This report surveys the legal theories that may be invoked by aggrieved contract parties to obtain redress in these situations—that is, when new federal statutes interfere with contracts entered into pre-enactment. For public contracts, the usual legal challenge is via a breach of contract claim, though claims that contract rights have been "taken," requiring compensation under the Fifth Amendment Takings Clause, are often joined. For private contracts, the breach theory is not available since by definition the United States is not a party to the contract. The Competing Interests in Protecting Contract Rights

Protection of settled expectations is essential to ordered society, certainly to the conduct of business. At the same time, government must have latitude to address new problems, even if that means interfering with settled expectations in existing contracts. Thus, contracts generally are said to confer no immunity against future legislation. Waiver of Sovereign Immunity and Vesting of Jurisdiction

To sue the United States for congressional interference with a contract right (public or private), the United States must have waived its sovereign immunity: the United States is immune from suit except as it consents to be sued. Breach of contract is the main theory on which challenges to congressional interference with pre-existing public contracts are litigated. As earlier noted, the United States is as bound by its contracts as are individuals, save for the special "sovereign defenses" discussed below. That is, the same breach rules apply to the United States as a contract party as to a nonfederal party. Special Cases

There are several breach of public contract situations worth special mention:

				Implied Covenant of Good Faith and Fair Dealing

In a set of related cases, the United States was found liable for contract breach even though the congressional enactment did not run afoul of any express term in the affected contracts. Additional Requirements

The Supreme Court has held that Congress's imposition of additional requirements on an entity that has previously contracted with the United States may be regarded as tantamount to a breach. The sovereign act d efense holds that the United States is not contractually liable for its "public and general" acts as sovereign. Thus, a federal agency "cannot contract away Congress' sovereign power to regulate unless Congress has clearly and unmistakably empowered the agency to do so." Breach claims based on contract termination by the United States are precluded, on the ground that the government's contracts are "entered into subject to the power of Congress to enact legislation authorizing the government to … cancel them …." Being inherent in federal sovereignty, this defense is not dependent on being expressly stated in government contracts. A breach by the United States, therefore, can be argued to constitute a taking of one's property in a contract right. Judicial Preference for Breach of Contract Claims

While breach of contract and takings claims against the United States are often brought in the same action, the Court of Federal Claims and Federal Circuit display a marked preference for litigating such actions under a breach theory—often ignoring the taking claim entirely. Takings

Congressional interference with existing private contracts raises takings issues for the same reason that such interference with existing public contracts does: contract rights generally are deemed property under the Takings Clause. The Court held that government actions that only incidentally interfere with performance of private contracts—rather than targeting them directly—constitute but a "frustration," not a taking, of those contract rights. Omnia Limits

At least three limits to the Omnia rule exist.
Laws enacted by Congress on occasion interfere with contracts entered into before enactment, prompting suits against the United States by disappointed contract parties. In a few of them, courts have awarded billions of dollars to the United States' contracting partners. This report surveys the legal theories invoked in such suits. Note that litigation on the grounds covered herein can be avoided entirely if the congressional enactment is construed to apply only to future contracts.
Two competing interests underlie this report's topic. On the one hand, protection of settled expectations, at least to some degree, is essential to ordered society. Contract law has this goal for expectations embodied in contracts. On the other hand, government needs latitude to address new problems, so contracts generally are said to confer no immunity against future legislation. The balance struck by the case law is that while Congress legitimately can thwart performance under existing contracts, the United States may in some instances have to pay compensation.
The United States cannot be sued unless it waives sovereign immunity and vests jurisdiction to hear claims against it in a court. This the United States has done with regard to the legal theories at issue here. Once past these procedural thresholds, courts accord different treatment to legislative interference with existing contracts depending on whether the interference is with a "public contract," defined as one where the United States is a party, or with a private contract, defined as one between two non-federal parties. Broadly speaking, challenges to the former are more likely to win.
For public contracts, breach of contract is the main theory on which challenges to congressional interference with existing contracts are litigated. The United States is as bound by its contracts as are individuals, so the same breach rules apply. Some special situations that have occupied the courts in recent years have been (1) breaches of the implied covenant of good faith and fair dealing; (2) the addition by Congress of new hurdles for the private party to a contract with the United States; and (3) breach by congressional inaction.
In addition to sovereign immunity, which as noted has been waived, there are other "sovereign defenses" that the United States can invoke when sued for breach. One is the sovereign acts doctrine, which holds that the United States is not liable for its "public and general" acts as sovereign. This defense seeks to ensure that the United States is no worse off than a private contracting party when acts of the United States as sovereign impede contract performance. Another sovereign defense flows from the unmistakability doctrine, which states that a federal agency may not contract away Congress's sovereign power to regulate unless Congress has unmistakably empowered the agency to do so.
For private contracts, the main legal theory is the Fifth Amendment Takings Clause. Plaintiffs argue that since contract rights generally are deemed "property" under the Takings Clause, a congressional enactment that thwarts performance under a contract in essence takes property, requiring compensation. The government's defense is often the Omnia rule, a Supreme Court holding under which government actions that only incidentally interfere with performance of private contracts are deemed to constitute but a frustration, not a taking, of contract rights. Per this definition, the Omnia rule does not apply when the congressional action expressly "targets" an existing contract right, though even here the taking claim usually is rejected.