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The Sovereign Acts Defense

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In Grunley Construction Co., Inc. v. Architect of the Capitol, CAB No. 2009-1, June 16, 2010, the Government Accountability Office Contract Appeals Board appropriately resolves an issue, the Sovereign Acts Defense, asserted by the Architect of the Capitol as a defense to a $1,095,128 Claim for additional costs incurred as a result of work restrictions imposed by the Marshal of the Supreme Court during performance of a construction Contract to modernize portions of the United States Supreme Court Building.

The construction Contract at issue in Grunley allowed sixteen interrupted days per calendar year when no construction work would be allowed.

As it turned out, the Marshal issued Memoranda to the Architect of the Capitol precluding most construction work in the United States Supreme Court Building (save for noisy or disruptive construction work which was expressly required to be performed outside normal working hours) during the Supreme Court’s normal working hours, this from October 2005 through December 31, 2006. The Architect of the Capitol defended against this Claim on the ground that the Marshal’s Memoranda were Sovereign Acts which insulated the Federal Government from liability. Not so, held the Government Accountability Office Contract Appeals Board.

We first need to understand the Sovereign Acts Defense.

Generally, when the Federal Government is one of the contracting parties, the Sovereign Acts Defense devolves from the Federal Government’s dual role as both a contracting party and as the Sovereign. The Sovereign Acts Defense recognizes that the Federal Government as a contracting party acts in a different capacity than the capacity in which the Federal Government acts as the Sovereign.

For the Sovereign Acts Defense to apply, these dual roles may not be mixed, and if an act of the Federal Government as the Sovereign would justify non-performance of a Contract by any other contracting party, private or public, being sued for Contract breach, then the Federal Government as a contracting party is likewise immune from liability for non-performance.

But it is not unusual that Congressional enactments or other official Federal Government action upset what were thought to be settled contractual arrangements, and, as the United States Court of Appeals for the Federal Circuit has noted, the Sovereign Acts Defense is often asserted when the Federal Government is also a contracting party, and just as often, the Sovereign Acts Defense is found to be unavailing.

The Sovereign Acts Defense is well explained in two recent Opinions: Conner Brothers Construction Co., Inc. v. Geren, Fed. Cir. No. 2008-1188, December 31, 2008, and Stockton East Water District v. United States, Fed. Cir. No. 2007-5142, September 30, 2009.

At issue in Connor Brothers was a Claim for delay damages incurred by a construction Contractor after it was denied access to its construction site on a separated area of Fort Bragg for a period of forty-one days following the terrorist attacks of September 11, 2001.

The construction Contract work was for construction of four buildings at two sites within the Army Ranger compound at Fort Bragg. The Army Ranger Compound is under the operational control of the Ranger Regimental Commander, not the Post Commander, and the Ranger Regimental Commander shut down access to the Army Ranger Compound in order to allow the Rangers to deploy to Afghanistan in small groups so as not to attract public notice.

A problem with the Sovereign Acts Defense in Connor Brothers was that the Ranger Regimental Commander had allowed other private-party contractors, facility and custodial services contractors, a Coca-Cola vendor, and cable television personnel, access to the Army Ranger Compound while at the same time the construction Contractor was denied access.

Looking to existing Case law, the Connor Brothers Court first explained that for the Sovereign Acts Defense to excuse a Contract breach by the Federal Government, the Congressional enactments or other official Federal Government action which upset settled contractual arrangements must first be public and general in nature such that their occurrence would excuse a Contract breach if the other contracting party were not the Federal Government.

But this did not end the inquiry.

There is another prong to the Sovereign Acts Defense, and this is that even public and general acts of the Federal Government do not excuse a Contract breach by the Federal Government in which the supposed public and general acts of the Federal Government are “tainted by a government object of self-relief,” and in which the supposed public and general acts’ impact upon Federal Contracts are “not merely incidental to the accomplishment of a broader governmental objective.”

This second prong of the Sovereign Acts Defense is best explained in Justice Souter’s plurality opinion in United States v. Winstar Corp., 518 U.S. 839, 898 (1996): “The greater the Government’s self-interest, . . . the more suspect becomes the claim that its private contracting partners ought to bear the financial burden of the Government’s own improvidence . . . .” In other words, subsequent Congressional enactments or other official Federal Government action will not excuse a Contract breach by the Federal Government if the Sovereign Acts set out as the Defense have “the substantial effect of releasing the Government from its contractual obligations . . . .”

The Connor Brothers Court resolved the disparate impact of the denial of access to the Army Ranger Compound (facility and custodial services contractors, a Coca-Cola vendor, and cable television personnel were allowed access) by explaining that these other private-party contractors were not similarly situated (they could be escorted to discrete locations whereas the construction contractor moved around extensively), and by explaining that the Federal Government gained no economic advantage by temporarily denying access to its private-party construction contractor. Here the Connor Brothers Court noted that had the construction Contract at issue been between two private parties, and had access to such a private-party Contract work been temporarily suspended because of proximity to the Army Ranger Compound, the Contract breach would have been excused.

The Sovereign Acts Defense was unavailing in Stockton East Water District.

At issue here was a Bureau of Reclamation Contract under which the Federal Government made binding Contracts for the availability of water from California’s Central Valley Project. These water Contracts provided for the release of water for irrigation and for domestic and industrial uses. After these Contracts were signed in 1983, Congress in 1992 enacted a Federal Statute which expressly required the release of water for fish, wildlife, and habitat restoration needs. This was a shift in Federal policy, and the result was Federal Government breach of its water Contracts from 1999 through 2004.

Not surprisingly, the Federal Government argued that its Contract breach was excused by the Sovereign Acts Defense, and that the lack of water (after satisfying water needs for fish, wildlife, and habitat restoration) was only an incidental consequence of the 1992 Federal Statute, which was claimed to be public and general in nature.

This went nowhere. The Stockton East Water District Court noted that the only users of water from the Central Valley Project negatively affected by the 1992 Federal Statute were the Water Districts, and that when the Bureau of Reclamation shorted the Water Districts, the Federal Government’s action “was directly aimed at the contracts and Reclamation’s duties under them, nullifying the rights of the Districts to receive water under the contracts.”

The Government Accountability Office Contract Appeals Board correctly discerned these principles in Grunley.

First, that Agency Board noted that the Marshal’s Memoranda restricting access to the Supreme Court Building were not at all public and general, and instead were directed only to the Architect of the Capitol, and that Agency Board noted that the Marshal’s Memoranda did not suggest a broader Federal Government objective since they were specifically aimed at redefining the work hours specified in the construction Contract.

Second, that Agency Board explained that even if the Marshal’s Memoranda served a broader public purpose, operational security of the Supreme Court, what really happened is that these Memoranda garnered an economic advantage not agreed-upon in the construction Contract, and this was construction work required under that Contract outside of normal Supreme Court working hours for far more than sixteen days of construction work per calendar year.

Thus the Government Accountability Office Contract Appeals Board explained in Grunley that while the Marshal’s Memoranda were within his authority, they were not Sovereign Acts excusing the Architect of the Capitol’s breach of the construction Contract.