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Post-Chevron Implications for Bid Protests and Regulations

Post-Chevron Implications for Bid Protests and Regulations

By Robert Nichols, Michael Bhargava, Sam Van Kopp, Logan Kemp

 

The Supreme Court upended the foundations of administrative law with two landmark decisions that allow companies to challenge even long-settled regulations without the traditional deference to agency interpretations.  In Loper Bright Enterprises v. Raimondo, the Court overturned so-called Chevron deference that courts gave to agency interpretations of statutes.[1]  The Court followed that up with a potentially even more consequential decision in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, which allows challenges to decades-old regulations that had previously been protected by the Administrative Procedure Act’s six-year statute of limitations.[2] 

 

Together, these two decisions will likely cause an upsurge in litigation that will create favorable results for many industries but far greater uncertainty in previously settled areas of law. 

 

The Chevron doctrine was a foundational element of administrative law stemming from the landmark 1984 case, Chevron, U.S.A. Inc. v. Natural Resources Defense Council, Inc.[3]  In Chevron, the Supreme Court outlined a two-part test for agency interpretation of a statute.  First, if the language of a statute directly spoke to the issue, that was the end of the inquiry and the plain language of the statute controlled.  Second, if the statute was ambiguous or silent, a court would defer to an agency’s interpretation of the statute as long as it was “permissible,” even if the court read it differently.  As articulated in Chevron, courts deferred to agencies both because of their expertise and because such policy-making was seen as the domain of Congress and the Executive Branch.  A related doctrine—so-called Auer deference named after a 1997 case—gave deference to an agency’s reasonable interpretation of its own regulations if they were ambiguous.[4] 

 

In practice, Chevron deference meant that an agency’s interpretation would often be definitive, as long as it was within the realm of reasonable interpretations of the statute.  But in Loper Bright, a 6-3 majority of the Supreme Court held that Chevron deference violated Section 706 of the Administrative Procedures Act, which states that “the reviewing court shall decide all relevant questions of law [and] interpret constitutional and statutory provisions.”[5]  According to the Court, this means that “agency interpretations of statutes—like agency interpretations of the Constitution—are not entitled to deference.”  A court may take an agency’s interpretation into account only if it is persuasive. 

 

The Court’s decision in Corner Post has been lost in the shuffle of high-profile cases, but it represents at least as pivotal a shift in administrative law as Loper Bright.  The APA requires parties to file any lawsuits challenging government actions “within six years after the right of action first accrues.”[6]  Until now, the circuit courts all agreed that parties had six years to challenge a regulation after it was first promulgated.  This created some stability in administrative law, because regulations became effectively immune from challenges after six years.  In Corner Post, the Supreme Court held that a claim cannot “accrue” for any specific plaintiff until that plaintiff has been injured.[7]  Newly formed entities, by definition, cannot have been injured prior to their formation.  As a result, any newly formed business can challenge any regulation that injures them, even if it has been more than six years after the regulation was promulgated.  And although the Court did not explicitly decide the issue, Corner Post means that new entities can overturn regulations based on procedural errors made by agencies in promulgating long-settled regulations.  

 

The Court’s decisions in Loper Bright and Corner Post are seismic events in administrative law whose aftershocks will continue for years to come.  Although we cannot predict precisely how this will affect government contractors, the broad outlines are clear:

 

  • An upsurge in litigation challenging agency actions. Government contractors and anyone else affected by agency interpretations of statutes will have new opportunities to challenge those interpretations.  The Administrative Procedural Act will now allow challenges to agency regulations at any time, with little-to-no deference given to agency interpretations.  Government contractors and those in regulated industries will now have a powerful incentive to challenge government regulations. 
  • More rigorous court review of agency actions. Loper Bright and Corner Post are the culmination of a long-term trend of decisions reducing the power of administrative agencies.  The clear signal to lower courts is that they have the power to overturn agency interpretations, even in areas of settled law and areas in which agencies have traditionally enjoyed broad discretion. 
  • Greater success in bid protests and other APA litigation. Government contractors and regulated industries will likely see greater success rates in any litigation under the Administrative Procedure Act, including bid protests.  Although it is too early to determine how far the playing field is tipped toward contractors, it is clear that there’s never been a better time for contractors and regulated industries to challenge agency decision making.
  • Greater hesitation by agencies in issuing regulations. Without any deference or finality for agency regulations, agencies may be more hesitant to fill the gaps left (either explicitly or implicitly) in Congressional statutes.  This may lead to greater delays in issuing regulations, more restrained rulemaking that hews closely to statutory language, fewer changes in regulations between presidential administrations, and greater gaps in regulations if agencies decide not to issue any at all. 
  • Greater uncertainty. An upsurge in litigation, newly emboldened courts, and greater regulatory gaps likely means relatively rapid and unpredictable changes in administrative law.  A wide range of government regulations will now come under scrutiny, including many that had previously been settled law.  Affected industries and agencies will need to adapt to quickly changing regulatory schemes.  The surge in challenges will also likely lead to contradictory determinations in courts around the country, so different rules may apply to companies in different parts of the country unless the Circuit Courts or Supreme Court can resolve any contradictions.  This may be less of a factor, however, in bid protests, which are ultimately controlled by Federal Circuit law and therefore are less susceptible to contradictory judgments.

In Loper Bright, the Supreme Court attempted to minimize the uncertainty of continual challenges to regulations by claiming that its decision does not necessarily undermine cases previously decided using the Chevron doctrine.  It cited the force of “statutory stare decisis,” or deference given to previous decisions interpreting Congressional statutes, which needs a “special justification” to overturn such a decision.[8]  The Court’s admonition, however, may have little effect, particularly because the Court itself immediately thereafter overturned a long-held understanding of a statutory scheme—the APA—in Corner Post.  Contractors can therefore expect that any previous decision that relied on Chevron deference is now suspect. 

 

It remains unclear how these rulings will affect bid protests.  The Federal Circuit and the Court of Federal Claims have cited the Chevron doctrine in nearly 500 cases, including many in which the doctrine has been dispositive.  For example, in a pre-award bid protest, Palladian Partners, Inc. v. United States, the Court of Federal Claims held that an agency used the wrong NAICS code for its procurement, which unreasonably excluded the plaintiff.[9]  On appeal, however, the Federal Circuit cited Chevron in deferring to Small Business Administration rules that contractors must first exhaust administrative remedies before seeking judicial relief.[10]  Because the plaintiff did not first appeal its case to the SBA, the Federal Circuit dismissed the protest. 

 

Contractors may now be able to challenge even long-standing Federal Acquisition Regulations (“FAR”).  Congress explicitly delegated to the Office of Management and Budget the power to “prescribe Government-wide procurement policies” and create a “single Government-wide procurement regulation.”[11]  But to the extent that any of the individual FAR provisions strays from statutory language or procedural requirements, it may now be subject to challenge. 

 

The post-Chevron era offers both challenges and opportunities for regulated industries and government contractors.  Long-settled regulations will be thrown into uncertainty as courts re-examine settled precedents and regulations.  But amid uncertainty lies opportunity.  Courthouses are now open and able to listen to government contractors and industry seeking to challenge regulations of all stripes.

 

[1] Loper Bright Enterprises v. Raimondo, No. 22-1219, 2024 WL 3208360 (U.S. June 28, 2024). 

[2] Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No. 22-1008, 2024 WL 3237691 (U.S. July 1, 2024). 

[3] Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843 (1984). 

[4] Auer v. Robbins, 519 U.S. 452 (1997).

[5] 5 U. S. C. §706.

[6] 28 U.S.C. § 2401(a). 

[7] Corner Post, 2024 WL 3237691, at *4.

[8] Loper Bright, 2024 WL 3208360, at *21.

[9] Palladian Partners, Inc. v. United States, 119 Fed. Cl. 417 (2014). 

[10] 783 F.3d 1243, 1258 (Fed. Cir. 2015).

[11] 41 U.S.C. § 1120(b).

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