Almost exactly 40 years ago, the United States Supreme Court established the Chevron doctrine, which required that federal courts defer to federal agencies in their interpretation of statutes that are silent or ambiguous on a specific issue, even if the court disagreed with the agency’s interpretation, provided the agency’s interpretation was a “permissible construction” of the law. See Chevron U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842–43 (1984). On June 28, 2024, the Supreme Court reversed course and overruled Chevron in a 6-3 decision. See Loper Bright Enters. v. Raimondo, 603 U.S. ___ (2024) (slip op.).

In the Loper Bright opinion, the Supreme Court eliminated judicial deference to an administrative agency’s interpretation of a statute when implemented through regulation or otherwise, shifting back to federal courts the power and obligation to interpret statutes. Specifically, the Court held as follows:

Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the [Administrative Procedures Act (“APA”)] . . . requires. Careful attention to the judgment of the Executive Branch may help inform that inquiry. And when a particular statute delegates authority to an agency consistent with constitutional limits, courts must respect the delegation, while ensuring that the agency acts within it. But courts need not and under the APA may not defer to an agency interpretation of the law simply because a statute is ambiguous.

Loper Bright, slip op. at 35.

Nearly two months before the Loper Bright decision, perhaps as a protective measure in light of its pendency, an appellate attorney from the Department of Justice (“DOJ”) appeared to surprise a panel of Federal Circuit judges during oral argument when he stated that the Government did not intend to rely on Chevron deference to defend against an argument that the Government’s application of a particular Cost Accounting Standards (“CAS”) regulation, as applied in conjunction with certain Federal Acquisition Regulation (“FAR”) provisions, violated the plain language of the underlying CAS statute. See Oral Argument at 30:20 – 32:25, Boeing Co. v. United States, No. 23-1018 (Fed. Cir. 2024), https://cafc.uscourts.gov/05-09-2024-2023-1018-boeing-company-v-us-audio-uploaded/.  This case perhaps represents a preview into the DOJ and other governmental units’ evolving approach to defending agency interpretations of statutes and the validity of implementing regulations without the benefit of Chevron deference. See 603 U.S. ___ (2024) (slip op.). More broadly, this case should alert government contractors to the many potential ripe challenges to agency interpretations of procurement statutes, including as implemented in the FAR, CAS, and other procurement regulations.

Key Takeaways For Government Contractors

• Thoughtful consideration should be given to a challenging agency rulemakings or adjudications through litigation. When an agency’s implementation of a statute, including procurement laws, through regulations or otherwise, appears to be arbitrary or capricious, an abuse of discretion, or in violation of the statute, in light of Loper Bright, the agency’s principle shield in such litigation has been removed. If the agency’s position seems inconsistent with or beyond the scope of the underlying statute, a challenge should be considered.
• Government contractors should be proactive in monitoring the Federal Register and commenting on the implementation of statutory requirements. Procurement-related statutory requirements are regularly implemented in the FAR, Department of Defense Federal Acquisition Regulation Supplement (“DFARS”), other agency FAR supplements, and other chapters of the Code of Federal Regulations (“CFR”) (g., 48 C.F.R. Chapter 99 (CAS), 13 C.F.R. Part 121 (small business regulations), and 29 C.F.R. Part 5 (labor regulations)). A compelling argument by an interested party should hold more weight with regulators during the rulemaking process now than under Chevron, as courts are no longer permitted to simply abide by the Government’s position, provided it is “a permissible construction” of the statute being implemented. Also, public comment and the Government’s response can be an critical part of the administrative record in a future court challenge.
• Loper Bright will potentially impact government contract litigation beyond challenges to agency rulemaking and adjudications. Tribunals with jurisdiction over government contract matters have relied upon Chevron in a myriad of contexts. See, e.g., Abrams v. Soc. Sec. Admin., 703 F.3d 538, 543 (Fed. Cir. 2012) (applying Chevron deference to agency interpretation of a statute lacking a definition of the relevant term); Ocean Tech., Inc. v. United States, 19 Cl Ct. 288 (1990) (applying Chevron deference to the agency’s interpretation of the Prompt Payment Act, which eliminated interest recovery for a portion of the contractor’s claim under the Contracts Disputes Act (“CDA”)); Sundstrand Corp., ASBCA No. 51572, 01-1 BCA ¶ 31,167 (recognizing applicability of Chevron to agency’s interpretation of statute, as reflected in the FAR); Packer v. Soc. Sec. Admin., CBCA No. 5038, 15-1 BCA ¶ 36178 (applying Chevron deference to the Board’s interpretation of a procedural statute); Maersk Line, Ltd., B-406586 et al., 2012 CPD ¶ 200 (2012) (Government Accountability Office (“GAO”) applying Chevron deference in a bid protest involving the Department of Transportation’s Maritime Administration’s interpretation of the Merchant Vessel Sales Act of 1946, which resulted in the denial of related protest grounds). With Chevron deference eliminated, the outcome of future government contracts matter could be impacted.
• Government contractors should understand the limitations of Loper Bright.
  • The decision did not affect the high standard governing challenges under the APA. A litigant still must establish principally that an agency action was arbitrary and capricious, abused discretion, or violated law to prevail on a challenge to an agency adjudication or rulemaking. See 5 U.S.C. § 706.  Courts will no longer defer to an agency’s interpretation of a statute in such action, but the relatively high burden of the APA still applies.
  • The slightly lesser “Auer deference” afforded to agencies interpreting their own ambiguous regulations remains in place. Such deference—commonly referred to as “Auer deference” (see Auer v. Robbins, 519 U.S. 452 (1997)) and before that “Seminole Rock deference” (see Bowles v. Seminole Rock & Sand Co., 325 US. 410 (1945))—was reaffirmed by the Supreme Court just over five years ago.  See  Kisor v. Wilkie, 588 U.S. 558 (2019). As explained in Kisor, a court will defer to an agency’s interpretation of its own ambiguous regulation (by creating a rebuttable presumption that the interpretation is correct) if the agency’s interpretation is reasonable, represents the agency’s “authoritative” or “official” position (not an ad hoc statement of its view), implicates the agency’s “substantive expertise”, and “reflect[s] ‘fair and considered judgment’”, not merely a litigation position or a post hoc rationalization. Id. at 575–579.
    • For clarity, where the issue is whether a challenged regulation violates (or goes beyond what is permitted by) the statute it implements, Chevron deference no longer applies in determining what the statute means. By contrast, if the dispute concerns what a regulation means, not whether it violates a statute, Auer deference applies and, unless revisited, is unaffected by Loper Bright. Government contractors must carefully think through the nature of a potential challenge to understand the governing judicial standard.
• The significantly lesser “Skidmore deference” afforded to agencies interpreting their own internal guidance and opinions remains in place. Such deference is set forth in Skidmore v. Swift & Co.  See 323 U.S. 134 (1944); see alsoS. ex rel. Phalp v. Lincare Holdings, Inc., 116 F. Supp.3d 1326, 1349 (S.D. Fla. 2015) (summarizing Arriaga v. Fla. Pac. Farms, L.L.C., 305 F.3d 1228, 1238 (11th Cir. 2002)’s recognition of Skidmore deference to agency rulings, interpretations and opinions).  Similarly, it is unaffected by Loper Bright.
• The impact of Loper Bright is prospective, not retroactive. Although the Supreme Court held that the doctrine of stare decisis (which requires “judicial adherence to precedent”) did not justify upholding Chevron (see Loper Bright, slip op. at 29–34), the Court made clear that “we do not call into question prior cases that relied on the Chevron” Loper Bright, slip op. at 34–35. According to the Court, under stare decisis, the agency regulation at issue in Chevron itself as well as the myriad of agency actions and regulations deemed lawful due to Chevron will remained undisturbed. Id. However, challenges to past and future agency actions as of yet untested by courts are fair game.

Conclusion

The impact of this ruling will be far-reaching and could change the course of American jurisprudence and federal rulemaking for decades to come.

In the past 40 years, Chevron has been cited in more than 18,000 court decisions and more than 3,000 administrative decisions. It has been cited over 600 times in the Federal Register, the publication where agencies propose and issue regulations and invite and respond to public comment, and no doubt has been relied upon in many more rulemakings. It is unknown how many or the extent to which existing regulations—that were issued by agencies under the comfort of Chevron’s blanket deference—would have been different or narrower in its absence. It is similarly unknown how many litigation challenges were not brought because of Chevron’s formidable hurdle. Suffice it to say that Chevron has loomed large since 1984, but the floodgates may now be open for challenges to existing and future regulations, or other agency actions, that violate or go beyond a statute or the authority delegated to an agency.