Is Your Government Contract Worth the Paper It’s Written On? An Examination of Winstar v. United States

Monday, January 1st, 1996 at 12:00 am by K. Mckay Worthington
K. Mckay Worthington, Is Your Government Contract Worth the Paper It’s Written On? An Examination of Winstar v. United States, 1996 Colum. Bus. L. Rev. 119

The United States government is the world’s most prolific contractor. Every day it enters into tens of thousands of contracts with private parties with aggregate values of hundreds of millions of dollars. But the government is in a position unlike that of a private contractor. Private contracting parties enter into contracts that may become more or less favorable to one party, or may be nullified, based on a change in the law. Such a change of law is a contingency, much like an act of God, over which private contracting par ties generally have no control. The federal government, on the other hand, has the sovereign power to create the laws that affect the contracts to which it is a party. Therefore, it is appropriate that some limits exist on the government’s power to avoid its contractual obligations by legislation passed subsequent to entering into the contracts. Case law has developed to impose such limits. Recently, the Federal Circuit handed down a decision further shaping the limitations under which the government may escape contractual duties by legislation without compensating the other contracting party. Winstar Corp. v. United States involved three savings and loan institutions that argued Congress’ passage of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) constituted a breach of contracts entered into by the thrifts with the Federal Savings and Loan Insurance Corporation (FSLIC) and the Federal Home Loan Bank Board (Bank Board). FIRREA disallowed the future use of accounting practices by thrifts that previously the FSLIC and Bank Board had agreed to permit the thrifts to use as an incentive to encourage thrift mergers earlier in the decade. This Note examines the Winstar decision in the context of existing case law and discusses its meaning for other government contracts. It argues that the Winstar decision was correct from a policy perspective and speculates about its effect on subsequent litigation and changes in government contracting generally.

Author Information

not available