The U.S. Supreme Court's blockbuster decision in Loper Bright Enterprises v. Raimondo overruled a 40-year-old case (Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc.) that required courts to defer to agencies' reasonable interpretations of federal statutes—even when the court disagreed with the interpretation. Separately, the Supreme Court also held that a company may challenge an agency's regulation many years after it was issued, as long as the company was not actually harmed by the regulation until more recently (Corner Post, Inc. v. Board of Governors of the Federal Reserve System).
Associate Justice Ketanji Brown Jackson dissented in both cases and predicted that Loper would produce a "tsunami of lawsuits against agencies," exacerbated by the decision in Corner Post. The accuracy of Justice Jackson's prediction is beyond the scope of this article, and agencies and courts—including the U.S. Court of Appeals for the Federal Circuit—have only just begun to address the follow-on effects. Instead, we identify and discuss which regulatory actions of interest to government contractors may now be subject to challenge and where things currently stand.
What was Chevron deference?
In 1984, the Supreme Court created the now-famous Chevron "two-step" governing how courts should review "an agency's construction of the statute which it administers." Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842 (1984). Step One: If the statute is unambiguous, the court enforces the statute as written. Step Two: If the statute is ambiguous, the court defers to the agency charged with interpreting it, as long as the agency's interpretation is reasonable—even if the court does not believe the agency's interpretation is the best one.
Chevron became one of the most-cited Supreme Court decisions in history, even as courts whittled down the cases to which it applied. Over time, it became more controversial, as some questioned whether it emboldened agency overreach or was consistent with the Administrative Procedure Act (APA) and the Constitution's separation of powers.[1]
What happened in Loper?
Loper overruled Chevron because "[t]he deference that Chevron requires of courts reviewing agency action cannot be squared with the APA," which states that "'the reviewing court'—not the agency whose action it reviews—is to 'decide all relevant questions of law' and 'interpret ... statutory provisions.'" Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244, 2263-65 (2024) (quoting 5 U.S.C. § 706) (emphasis in original).
The Court also rejected the presumption "that statutory ambiguities are implicit delegations to agencies" by Congress because the mere fact of an ambiguity in a statute does not constitute "a delegation of law-interpreting power." Id. at 2265 (internal quotation marks omitted). "Chevron's presumption" that agencies should fill gaps in statutes "is misguided because agencies have no special competence in resolving statutory ambiguities," whereas "[c]ourts do." Id. at 2266. Venable's Government Division provided a post with general thoughts on this development, which can be found here.
What does the end of Chevron deference mean for agency regulations to which courts previously deferred?
One of the major arguments raised by the United States in Loper was that "[o]verruling Chevron would invite litigants to argue that, even if an agency's interpretation was already sustained as reasonable in a prior case, the court should nonetheless adopt some other purportedly better interpretation[.]" Thus, agency interpretations of ambiguous statutes upheld at Chevron Step Two—where a court deferred to, but did not necessarily agree with, the agency's interpretation—could be subject to renewed challenges.
The majority and dissenting opinions in Loper did not agree on this risk. The majority wrote that it does "not call into question prior cases that relied on the Chevron framework" and that "[t]he holdings of those cases that specific agency actions are lawful [and] still subject to statutory stare decisis despite our change in interpretive methodology," such that "'special justification'" beyond merely asserting the decision "was wrongly decided" is required to overturn them. Loper at 2273. But the dissenting Justices disagreed, arguing that "[c]ourts motivated to overrule an old Chevron-based decision can always come up with something to label a 'special justification.'" Id. at 2310 (dissenting opinion).
Are there any Chevron Step Two cases related to government contracts that may be subject to new scrutiny?
From a practical standpoint, then, should government contractors anticipate a shift in the regulatory landscape? Or will it be business as usual?
Since the dawn of federal agencies, there has been a push and pull between regulators and the regulated. Accordingly, while much remains to be determined, it is reasonable to assume that some practitioners will seek to test the boundaries of a post-Chevron world, including by challenging the lawfulness of previous enforcement actions and regulations. For example, below is a non-exhaustive list of decisions related to federal contracting in which a court or administrative tribunal upheld an agency's interpretation of an ambiguous statute at Chevron Step Two, and which now may be targets for renewed challenge. Many have involved the Federal Acquisition Regulation (FAR) and the Defense FAR Supplement (DFARS).
- Info. Tech. & Applications Corp. v. United States, 316 F.3d 1312, 1319-22 (Fed. Cir. 2003) (deferring to FAR's expansion of communications which do not constitute "discussions" under federal statute)
- Brownlee v. DynCorp., 349 F.3d 1343, 1352-56 (Fed. Cir. 2003) (deferring to FAR's interpretation of statute as precluding reimbursement for costs related to proceedings in which an employee of a contractor was convicted, even though the contractor itself was not)
- Latvian Connection Gen. Trading & Constr. LLC, B-408633, Sept. 18, 2013, 2013 CPD ¶ 224 at 5 (deferring to FAR's exemption of procurements outside the United States from Small Business Act set-aside requirements, despite conflict with Small Business Administration position)
- Sundstrand Corp., ASBCA No. 51572, 01-1 BCA ¶ 31,167 (deferring to FAR's determination that contractor's "financial condition" could be "adequate security" for advance payments under federal statute)
- The Boeing Co., ASBCA No. 60373, 18-1 BCA ¶ 37,112 (deferring to DFARS's definition of statutory terms "developed," "exclusively with Federal Funds," and "exclusively at private expense")
- Maersk Line, Ltd., B-406586, B-406586.2, June 29, 2012, 2012 CPD ¶ 200 at 10-11 (deferring to Maritime Administration's interpreting Merchant Vessel Sales Act of 1946 as permitting a U.S. citizenship requirement for Ready Reserve Force vessel operators)
- Telos Identity Mgmt. Sols., LLC v. United States, 143 Fed. Cl. 787, 792 (2019) (bid protest decision deferring to Transportation Services Administration's resolution of ambiguous "in addition to" terminology in TSA Modernization Act)
- Hymas v. United States, 810 F.3d 1312, 1320-29 (Fed. Cir. 2016) (deferring to Fish and Wildlife Service's interpretation of "public or private agencies and organizations" as including an "individual" private farmer and decision to use a cooperative agreement instead of a procurement contract subject to the Competition in Contracting Act)
- Groff v. United States, 493 F.3d 1343, 1349-54 (Fed. Cir. 2007) (deferring to agency determination that pilots employed by private contractors were not "public safety officers" under the Public Safety Officers' Benefits Act, such that their families were not entitled to death benefits after the pilots died while rendering fire suppression assistance to public agencies)
Are there any other procurement or contracting regulations that may be challenged after Loper?
There are other areas within the contracting regulatory framework that may become targets for legal challenge. Broadly speaking, this could include effectively any regulations that have increased the burdens, cost, or prohibitions imposed on entities seeking to do business with the federal government—or the penalties that arise from noncompliance with those regulations.
For example, a wide range of cybersecurity and national security regulations have been issued in the past few years (or are in the process of being issued), stemming from congressional mandates, such as within the annual National Defense Authorization Act. Venable has written extensively about these regulatory developments within the contracting sphere, including Section 889, which imposes significant restrictions on the acquisition or use of certain Chinese telecommunications equipment, and Section 5949, which prohibits federal procurement of electronic parts, products, or services that include certain Chinese semiconductors. If contractors believe they have a "better" interpretation of the authorizing legislation than has been issued by the agency, they may seek to test that theory now that Chevron is no more.
The same goes for other compliance areas, such as Buy America and similar domestic preference laws or the recent federal TikTok ban. Some may also perceive an opportunity to challenge more long-standing regulatory frameworks, such as labor regulations issued under the Service Contract Act of 1965 or the size regulations issued by the Small Business Administration—which impact more than a quarter of all federal contractors. The House Small Business Committee has already fired a warning shot across the bow in that regard.
At the same time, we could also see challenges from citizens or public interest groups concerned that Congress's instructions have not been faithfully carried out and that existing regulations do not go far enough in holding contractors accountable. For every attempt post-Chevron to pull back on perceived regulatory overreach, there could be an equal and opposite push to expand a regulation's scope. Time will tell.
Of course, Loper concerns only judicial deference, so any prospective litigants will still need to establish standing—and all other prerequisites for getting their case through the courthouse doors. One of those many prerequisites is timeliness, which brings us to Corner Post.
What does Corner Post have to do with any of this?
The Supreme Court's July 1, 2024 decision in Corner Post eliminated one potential argument the government may have raised to defend agency interpretations previously upheld under Chevron Step Two: the statute of limitations.
The default statute of limitations for suits against the United States, including APA claims alleging arbitrary or unlawful agency action, is "six years after the right of action first accrues." 28 U.S.C. § 2401(a). When challenging final agency action interpreting a statute (such as a rule printed in the Federal Register), a question arose as to whether an APA claim "first accrues" when the agency issues the final rule, or when a regulated entity is first harmed by the rule.
The Supreme Court has now held that "[a] claim accrues when the plaintiff has the right to assert it in court—and in the case of the APA, that is when the plaintiff is injured by final agency action." Corner Post, Inc. v. Bd. of Governors of the Fed. Res. Sys., 144 S. Ct. 2440, 2448 (2024). This means that a newly formed company can challenge a regulation issued more than six years ago because the company could not have been injured by the regulation before the company came into existence (that was the exact fact pattern in Corner Post).
How has the post-Chevron government contracting world looked so far?
In the months since Loper, courts and tribunals that hear government contracts disputes have already begun addressing the case, and litigants are citing it in their filings.
For example, in late August, the Federal Circuit vacated and remanded a decision from the U.S. Court of Federal Claims because that court's decision in favor of the government's interpretation of a federal statute had been based on Chevron deference. See Allen v. United States, No. 2024-1117, 2024 WL 4002305, at *1 (Fed. Cir. Aug. 30, 2024). The same day, the U.S. Government Accountability Office (GAO) declined to apply Loper to reconsider its interpretation of SBA's regulations on size status recertifications. See Radiance Techs., Inc., B-422615, Aug. 30, 2024, 2024 CPD ¶ __ at 5-7. The U.S. Court of Appeals for the Eleventh Circuit also recently found the Department of Labor's long-standing interpretation of the interaction between the Fair Labor Standards Act and the Service Contract Act persuasive, Loper notwithstanding. See Perez v. Owl, Inc., 110 F.4th 1296, 1306-08 (11th Cir. 2024).
And in bid protests before the U.S. Court of Federal Claims and in civil litigation in federal district court, several construction contractors and their representatives have invoked Loper when challenging the government's decisions to require entry into project labor agreements (PLAs) with labor unions as a condition of being eligible for award of a federal contract. See MVL USA, Inc. v. United States, No. 1:24-cv-01057, ECF 47 (Fed. Cl. Sept. 19, 2024) (redacted complaint in consolidated bid protest involving multiple pre-award protests of terms of solicitation); Associated Builders and Contractors Florida First Coast Chapter et al. v. General Servs. Admin. et al., No. 3:24-cv-00318, ECF 41 (M.D. Fla. Sept. 9, 2024) (motion for summary judgment enjoining implementation of Executive Order on PLAs).
Conclusions for the contracting community in a post-Chevron world
It is unclear whether Loper and Corner Post will produce a significant number of lawsuits challenging agency interpretations of federal statutes related to federal contracting, or how many of those claims may succeed. For example, there are other deference doctrines that remain untouched by Loper and Corner Post, and courts still have the discretion to defer to agency arguments that they find especially persuasive.
Additionally, it is fair to assume that agencies have anticipated this development and may (at least of late) be less inclined to hang their regulatory actions upon perceived gaps in legislative language, which would have previously afforded them deference under Chevron. See, e.g., Yale Journal on Regulation (noting in response to Loper that "government agencies … have been preparing for … years" to win without Chevron); Federal News Network (citing former DOJ Federal Programs Branch senior trial counsel as saying that "[a]gencies knew this was coming, the government knew this was coming. They have been moving away from relying on ambiguities in statutes…. So it's not a huge change, in that respect.").
It will also be important to watch how Congress responds to this new landscape, which will arguably require members and their staff to legislate with more detail and precision. Some members have already called for a codification of Chevron in the wake of Loper, but that legislation to date has not garnered bipartisan support.[2] For now, everyone in the federal contracting community—including procuring agencies and their contracting officials, prime contractors, and subcontractors—must be ready to adapt.
Bottom line: It is now more likely that regulations implementing statutory mandates, including regulations upon which federal officials and regulated entities have relied for decades, may be subject to and may no longer withstand scrutiny in court. Before asserting positions in contexts that are likely to lead to significant litigation, savvy acquisition professionals will consider and check whether the statute underlying a given regulation (including the FAR, DFARS, or otherwise) fully supports their position.
[1] See, e.g., Press Release of Sen. Charles E. Grassley, "Lawmakers Introduce Bill to Restore Regulatory Accountability" (July 19, 2017), available at https://www.grassley.senate.gov/news/news-releases/lawmakers-introduce-bill-restore-regulatory-accountability.
[2] See, e.g., S.4749, "Stop Corporate Capture Act," available at https://www.congress.gov/bill/118th-congress/senate-bill/4749/text.
