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Prior to the founding of Hobbs Straus, Jerry Straus was lead Washington, D.C. counsel in the first large scale case for the restoration of historic Indian land – the restoration of the 48,000 acre Blue Lake lands to the Taos Pueblo.

General Memorandum 12-078

General Memorandum 12-078
U.S. Supreme Court Requires Full Payment of Contract Support Costs

On June 18, 2012, the United States Supreme Court held that the federal government is required to pay full contract support costs to Indian tribes who contract for services under the Indian Self-Determination and Education Assistance Act (ISDEAA, or the Act). The case is Salazar v. Ramah Navajo Chapter, No. 11-551.

The case arose out of two seemingly contradictory provisions of the ISDEAA. The Act requires the Department of Interior (Interior) to enter into self-determination contracts with tribes, without regard to available funding, and to pay contract support costs. However, the Act also states that contracts will be paid "[s]ubject to the availability of appropriations." Additionally, Congressional appropriations during the years covered by the lawsuit have specified each year that the appropriation was "not to exceed" that year's specified amount for contract support costs. (For example, in Fiscal Year 1995, Congress made an allocation "not to exceed $95,823,000 . . . for payments to tribes and tribal organizations for contract support costs . . . .") As a result, Interior developed a policy of paying each tribe a percentage of its contract support costs, on a pro rata basis. As part of a long-running class action, the Ramah Navajo Chapter challenged this practice, alleging breach of contract and requesting compensation for underpaid contract support costs.

The majority opinion, written by Justice Sotomayor (joined by Justices Scalia, Kennedy, Thomas, and Kagan) is grounded in what the Court referred to as "longstanding principles of Government contracting law":
When a Government contractor is one of several persons to be paid out of a larger appropriation sufficient in itself to pay the contractor, it has long been the rule that the Government is responsible to the contractor for the full amount due under the contract, even if the agency exhausts the appropriation in service of other permissible ends.

The reason for this rule is simple: contractors should be able to trust that the government will honor its contracts, and should not have to guess at how an agency will divvy up appropriated funds. This principle was reaffirmed in the context of ISDEAA contracts seven years ago in Cherokee Nation of Oklahoma v. Leavitt. Furthermore, the Court held that the "subject to the availability of appropriations" language in the ISDEAA, and the "not to exceed" language in the appropriations bills, did not undermine the general rule cited above.

Writing in dissent, Chief Justice Roberts (joined by Justices Ginsburg, Breyer, and Alito), argued that the critical question was whether funds were "available." He said the relevant statutes contained two effective limitations on available funds: First, the "not to exceed" language in appropriations bills "imposed a cap on the total funds available for contract support costs in each fiscal year." Second, a provision of the ISDEAA stated that "the Secretary [of the Interior] is not required to reduce funding for programs, projects, or activities serving a tribe to make funds available to another tribe or tribal organization under [the Act]." Because of these two clauses, the dissenters believed that the tribes were not entitled to full contract support costs in years that Congress did not appropriate sufficient funds to pay those costs.

The majority did not accept that argument, which it characterized as "inconsistent with ordinary principles of Government contracting law." Because more than one reasonable interpretation was available, and because the ISDEAA expressly required that it be interpreted liberally to benefit Indian tribes, the Court adopted the interpretation that both upheld general principles of government contracting law, and that protected the tribes' interests. Finally, the Court stated that Congress has a variety of options if it does not want to pay full contract support costs, including eliminating the statutory mandate that Interior enter into self-governance contracts, or allowing Interior to pay less than full contract support costs.

The Supreme Court's decision does not end this case, which already has been in the federal courts for more than twenty years, but merely returns it for trial to the federal district court in New Mexico. It is unknown at this time whether the parties will settle, or whether the United States will continue to defend the case by asserting new defenses.

Please let us know if we may provide any additional information regarding this case.

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Inquiries may be directed to:
William R. Norman (wnorman@hobbsstraus.com)
Joe Webster (jwebster@hobbsstraus.com)
Dan Lewerenz (dlewerenz@hobbsstraus.com)
Steve D. Osborne (sosborne@hobbsstraus.com)

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