 Ct. Cl. at 385.

13 Id. at 384.

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military posts on the land to be surveyed.14 The civil engineers brought suit in the Court of Claims, arguing the government’s decision to withdraw troops left the civil engineers unprotected, hindered the engineers’ ability to perform the required work, and was contrary to the terms of the treaties with the Indian tribes.15 The civil engineers sought damages for all expenses incurred to finish the survey work under the changed performance conditions.16

The Court of Claims denied the claim for damages, holding “[w]hatever acts the government may do, be they legislative or executive, so long as they be public and general, cannot be deemed specially to alter, modify, obstruct or violate the particular contracts into which it enters with private persons.”17

In so holding, the court recognized that the “two characters which the government possesses as a contractor and as a sovereign cannot be thus fused; nor can the United States while sued in the one character be made liable in damages for their acts done in the other.”18

Using the fact pattern of the case, the court explained that the government could be held liable to a private contractor for the actions of the government as sovereign only if the following test is satisfied:

Wherever the public and private acts of the government seem to commingle, a citizen or corporate body must by supposition be substituted in its place, and then the question be determined whether the action will lie against the supposed defendant. If the enactment of a law imposing duties will enable the claimant to increase the stipulated price of the goods he has sold to a citizen, then it will when the United States are defendants, but not otherwise. If the removal of troops from a district liable to invasion will give the claimant damages for unforeseen expenses, when the other party is a corporate body, then it will when the United States form the other party, but not otherwise.19

Notably, in addition to extending the Sovereign Acts Doctrine to include public and general executive actions, the court in Jones suggested the government should be excused from harm caused to private contractors because of the scale of the government and the country.20 The court noted the government “is not, like an individual, cognizant of its own transactions … [which] are numberless, dependent on unnumbered officers, and scattered not only through every portion of its wide territory, but through every quarter of the world.”21

Thus, as in Deming, the decision in Jones was highly deferential to the government’s position as sovereign.

Wilson v. United States

The Wilson court carried forward the principles established in Deming and Jones, affirming the government cannot be held liable in its contracting capacity for the public and general actions it takes as the sovereign, especially in times of war.22 During

14 Id.

15 Id.

16 Id.

17 Id.

18 Id.

19 Id. at 385.

20 Id. at 388.

21 Id.

22 11 Ct. Cl. at 521.

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the Civil War, the Quartermaster General commissioned a private contractor to deliver 500 mules for the Union war effort in Washington, D.C.23

When the contractor attempted to deliver a portion of the mules requested, soldiers guarding the city boundary refused to allow the contractor to cross into the city because of affirmative orders that no one be allowed to enter or leave the city.24 Denied entry, the contractor attempted to find a secure location to stay with the mules.25 Ultimately, however, Confederate soldiers captured many of the contractor’s mules.26 The contractor immediately notified the Quartermaster General of the captured mules and asked to be relieved from further delivery of mules under the contract, but the Quartermaster General insisted the contractor deliver the agreed-upon number of mules.27

Accordingly, at his own expense, the contractor arranged for the complete delivery of mules.28 Thereafter, the contractor brought suit at the Court of Claims, asserting that, but for the refusal of entry into the city, he would have been able to deliver the mules without the additional incurred expenses.29

Following the precedent set in Deming and Jones, the Court of Claims denied the contractor’s claim, holding “[n]o damages can be recovered against the Government as a contractor, resulting from an order as sovereign, particularly in time of war.”30

Although the court recognized the United States could be held liable for the actions of the Quartermaster General, who was the contracting agent of the United States, neither the Quartermaster General nor any of his agents was responsible for denying the contractor and his mules access to the city.31

Rather, that decision was made by the Military Governor of Washington, who was not a contracting agent and whose principal concern was the national defense.32 Because the Military Governor’s order was “general, applying to all persons, and affecting the claimant precisely as though he had contracted with any private corporation,” the government could not be found liable.33

SEMINAL SUPREME COURT DECISIONS

Since the Court of Claims’ decisions in Deming, Jones, and Wilson, the Supreme Court of the United States has had two occasions to consider the Sovereign Acts Doctrine and its implications for contract disputes. In Horowitz v. United States,34 the Supreme Court affirmed the Court of Claims’ prior decisions, solidifying the doctrine as a viable defense for the government

23 Id. at 514.

24 Id. at 514–15.

25 Id. at 515.

26 Id. at 516.

27 Id.

28 Id.

29 Id.

30 Id. at 518.

31 Id. at 521.

32 Id.

33 Id.

34 267 U.S. 458 (1925).

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seeking to avoid contractual liability for its actions as the sovereign. In United States v. Winstar,35 the Supreme Court for the first time acknowledged limits on the application of the doctrine, giving government contractors a minor reprieve from over a century’s worth of deference to the government’s role as sovereign. Although neither decision involved wartime contracts, they established the conceptual bedrock for present day sovereign acts jurisprudence, which very often implicates military and contingency contracts.

Horowitz v. United States

In Horowitz v. United States, the Supreme Court had its first opportunity to review and assess the validity of the Sovereign Acts Doctrine. The Court’s decision continued the trend of largely unfettered deference to the government’s sovereign role.

Horowitz entered into a contract with the New York Ordnance Salvage Board to purchase silk that was then located in Washington.36 Under the agreement, executed on December 22, 1919, Horowitz had the opportunity to re-sell the silk before paying the balance of the purchase price.37 Furthermore, the government agreed to ship the silk “within a day or two after [receiving] shipping instructions” from Horowitz.38 Horowitz sold the silk to a company in New York on January 30, 1920.39

On February 16, Horowitz paid the remainder of the purchase price to the government and requested that the Board ship the silk to the consignee.40 On February 18, the Board notified Horowitz it had received the shipping instructions and had ordered the silk to be shipped.41 The Board, however, did not immediately ship the silk because the U.S. Railroad Administration had instituted an embargo on shipments of silk by freight.42

As a result, the silk did not arrive in New York until March 12.43 During this period of delay, the price of silk fell dramatically.44 As a result, the consignee refused to accept delivery of the silk, and Horowitz was forced to sell the silk for substantially less than the price the consignee had agreed to pay had it been promptly delivered.45

Horowitz brought suit against the government to recover the difference between the price the consignee had agreed to pay for the silk had it been delivered on time and the price Horowitz actually received.46

Citing Deming, Jones, and Wilson, the Supreme Court affirmed the Court of Claims’ prior judgment, holding “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.”47 Noting that a government agency other than the contracting agency instituted

35 518 U.S. 839 (1996).

36 Id. at 459.

37 Id.

38 Id.

39 Id.

40 Id. at 459–60.

41 Id. at 460.

42 Id.

43 Id.

44 Id.

45 Id.

46 Id.

47 Id. at 461.

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the freight embargo that resulted in the delayed shipment, the Court simply quoted the Court of Claims’ decision in Jones and stated its agreement.48 And with that, the Sovereign Acts Doctrine became the law of the land.

United States v. Winstar Corp.

Seventy years after the decision in Horowitz, the Sovereign Acts Doctrine returned to the Supreme Court in United States v. Winstar Corp. In a fractured plurality decision,49 the Supreme Court found the defense did not apply when Congress passed legislation interfering with government contracts that assigned the risk of regulatory change to the government.50

During the savings and loan crisis of the 1980s, the Federal Home Loan Bank Board allowed sound financial institutions to acquire failing thrifts in “supervisory mergers.”51 The government desperately needed healthy financial institutions to take control of insolvent thrifts because the Federal Savings and Loan Insurance Corporation (“FSLIC”) could not afford to insure all of the failing thrifts.52 Under the supervisory merger agreements, the Bank Board promised financial institutions purchasing failing thrifts they would be allowed to apply special accounting methods to the acquisitions.53 The special accounting treatment was not only an incentive, but also a step necessary to make the transactions possible, as the acquiring institution would otherwise immediately have been insolvent under federal standards.54

In response to the savings and loan crisis, Congress passed the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”) to tighten regulations on financial institutions.55 Significantly, FIRREA prohibited institutions from taking advantage of the special accounting treatment promised by the Bank Board.56 Three financial institutions, all of which acquired failing thrifts before Congress passed the FIRREA, filed suit at the U.S. Court of Federal Claims, asserting the government breached their supervisory merger contracts.57 The three institutions argued the Bank Board had promised that supervisory goodwill could be counted toward their regulatory capital requirements, but the new legislation prohibited this practice.58

In each case, the Court of Federal Claims held the government had breached its contractual obligations to permit the institutions to use the special accounting treatment toward regulatory capital requirements.59 On appeal, the U.S. Court of Appeals for the Federal Circuit reversed, holding the government did not bear the risk of a subsequent change in the regulatory

48 Id.

49 The plurality opinion by Justice Souter was joined by Justice Stevens, Justice Breyer, and Justice O’Connor. However, Justice O’Connor did not join Parts IV-A and IV-B, which discussed the Sovereign Acts Doctrine. The Court’s opinion was supported by Justice Breyer’s separate concurring opinion. Justice Scalia, joined by Justice Kennedy and Justice Thomas, concurred in judgment but provided different reasons for rejecting the government’s defenses. Chief Justice Rehnquist, joined in part by Justice Ginsburg, dissented. 518 U.S. at 924.

50 518 U.S. at 840–41.

51 Id. at 847.

52 Id. at 846–47.

53 Id. at 848–49.

54 Id.

55 Id. at 856.

56 Id.

57 Id. at 858.

58 Id.

59 Id.

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capital requirements.60 Subsequently, sitting en banc, however, the Federal Circuit ultimately affirmed the Court of Federal Claims’ decision.61

At the Supreme Court, the government raised various defenses, including the Sovereign Acts Doctrine, which both the Court of Federal Claims and the Federal Circuit had rejected.62 In considering the applicability of the Sovereign Acts Doctrine, the Court noted that, although nothing in the supervisory merger agreements “purported to bar the Government from changing the way in which it regulated the thrift industry,” the contracts allocated the risk of regulatory changes to the Bank Board.63

In other words, the Bank Board was obligated to insure the financial institutions against losses arising from regulatory changes that made it impossible for the government to recognize the special accounting treatment.64 Accordingly, the Supreme Court considered the main issue to be whether the Sovereign Acts Doctrine shielded the government from liability for breach of contract when the contracts at issue assigned the risk of regulatory change to the government and Congress subsequently passed legislation tightening regulatory requirements.65 The Court held that it did not, for two independent reasons.

First, the Sovereign Acts Doctrine is intended to ensure the government, when acting as a contracting party, is in the same position it would have enjoyed as a private contractor.66 The Court found the facts in Winstar did not warrant application of the Doctrine:

In the present case, the Government chose to regulate capital reserves to protect FSLIC’s insurance fund, much as any insurer might impose restrictions on an insured as a condition of the policy. The regulation thus protected the Government in its capacity analogous to a private insurer, the same capacity in which it entered into supervisory merger agreements to convert some of its financial insurance obligations into responsibilities of private entrepreneurs.67

In other words, the Court rejected the notion that “the dual characters of Government as contractor and legislator are never ‘fused’ (within the meaning of Horowitz) so long as the object of the statute is regulatory and meant to accomplish some public good.”68 If such a notion were true, then the government could avoid contractual liability simply by passing a “regulatory statute,” which would contradict the general principle that “[w]hen the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.”69

Second, the Sovereign Acts Doctrine is applicable only where the governmental action is (1) public and general; and (2) renders the contracting authority’s contractual performance impossible.70 The Court found the government could not satisfy either requirement.

60 Id. at 859.

61 Id.

62 Id. at 860.

63 Id. at 868–69.

64 Id. at 868–69.

65 See id. at 891.

66 Id. at 892.

67 Id. at 894.

68 Id. at 893.

69 Id. at 895 (quoting Lynch v. United States, 292 U.S. 571, 579 (1934)).

70 Id. at 899, 904.

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Citing Horowitz, the Court defined a “public and general” act as one where the impact on a public contract is “merely incidental to the accomplishment of a broader governmental objective” and where the act, itself, is “relatively free of Government self-interest.”71

In other words, a “public and general” act cannot have “the substantial effect of releasing the Government from its contractual obligations.”72 The Court found that although Congress drafted FIRREA to avoid targeting particular contracting partners, “the extent to which [FIRREA] relieved the Government of its own contractual obligations precludes a finding that the statute is a ‘public and general’ act for purposes of the sovereign acts defense.”73

Moreover, the Court found the government’s defense failed because:

[T]he Government, like any other defending party in a contract action, must show that the passage of the statute rendering its performance impossible was an event contrary to the basic assumptions on which the parties agreed, and must ultimately show that the language or circumstances do not indicate that the Government should be liable in any case.74

The Court held the government did not satisfy these conditions in Winstar because the agreements at issue allocated the risk of a regulatory change to the government.75 The government therefore could not reasonably assert the nonoccurrence of a regulatory amendment was a basic assumption of the contracts.76

Thus, in Winstar, the Supreme Court established a two-prong test for determining the applicability of the Sovereign Acts Doctrine. To invoke the Sovereign Acts Doctrine, the government must demonstrate not only that its action is “public and general” and therefore would not have “the substantial effect of releasing the Government from its contractual obligations,” but also that this “public and general” act renders the government’s continued performance of its contractual obligations impossible.77 Chief Justice Rehnquist, joined in part by Justice Ginsburg, dissented with the Court’s decision, arguing that the decision “limits the sovereign acts doctrine so that it will have virtually no future application.”78 Post-Winstar decisions have proven Justices Rehnquist’s and Justice Ginsburg’s concerns to be somewhat prophetic.

MODERN APPLICATIONS OF THE SOVEREIGN ACTS DOCTRINE

Although the Supreme Court’s decision in Winstar established the modern elements of the Sovereign Acts Doctrine, the defense has continued to evolve at the courts and Boards of Contract Appeals. These decisions show that, post-Winstar, the government generally faces a much higher burden for invoking the Sovereign Acts Doctrine as a defense to contractual liability. For military and contingency contracts, the modern Sovereign Acts Doctrine has very real implications.

Conner Bros. Const. Co. v. Geren

In Conner, the Federal Circuit broadened the non-particularity requirement of “public” and “general” acts. Specifically, the court held that “[t]he sovereign acts inquiry does not rest on a mechanical determination of how many contractors are affected,

71 Id. at 897–98.

72 Id. at 899.

73 Id. at 902–04.

74 Id. at 904.

75 Id. at 907.

76 Id. at 905.

77 Id. at 899, 904.

78 Id. at 924.

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but rather focuses on the nature and scope of the governmental action.”79 The court’s holding appears to shift the focus away from the party suffering the harm, and instead focuses on whether the government interest at play is sufficient to justify the harm inflicted. In this case, the government interest was national security in the wake of the terrorist attacks on September 11, 2001.

Immediately following the 9/11 terrorist attacks, the Commander of the 75th Ranger Regiment at Fort Benning, Georgia, restricted access to the Ranger compound to mission essential personnel.80 The Commander dismissed all non-essential personnel, including Conner Brothers Construction (“Conner”), which was responsible for building a headquarters facility in the compound.81

Although Conner received additional time to complete the project, the Contracting Officer denied Conner’s claim for delay damages because the delay was the result of a sovereign act.82 On appeal at the Armed Services Board of Contract Appeals, Conner argued the government act was not public and general because Conner was the only contractor barred from the base for that length of time.83

The ASBCA disagreed, holding the exclusion order was a sovereign act “because it stemmed from the Government’s war-making powers, was merely incidental to the accomplishment of a broader governmental objective relating to national security, and was not directed principally at Conner’s contract rights.”84 Conner appealed to the Federal Circuit.

Relying on Winstar, which the Federal Circuit acknowledged “as setting forth the core principles underlying the sovereign acts doctrine,” the court affirmed the Board’s decision.85 The court noted that in Yankee Atomic Elec. Co. v. United States,86 it upheld the government’s sovereign acts defense because the governmental act at issue did not affect only private contractors, but also parties that did not have contracts with the government.87

Similarly, “the access restrictions reached not only parties having contracts with the government, but also parties with no government contracts at all, including the public at large.”88

In addition, “[t]he fact that Conner’s activities were conducted pursuant to a government contract does not mean that [the Commander’s] decision that Conner was not a mission-essential contractor was directed at Conner’s right to perform its contract to construct the Ranger headquarters.”89

79 550 F.3d 1368, 1377 (Fed. Cir. 2008).

80 Id. at 1370.

81 Id.

82 Id. at 1371.

83 Id.

84 Id.

85 Id. at 1374.

86 112 F.3d 1569 (Fed. Cir. 1997).

87 Id. at 1376 (citing Yankee Atomic, 112 F.3d at 1576).

88 Id.

89 Id. at 1377.

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Thus, the court upheld the government’s reliance on the Sovereign Acts Doctrine, finding the “decision to exclude the contractor was simply an extension of the broader access restrictions implemented to respond to the emergency created by the terrorist attacks.”90

Altanmia Commercial Marketing Co.

In Altanmia, the ASBCA affirmed the principle first set forth in Winstar that the government may not invoke the Sovereign Acts Doctrine to avoid liability where the underlying contract allocates the risk of the occurrence of a sovereign act to the government.

Altanmia Commercial Marketing Company had a contract with the Defense Energy Support Center (“DESC”) to provide fuel transportation services from loading facilities in Kuwait to Iraq.91 Altanmia sought compensation for the loss or damage of 71 tanker trucks.92 The contract stated the government would provide a security escort to the convoys, but it did not define “convoys.”93 Altanmia understood the term to cover not only convoys transporting fuel, but also convoys to recover disabled tractors and tankers.94 Altanmia sought compensation for damages to its vehicles as a result of delays by DESC’s Management Contractor in arranging security convoys to recover disabled vehicles.95

After determining the contract covered all convoys, including those used to recover disabled vehicles, the Board focused its analysis on whether the Sovereign Acts Doctrine shielded the government from liability.96 The Board found it did not, holding that although the government cannot be held liable as a contracting party for its public and general sovereign acts, “the government may contractually agree to compensate contractors for losses due to its sovereign acts, either by an implied or an express agreement.”97

Because the Board concluded the contract contained “the implied promise that DESC would pay for any increased costs resulting from a breach of its obligation to provide security escorts for Altanmia’s recovery convoys,” the Board held the Sovereign Acts Doctrine was not a viable defense.98

ANHAM FZCO, LLC

The ASBCA’s decision in ANHAM adds an important wrinkle to the Sovereign Acts case law because it shows that even where the Sovereign Acts Doctrine may afford a defense to the government, the government still may be held liable under alternative theories of liability.

ANHAM FZCO, LLC, (“ANHAM”) had an indefinite-delivery, indefinite-quantity contract with the Defense Logistics Agency—Troop Support (“DLATS”) to procure, store, and distribute food and other goods for the military in Kuwait, Iraq, and

90 Id. at 1375.

91 ASBCA 55393, Feb. 12, 2009, 09-1 BCA ¶ 34,095.

92 Id.

93 Id.

94 Id.

95 Id.

96 Id.

97 Id.

98 Id.

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Jordan.99 Performing the contract required ANHAM to lease warehouses in Kuwait to store food and other goods that could quickly be transported to U.S. military customers.100

As the government considered withdrawing troops from Iraq by December 2011, ANHAM proposed downsizing its operations in Iraq to minimize the impact of any drawdown in troops.101 DLATS, however, instructed ANHAM that the contractor needed to “maintain its resources for full performance of the contract” and encouraged ANHAM to plan to feed the same number of troops.102 As a result, ANHAM maintained its warehouse space.103 Contrary to DLATS’s direction, food orders dropped significantly in October, November, and December, 2011.104

The government withdrew U.S. troops from Iraq on December 18, 2011.105 At the time of the withdrawal, ANHAM had food shipments in transit and had just renewed its lease for a warehouse in Kuwait until June 30, 2013.106 Accordingly, ANHAM submitted a claim to the Contracting Officer for $10,989,020—the amount it incurred for leasing the warehouse in Kuwait.107

Although DLATS did not challenge ANHAM’s allegations that the agency had encouraged the contractor to plan for full performance of the contract to support significant troop levels in Iraq throughout the final months of 2011, the Contracting Officer denied the claim.108

ANHAM appealed the denial to the ASBCA.109 ANHAM’s complaint alleged DLATS provided misinformation about the determination to remove troops from Iraq, and that this amounted to bad faith and unfair dealing.110 Although ANHAM accepted the risk of a major withdrawal of troops in entering this contract, it did not assume the risk the government would mislead the company about the number of troops it needed to serve.111

In sum, the claim alleged “the government was aware that it was withdrawing its personnel from Iraq by the end of 2011, but kept this knowledge from ANHAM, thus violating its contractual duty of good faith and fair dealing.”112 In response, DLATS alleged ANHAM’s claim was barred by the Sovereign Acts Doctrine.113

99 ASBCA 59283, July 20, 2017, 17-1 BCA ¶ 36817.

100 Id.

101 Id.

102 Id.

103 Id.

104 Id.

105 Id.

106 Id.

107 Id.

108 Id.

109 Id.

110 Id.

111 Id.

112 Id.

113 Id.

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The Board concluded the Sovereign Acts Doctrine was inapplicable to ANHAM’s fair dealing claim because the government’s liability was based on DLATS’s failure to disclose vital information to the contractor, rather than a sovereign act.114 The Board explained that “[t]he government is excused from performance under the sovereign acts defense only when the sovereign act renders the government’s performance impossible.”115

Under these circumstances, however, there was no reason to believe it was impossible for DLATS to cooperate with ANHAM.116 In so holding, the Board was particularly critical of the government’s use of the “sovereign act defense as a fait accompli that warrants dismissal of ANHAM’s complaint.”117

First Kuwaiti Trading & Contracting W.L.L., v. Dep’t of State

First Kuwaiti Trading & Contracting, W.L.L. (“FKTC”) had a contract with the Department of State (“DoS”) to build a U.S. embassy compound in Baghdad, Iraq.118 The area was an active war zone and saw increasing violence during the period of contract performance.119 FKTC submitted approximately 200 claims during the performance period.120 This case concerns 13 of those claims.121

Among the claims asserted, FKTC sought to recover under the Changes clause for the following six claims:

• Duck and Cover Alarms: The DoS installed a “duck and cover” alarm system around the compound to warn of impending rocket, mortar, or small arms attacks. Whenever the alarm sounded, work on the embassy ceased until an “all-clear” signal was given. These repeated work stoppages caused delays. This problem was compounded by several “false alarms.”122

• Additional Security Requirements: Under the contract, FKTC was required to provide security for its personnel, equipment, and supplies; however, FKTC was assigned additional security tasks during the contract.123

• Sand and Gravel Handling: Instead of having local vendors bring construction materials to the compound, FKTC picked up materials from another site and transported them to the worksite. The DoS argued FKTC developed this practice on its own, but FKTC asserted the DoS directed FKTC to pick up the materials, rather than have local vendors transport the goods into the compound, to relieve security concerns at the worksite.124

• Truck Convoy Delays and Protection Requirements: FKTC transported construction materials needed for the project from Kuwait in Army convoys. FKTC argued the DoS directed it to travel in Army convoys, but the DoS countered that it only facilitated FKTC’s use of the convoys because the contractor had no other safe way to transport the materials to the site. The Army imposed safety requirements on FKTC, including the acquisition of helmets and

114 Id.

115 Id.

116 Id.

117 Id.

118 CBCA 3506, Dec. 3, 2018.

119 Id.

120 Id.

121 Id.

122 Id.

123 Id.

124 Id.


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bulletproof vests for drivers, tow bars for trucks, and convoy vehicle support.125 This issue was the subject of three of FKTC’s claims.126

The DoS moved for summary judgment on these six claims, arguing FKTC could not establish the government changed the scope of the work.127 Alternatively, the DoS argued the actions underlying the claims were sovereign acts.128

Having concluded it could not grant the DoS’s motion for summary judgment challenging FKTC’s reliance on the Changes clause, the Board turned to the government’s assertion that it should not be liable for the claims because of the Sovereign Acts Doctrine.129 The Board denied this basis for summary judgment as well.130

The Board noted that on a motion for summary judgment, the government had the burden of proving the underlying governmental actions were public and general.131 The DoS, however, failed to meet that burden because it did not show a “broader governmental objective or how the governmental actions were public and general acts that were merely incidental to the accomplishment of a broader governmental objective.”132 In so holding, the Board rejected the DoS’s explanation that poor record keeping by the Army during the Iraq war prevented the DoS from supporting its sovereign acts defense.

LESSONS LEARNED

The Sovereign Acts Doctrine has evolved significantly from its early use in the mid 19th century. Whereas in the days of Deming, Jones, and Wilson, the Court of Claims uniformly accepted government claims of immunity based on the Sovereign Acts Doctrine, this is hardly the case post-Winstar. Courts and boards now subject government reliance on the Sovereign Acts Doctrine to much closer scrutiny, assessing whether the government’s action is public and general, not just in form but also in function, and considering whether the government’s continued performance of its contractual obligations actually is impossible as a result of the sovereign act. Because of this increased scrutiny, it is no longer a fait accompli that the mere assertion of the Sovereigns Act Doctrine will deny a contractor recovery.

The current state of the Sovereign Acts Doctrine suggests the following practical lessons for government contractors, especially contractors operating in wartime environments:

• Risk Allocation: Recent decisions demonstrate the courts and boards will consider how risk was allocated between the parties in a contract when evaluating the government’s assertion of the sovereign acts defense. For example, if the government assumed the risk of regulatory changes, then the contractor may be able to recover damages.133

• Attenuated Relationship: The more attenuated the relationship between the contracting agency and the entity responsible for the sovereign act, the more likely the courts and boards will find a government action is public and general act so that the sovereign acts defense applies.

125 Id.

126 Id.

127 Id.

128 Id.

129 Id.

130 Id.

131 Id.

132 Id.

133 See, e.g., United States v. Winstar, 518 U.S. 839 (1996).

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• No Targeting: The doctrine is unlikely to apply if the sovereign act targets a particular contractor or a group of contractors. Accordingly, contractors facing the sovereign acts defense should try to show that any harm was not merely incidental, but rather the result of concerted government efforts to avoid contractual obligations.

• Last-Resort: Post-Winstar decisions suggest the government is raising the Sovereign Acts Doctrine more as a last resort than as a primary shield against liability. This could be because, as Justice Rehnquist and Justice Ginsburg warned, the decision in Winstar “limits the Sovereign Acts Doctrine so that it will have virtually no future application.” If the two dissenting Justices were prescient, this would be very good news for government contractors—especially those involved in wartime contracting and most likely to confront a sovereign act defense to claims.

Pratt's Government Contracting Law ReportCopyright 2019, Matthew Bender & Company, Inc., a member of the LexisNexis Group.

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