Government contractors will likely have to choose whether to incur the costs of adaptation or to incur the costs of a breach.

Consider the following contract:
- C will provide service S to the Government for 5 years
- Government will pay $X to C
- In providing service S to the Government, C will not make use of any products or services that the Government designates as a Supply Chain Risk
- The Government may from time to time designate any product or service as a Supply Chain Risk

Without specific language discussing the potential burden on C in adapting to newly announced Supply Chain Risks, such a contract appears to leave the burden and costs of dealing with this on the company C. Company C is still under a contractual obligation to provide service S to the Government, or to pay expectation damages in the alternative.

According to efficient-breach theory, espoused by Oliver Wendell Holmes, a contractual promise generally is understood as a promise to *either* perform or to pay.

The Supreme Court of the United States has endorsed this view. Contract law is about assignment of risk for non-realization of certain events. A contractual promise is really just an assumption of liability in the case that the promise not be fulfilled. See *United States v. Winstar Corp.* [518 U.S. 839][1] at 869, quoting from Holmes:

> [i]n the case of a binding promise that it shall rain to-morrow, the immediate legal effect of what the promisor does is, **that he takes the risk of the event**, within certain defined limits, as between himself and the promisee.

The Court goes on (internal quotation marks and citations omitted):

> Contracts like this are especially appropriate in the world of regulated industries, where the risk that legal change will prevent the bargained-for performance is always lurking in the shadows. ... parties are increasingly aware of such risks, and a party may undertake a duty that is not discharged by such supervening governmental actions. ... Such an agreement ... is usually interpreted as one to pay damages if performance is prevented rather than one to render a performance in violation of law.

And Justice Scalia also wrote: "Virtually *every* contract operates, not as a guarantee of particular future conduct, but as an assumption of liability in the event of nonperformance" (*United States v. Winstar Corp.*, [518 U.S. 839 at 919][1] (1996) (in concurrence)).

In the circumstance you describe, and in my hypothetical contract above, it has not even become illegal for C to fulfil the promise — it is just that performance *in the way that C had planned to perform it* has become illegal. The Government may not even be aware that C had planned to provide service S using what would become a Supply Chain Risk.

It may become cost prohibitive for C to continue to provide service S while complying with the promise to not use any Supply Chain Risks. In such a case, where the financial trade-off makes sense, C can choose to breach, and instead pay the Government its expectation losses (to put the Government in the position it would be in had C fulfilled its promise). That may mean paying the Government something like the cost of a replacement service for the remaining years.


  [1]: https://supreme.justia.com/cases/federal/us/518/839/