Analysis

The federal government is often accused of spending money it does not have.   It may have to do just that, a divided Supreme Court decided on Monday, if it signs a contract that promises to pay in full when the work is done, but runs out of the money provided by Congress.   There is a sort of government “slush fund” that might be tapped, the Court indicated, but otherwise it is up to Congress to figure out how to fulfill the government’s financial commitments; it can’t force contractors to do without all of what they earned.  Those were the key points decided by a 5-4 vote in the case of Salazar (Interior Secretary) v. Ramah Navajo Chapter (docket 11-551).

The case was about contracts between the federal government and hundreds of Indian tribes, under which the tribes are paid to do for themselves what federal agencies otherwise would have provided in the federal government’s special relationship with Native American groups, such as education or police work.   But the legal conclusion reinforced Monday went well beyond deals with Indians, and imposed on the federal government the flat duty to pay in full when a contractor performs one side of a bargain after getting that promise, even when Congress had not explicitly provided enough to pay all such contractors in full.  The decision, while very important to tribal governments (they may be eligible for more than $1 billion in reimbursements), was equally important to government contractors in general.

Specifically at issue in the case were the funds that Indian tribes spend to enable them to actually perform a governmental function for their members — technically, contract support costs.  In addition to the money they spend directly on the actual service they provide, tribes run up bills for such things as paying premiums on liability insurance, paying for audits of how they spent the money provided to them, or covering other “overhead” costs.  Under federal law, the Interior Department has an explicit duty to enter into governmental service contracts with any willing tribe, to bring those services closer to their members, and the Department is told it must pay in full if the tribes perform as required.

Congress imposed those mandates on the government after years in which the Interior Department had not been fully reimbursing tribes for those indirect costs of contracting.  The legal dispute that the Court settled on Monday arose, however, because Congress also specified that the obligation was “subject to the availability of appropriations”– that is, laws passed by Congress to provide the funds necessary.

And, as scores of tribes entered into contracts, it turned out that Congress was not appropriating enough money to cover all of the contract support costs of every one of the tribes engaged in these self-help programs.   There was enough available, though, to pay in full the contract costs of a given tribe.   The Supreme Court majority ruled that, even though the available funds were less than were needed to reimburse all of the tribes, there was enough to reimburse the tribe that challenged the refusal to provide full reimbursement.  It was not the fault of that tribe, the decision said, that Interior diverted funds to other Indian programs, or that Congress did not provide enough to go around among all the tribal contractors.

If a given contractor is one of several promised to be paid out of a larger appropriation, and the appropriation is at least large enough to cover that one contractor’s costs, “it has long been the rule that the government is responsible to that contractor for the full amount due under the contract,” even if the money ran out before such a reimbursement was to be made, the Court stressed.

The Court conceded that, in this situation, the Interior Department itself is not obliged to find the extra money it needed, because it can only spend what Congress had appropriated.  In that situation, the decision added, the contractors are entitled to go to court to enforce the government’s valid obligations.  One source to be pursued in such a lawsuit is a pot of money that Congress regularly replenishes, called the “Judgment Fund,” set up precisely to pay when the government is sued for money damages, and loses.

In stressing that the government must live up to what it promises its contracting partners, the Court majority said that this would actually benefit the government’s overall contracting operations, because more partners will be willing to join in contracts with the government if they know that the government has to meet whatever obligations it commits itself to satisfy.  Those who would enter a contract without such an assurance, the Court added, are likely to insist that the government pay a premium to “account for the risk of nonpayment.”

“In short,” the opinion added, “contracting would become more cumbersome and expensive for the government, and willing partners more scarce.”

The decision resolved a conflict among lower federal courts over the scope of the government’s reimbursement obligation under the Indian contracting system at issue, carried out under the Indian Self-Determination and Education Assistance Act, passed in 1975.

Justice Sonia Sotomayor wrote for the majority, joined by Justices Elena Kagan, Anthony M. Kennedy, Antonin Scalia and Clarence Thomas.  Chief Justice John G. Roberts, Jr., wrote the dissent, joined by Justices Samuel A. Alito, Jr., Stephen G. Breyer, and Ruth Bader Ginsburg.

The Chief Justice argued that, since the Interior Department does not have enough money appropriated by Congress to fully reimburse the tribes for their indirect contract costs. there simply is no money available to pay to a tribe that has sued for full payment.   The dissent leaned primarily upon the phrasing in Indian contracts, and in the underlying law, that payments to tribes to reimburse them for these costs were subject to the availability of money from Congress.

Plain English summary

Every contract is a deal between two parties, and both are supposed to perform their part of the deal.   That means that, if the job covered by the contract is done as it should be, then that party is entitled to be paid what has been promised.  This case involved Indian tribes that sued the government because it did not pay all of the costs it had promised to cover when the two sides made their deal for the tribe to provide education and other government-like functions for their members.   The Court ruled that a promise is a promise, even if the government doesn’t have immediately available enough money to pay all of the contractors it had promised to pay for their services.  Congress has to locate the money to cover such a promise, the Court said.

 

 

 

 

 

Posted in Salazar v. Ramah Navajo Chapter, Analysis, Merits Cases

Recommended Citation: Lyle Denniston, Opinion recap: Promises must be kept, SCOTUSblog (Jun. 18, 2012, 1:25 PM), http://www.scotusblog.com/2012/06/opinion-recap-promises-must-be-kept/