Supreme Court Affirms the Government's Contractual Obligations to Tribes under the ISDA

6.28.2012 - Posted in E&B Alerts – Government Contracts

On June 18, 2012, the U.S. Supreme Court enforced the rights of numerous Indian Tribes under their contracts with the government, finding that the government's obligations under those contracts should be put on equal footing with any other government contract. InSalazar v. Ramah Navajo Chapter, a 5-4 ruling authored by Justice Sotomayor, the high court held that under the Indian Self-Determination and Education Assistance Act (ISDA), the Federal Government must pay, in full, the "contract support costs" incurred by the Tribes in performing their contracts, even when Congress appropriates insufficient funds to cover the aggregate amount due to each individual contractor.

The ISDA became law in 1975. It directs the Secretary of the Interior to enter into contracts that permit tribal organizations to administer federal services that would otherwise be administered by the Secretary, such as education and law enforcement programs. The statute further requires the Secretary to pay the tribal organization's reasonable contract support costs, subject to a statutory cap and the availability of appropriations.

In this case, the respondent Tribes contracted with the Department of the Interior from 1994 to 2001. During each of those years, "Congress appropriated sufficient funds to pay any individual tribal contract's contract support costs in full, but did not appropriate enough to pay all tribal contractors collectively." As a result, the Tribes were paid on a uniform, pro rata basis. After the Tribes fully performed their duties under the ISDA program contracts, they filed suit for breach of contract against the Secretary pursuant to the Contract Disputes Act, claiming underpayment of contract support costs. The district court granted summary judgment for the Government. A divided panel of the United States Court of Appeals for the Tenth Circuit reversed, holding that the Government was required to pay, even in excess of the statutory cap, because Congress appropriated funds sufficient to satisfy the demands of any single contractor considered in isolation.

Relying on Cherokee Nation of Okla. v. Leavitt and United States v. Ferris, the U.S. Supreme Court affirmed the judgment of the Court of Appeals. Justice Sotomayor wrote for the majority, and was joined by Justices Scalia, Kennedy, Thomas, and Kagan. The opinion stated that "consistent with longstanding principles of government contracting law, we hold that the Government must pay each Tribe's contract support costs in full." The Court went on to reason that not permitting the Government to back out of the contract on the grounds of insufficient appropriations to fulfill its promises "safeguards both the expectations of Government contractors and the long-term fiscal interests of the United States."

The decision notes that the Government's frustration with the situation is "understandable," given the difficulty in reconciling the Secretary's obligation to accept every qualifying ISDA contract, which includes a promise of "full" funding for all contract support costs, with the insufficient funds appropriated by Congress to actually pay each tribal contractor in full. Nonetheless, the Court held that "the dilemma's resolution is the responsibility of Congress," which has many options at its disposal to ease the internal tensions within the ISDA.

Chief Justice John G. Roberts, Jr. dissented, reasoning that once the allocated funds were appropriated to a specific ISDA contract, the money in the broader pool became unavailable, thus relieving the Government of any further contractual obligation. Justices Breyer, Ginsburg and Alito joined in the dissent.

Download the Opinion of the Court here. For further information regarding this decision or other government contract matters, please contact Daniel Cragg at (612) 236-0160 or [email protected].