When Government Breaches for Non-Payment

What happens when the federal government enters into a contract with private parties to provide some kind of services for the government, and then Congress refuses to allocate money to cover the costs of these services, or put a different way, refuses to give the government the money needed to pay for the services under the contract? Breach? You bet, said the U.S. Supreme Court yesterday.

Apparently Congress has created something called a "Judgment Fund" to cover costs related to court judgments issued against it. The Court determined that when the government breaches a contract, it must dip into this fund to make good on the promises it made under the contract.

Why? Lyle Denniston at SCOTUS blog sums up the Court's rationale nicely:

In stressing that the government must live up to what it promises its contracting partners, the Court majority said that this would actually benefit the government’s overall contracting operations, because more partners will be willing to join in contracts with the government if they know that the government has to meet whatever obligations it commits itself to satisfy.  Those who would enter a contract without such an assurance, the Court added, are likely to insist that the government pay a premium to “account for the risk of nonpayment.”