Chevron and Government Contracts | Schwabe, Williamson & Wyatt PC

Decision to revoke Chevron likely to affect government contracts. The vast array of government contracting laws that control contracts, such as the requirements of the Davis-Bacon Act, the provisions of the Services Contracts Act, and various procurement laws, are derived from broad statutory provisions that have been implemented through regulations.

For example, the Davis Bacon Act (DBA) requires that certain federal construction and repair contracts (1) “must contain a provision setting forth the minimum wages to be paid to various classes of laborers and mechanics;” (2) that the statutory minimum wage “shall be based on the wages which the Secretary of Labor finds to be in effect for appropriate classes of laborers and mechanics employed on projects of a similar nature to the contract work in the civil division of the state in which the work is to be performed, or in the District of Columbia if the work is to be performed there;” and (3) that “the contractor or subcontractor shall pay all mechanics and laborers directly employed on the job…at rates of wages not less than those set forth in the published specifications.”

Based on such broad statutory language, the Department of Labor (DOL) promulgated an extensive set of regulations to implement the DBA, including definitions of how the minimum wage is calculated and what is “directly in the workplace.” Chevronthe interpretation and application of these statutory provisions by the Department of Labor have been met with deference, such as Nevada Branch of Associated Gen. Contractors of Am., Inc. v. WalshNo. 22-16544, (9th Cir. February 27, 2024), in which 9^t The District Court of Appeals affirmed the dismissal of a complaint challenging the Department of Labor’s regulations describing the method for calculating the prevailing wage based on Chevron respect for the agency’s interpretation of the DBA. In theChevron In a world where a court could independently determine what, for example, “being employed directly on the job” means and invalidate parts of the Department of Labor’s DBA regulations that conflict with the court’s interpretation.

Similarly, the executive branch often uses federal government contracts—and its ability to impose contract provisions as part of federal contracts—to advance social or political goals, such as raising a federal contractor’s minimum wage, requiring paid sick leave, or requiring a successor contractor to hire the employees of a current contractor. These contract provisions are often imposed through a regulation or executive order based on section 121(a) of the Public Procurement Act (40 U.S.C. § 121), which provides that “the President may prescribe such policies and directives as he deems necessary” to economically and efficiently obtain supplies, properties, and services. In the case ofChevron In the current legal landscape, courts have the right to interpret the scope of these powers independently, regardless of the position of the administration, which may lead to more effective attempts to challenge the implementation of social and economic policies by the administration through contractual agreements.

Finally, in the defense sector, changes to federal contracting programs are often implemented through the annual National Defense Authorization Act (NDAA), which sets the Department of Defense budget. For example, Section 865 of the 2024 NDAA requires the Department of Defense to amend the Defense Federal Acquisition Regulation Supplement to require DOD agencies to include information about the past performance of affiliates. The specific language is:

Not later than July 1, 2024, the Secretary of Defense shall amend section 215.305 of the Supplement to the Federal Acquisition Regulations in the Department of Defense (or any subsequent regulation) to require that, when small businesses bid on Department of Defense contracts, the past performance information of affiliates of the small businesses be considered, where appropriate, in the performance evaluation and source selection processes.

Congress’s apparent intent was to expand the ability of small businesses to rely on the past performance of affiliates, and the Small Business Administration has suggested that section 865 would have no practical effect because only information about the past performance of affiliates that is “material” should be considered. According to SBA, the past performance of affiliates is material only if the affiliates play a significant role in the performance of the contract. According to Chevronthis interpretation of section 865 by the agency could be respected, but afterChevronSmall businesses will have a better chance of challenging overly restrictive application of Section 865.

Section 865 is just one example of the type of statutory language that is often used by Congress to change federal contracting programs — language that is then interpreted and applied by federal agencies.ChevronFederal contractors may face more effective legal challenges to the agency’s implementation of such directives in which contractors claim the agency misinterprets or misapplies congressional intent.