The Sovereign Acts Doctrine allows the federal government to avoid liability arising from its actions as a sovereign. As relevant to federal contracts, the doctrine seeks to reconcile the government’s dual roles as a contracting party and a sovereign. It ensures that the government’s generally applicable public acts do not create contractual liability due to their incidental impacts on specific government contracts. Restrictions in response to COVID-19 and government shutdowns are examples of sovereign acts impacting federal contracts. When in breach of a contract, the government may invoke the Sovereign Acts Doctrine as an affirmative defense.

When invoking this defense, the Government asserts that it is not liable for breaching the contract as the breach occurred due to incidental consequences of a sovereign act. Adjudicative forums generally utilize a two-part test to determine whether the Sovereign Act Defense applies. Firstly, the government’s sovereign act must be public, general, and only incidentally fall upon the contract or order. Secondly, the sovereign act must render performance by the government acting as a private contractor impossible or impracticable under the general principles of contract law. Notably, the defense only applies when there has been a breach of contract. In other words, the existence of a contractual breach is a prerequisite to the applicability of the sovereign acts defense.

The U.S. Federal Government often utilizes federal supply schedule (FSS) contracts to purchase commercially available off-the-shelf software (COTS) software from reputable pre-vetted software vendors. These FSS contracts are administered by the General Services Administration (GSA), and they eliminate the need for lengthy open-market solicitations for common COTS software products. FSS contracts permit agencies to purchase COTS software products quickly and efficiently from pre-vetted software vendors using pricing that reflects volume discounts due to GSA’s government-wide purchasing leverage. Generally, the COTS software product manufacturer’s end-user licensing agreement (EULA) is incorporated into the procurement contract and dictates the Government’s use of the COTS software. The term “contractor” has been expressly defined in 41 U.S.C. § 7107(7) as a “party to a Federal Government contract other than the Federal Government.” Therefore, in COTS software product purchases, since the pre-vetted software vendor has the FSS contract with the Government, the COTS software product manufacturer is generally not considered a contractor in the traditional sense because it is not a party to the Government contract. Accordingly, since the CDA does not permit appeals by anyone who is not a party to a Government contract, COTS software product manufacturers are generally unable to bring contract claims against the Government under the CDA. However, subcontractors and certain third parties may achieve privity of contract with the Government under particular circumstances, which allows them to bring claims against the Federal Government under the CDA.

While there are ways in which subcontractors may achieve privity of contract, they may not generally bring direct claims against the Government due to a lack of privity. Therefore, subcontractor claims against the Government are typically asserted by prime contractors as pass-through claims. However, prime contractors may only bring such pass-through claims if they meet the requirements of the Severin Doctrine. First articulated by the Court of Claims in 1943, the Severin Doctrine bars pass-through subcontractor claims unless the prime contractor itself remains liable to claims by the subcontractor. While the Severin Doctrine has evolved through its application to various pass-through claims scenarios, at its outset, it barred the assertion of pass-through claims unless the prime contractor either reimbursed the subcontractor due to the Government’s fault or was at least liable to make such a reimbursement in the future.

Based on the principles of sovereign acts immunity and privity of contract as applied to government contracts, the Severin Doctrine requires the prime contractor to have at least some demonstrable exposure to subcontractor liability. To prevent pass-through claims through this affirmative defense, the Government typically points to any provisions in the subcontract that tend to exculpate the prime contractor from liability to the subcontractor. When entering teaming arrangements, contractors should be aware that if the subcontract agreement contains a clause completely or specifically exonerating a prime contractor from liability to the subcontractor for pertinent damages, then the prime contractor may not assert a related pass-through claim against the Government. Prime contractors are similarly barred from asserting pass-through claims if the subcontract specifically extinguishes prime contractor liability upon the meeting of certain requirements, such as the subcontractor being granted additional time or the acceptance of final payment.

The Federal Acquisition Regulation (FAR) § 12.212(a) requires the federal government to acquire commercial software under the same licenses customarily provided to the public. Since the FAR does not offer standard licensing agreements or terms for commercial software, contractors must generally negotiate the terms of use when the commercial software license is incorporated into a government contract. Since any terms incorporated into a federal contract must be consistent with federal law and take into account any sovereign immunity considerations, contractors should thoroughly review the license agreement before submitting it to the government for incorporation. While each commercial software license agreement is different and potentially raises unique challenges during its incorporation into federal contracts, contractors should carefully review the following standard clauses in a commercial license agreement for compliance.

• Assignment Clause

FAR § 42.12 outlines specific requirements that must be met before contractors are allowed to assign government contracts. A standard commercial software license agreement may permit unilateral assignment. However, such an assignment would violate the FAR, which requires express government approval, among other requirements, before the assignment of a government contract. Therefore, to ensure compliance with the FAR, software vendors should consult with the software manufacturer as necessary and remove any standard assignment clauses before submitting the licensing agreement to the government for incorporation. Suppose the software manufacturer is reluctant or unable to remove the assignment clause from the agreement. In that case, the assignment clause should, at a minimum, be modified to include express language that addresses and promises compliance with FAR § 42.12 in case of any contract assignments.