United States v. Winstar Corp.
135 L. Ed. 2d 964 | Supreme Court of the United States | 1996
What This Case Means for Subcontractors
The Supreme Court ruled that the federal government must honor its contractual promises about regulatory treatment, even when Congress later changes the law and makes those promises impossible to keep. The government cannot use new regulations as an excuse to break contracts—it must pay damages instead. For subcontractors, this means contracts that shift regulatory risk to the owner are enforceable, and owners cannot escape liability by claiming new laws made performance impossible.
Key Takeaways
- •Include explicit language in contracts assigning regulatory and legal change risks to the party best positioned to manage them (usually the owner/general contractor)
- •Do not accept vague force majeure clauses that let the other party escape liability for regulatory changes—make them specific and limited
- •If a contract promises certain regulatory treatment or tax benefits, document that promise in writing and hold the other party accountable if laws change
Terms assigning risk of regulatory change to Government are enforceable.
Frequently Asked Question
Can a contractor or owner escape a contract because new regulations made it impossible to perform?
No. The Winstar decision says that if a contract assigns regulatory risk to one party, that party cannot use new laws as an excuse to avoid liability. The party who promised to handle regulatory changes must pay damages if Congress or regulators change the rules. Always clarify in writing who bears the risk of future regulatory changes.
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