“I don’t know if it’s murder, but it looks like an attempt to cripple Anthropic. And specifically, my concern is whether Anthropic is being punished for criticizing the government’s contracting position in the press.”
Those words, spoken by Judge Rita Lin at the March 24 hearing on Anthropic’s motion for a preliminary injunction against the Department of Defense and sixteen other federal agencies, address the question that government contractors and Silicon Valley have been asking for the past month.
I have described contractor blacklisting as the “corporate death penalty,” a “corporate death sentence,” and the “corporate grim reaper,” but corporate “murder” is a first.
In late February, the President directed every federal agency to stop using Anthropic’s AI technology. The Secretary of Defense also designated Anthropic a supply chain risk to national security under 10 U.S.C. § 3252 after the company refused to remove usage restrictions from its contracts with the Department. Anthropic filed suit in the Northern District of California alleging that the government’s actions were unlawful. It is separately challenging a covered procurement action under 41 U.S.C. § 4713, which is subject to exclusive review in the D.C. Circuit. I have discussed the underlying policy dispute, including the “all lawful use” directive and the structural gaps in AI procurement governance, in a prior Lawfare piece. Alan Rozenshtein’s Lawfare piece addresses the remedy question from a national security law perspective.
On March 26, Judge Lin granted Anthropic’s motion for a preliminary injunction, enjoining the president’s social media directive, the secretary’s social media directive, and the Section 3252 supply chain designation. The order is stayed for seven days. The final paragraph of the preliminary injunction order captures in three sentences what this piece explains at length:
This Order restores the status quo. It does not bar any Defendant from taking any lawful action that would have been available to it on February 27, 2026, prior to the issuances of the Presidential Directive and the Hegseth Directive and entry of the Supply Chain Designation. For example, this Order does not require the Department of War to use Anthropic’s products or services and does not prevent the Department of War from transitioning to other artificial intelligence providers, so long as those actions are consistent with applicable regulations, statutes, and constitutional provisions.
Everyone expects the government to appeal, so that is probably next. But the question I keep hearing is, what do the federal contracting rules require when the government decides it no longer wants to work with a contractor?
The procurement system provides detailed, well-established answers to that question, developed by policymakers over decades. Section 3252 required the Secretary to determine, in writing, that less intrusive measures were not reasonably available, and to tell Congress which alternatives were considered and why they were rejected. This piece describes some of those measures.
The Tools the Government Had But Didn’t Use
First, the government is not required to contract with Anthropic. Under Perkins v. Lukens Steel, the government enjoys broad discretion to determine with whom it will do business and on what terms. No one disputes that the Executive Branch can decide it no longer wants a particular vendor’s products or services, but it must do so consistent with the law. Beyond this, the federal contracting system offers a range of tools for ending a contractor relationship, and they escalate in severity. With respect to Anthropic, the government skipped to the most extreme one.
The options available to the government for severing ties with Anthropic depend on the type of contract involved. Based on the public record, Anthropic had FAR-based contracts, including a GSA “OneGov” agreement; deployments through third-party contractors, including Palantir’s Maven Smart System; and a prototype Other Transaction (OT) with the Chief Digital and Artificial Intelligence Office. The tools available to end each relationship differ accordingly.
We do not know the full picture, but the government had multiple defined processes available to end its relationship with Anthropic and begin removing it from federal systems.
Termination
Under Anthropic’s FAR-based agreements, the simplest way for the government to sever its relationship with the company is through a “termination for convenience“ (T4C). If the contract includes a termination for convenience clause, as most FAR-based contracts do, the contracting officer may terminate when doing so is in the government’s interest. The standard is broad, but not limitless, as a termination cannot be an act of bad faith or an abuse of discretion. The contractor is entitled to certain costs when the government exercises its T4C rights, so the parties negotiate a settlement; if they disagree, the disputes process outlined in FAR Part 33 is followed.
If the concept of “broad government termination rights” sounds vaguely familiar, it is because you may recall that in early 2025, the government, through DOGE, exercised its T4C authority on a sweeping and unprecedented basis, terminating thousands of contracts for convenience across the federal government. The tool is neither obscure nor untested, and the government has shown absolutely no hesitation in deploying it.
There is little doubt that the government could have demonstrated that terminating its agreements with Anthropic was in the government’s interest. The administration has articulated a policy rationale—it wants AI models free from vendor usage restrictions—and Anthropic declined to comply. Whether or not you agree with the policy, the threshold is not hard to meet. They’ve certainly done it for less.
With respect to Anthropic’s OT agreement with CDAO, the picture is less certain, as the public record does not disclose the specific terms. Unlike FAR-based contracts, OTs are flexible instruments, so the FAR-based termination process does not automatically apply. But OTs often include FAR-like termination provisions, so the government may well have had a contractual off-ramp for the direct relationship. Beyond the government’s options, Anthropic itself offered to facilitate a transition to another provider.
Termination addresses the government’s immediate concern: current operational reliance on a vendor it no longer trusts. The government had contractual tools to address that concern without invoking a supply chain exclusion determination. It did not use them.
Suspension and Debarment
Termination for convenience is common enough that the FAR has an entire disputes process built around it. What happened last year was jarring, but a T4C in this instance wouldn’t have surprised anyone. The next option on the less-intrusive-measures menu is a significant jump, more like moving from a speeding ticket to a life sentence. But even a life sentence has more process than what the government did here.
Discretionary suspension and debarment are the federal procurement system’s mechanisms for excluding “nonresponsible” contractors from doing business with the government. Regulated by FAR 9.4, both tools are triggered by evidence of serious misconduct or grossly incompetent performance, but they serve different functions. Suspension is immediate and temporary, designed to protect the government while an investigation or legal proceeding is underway. Debarment is longer-term, typically following a criminal conviction, a civil judgment, or a finding that the contractor’s conduct is serious enough to affect its present responsibility. This is the FAR’s nuclear option. And given its potential consequences (both direct and collateral) it’s no wonder we call it the corporate death penalty.
Before I continue, I want to stop and address something directly. I am not suggesting that the government should have pursued debarment. On these facts, I do not believe it would survive judicial scrutiny. At issue is a contractual dispute in which a vendor declined to accept the terms the government wanted. That is not the kind of triggering misconduct the system was designed to address. But if we are evaluating less intrusive measures, which Section 3252 requires the Secretary to consider, then understanding what even this most extreme tool requires is essential. Because it shows just how far the government departed from any recognized process.
Specifically, the debarment process itself recognizes how consequential it can be for a contractor. FAR 9.402(b) establishes the core principle: debarment and suspension may be imposed “only in the public interest for the Government’s protection and not for purposes of punishment.”
FAR 9.4 implements that principle through a framework that requires notice and an opportunity to respond, though the timing differs depending on the tool used. These determinations are made by a Suspension and Debarment Official (SDO), whose ultimate question is one of present responsibility: can this contractor be trusted to continue doing business with the federal government? In answering this question, the SDO will generally assess present responsibility in light of remedial measures, mitigating factors, and aggravating factors. Suspension and debarment generally preclude new prime contract awards and restrict certain future subcontracts, but they do not, by themselves, require the termination of existing agreements. FAR 9.405-1 expressly permits agencies to continue existing contracts and subcontracts unless the agency head directs otherwise.
The Subcontractor Problem and Section 3252
Anthropic’s technology reportedly runs through Palantir’s Maven Smart Systems in classified defense workflows. The government’s direct contractual relationship appears to be with Palantir, not Anthropic. That makes it harder to use ordinary tools for severing the relationship. Directing a prime to remove a deeply integrated supplier mid-performance is indirect and creates commercial and technical risk for the prime. Reuters has reported that removing Claude would require Palantir to replace the model and rebuild parts of its software. As discussed above, debarment would constrain certain future subcontracting, but it would not by itself compel a prime to unwind an existing relationship.
Section 3252 offers something different. Congress established the original authority in the FY 2011 NDAA to address supply-chain risks in sensitive defense information technology procurements, and the statute defines “supply chain risk” as the “risk that an adversary may sabotage, maliciously introduce unwanted function, or otherwise subvert” a covered system. Applying it to a domestic AI company in a dispute over contract terms pushes the statute well beyond its ordinary adversary-focused framing. Yet the structural difficulty of reaching a deeply embedded supplier through ordinary channels may help explain why the government reached for it.
Among the covered procurement actions the statute authorizes is the decision to withhold consent for a subcontract with a particular source or to direct a contractor to exclude a particular source from consideration for a subcontract (as implemented by DFARS 239.73). That subcontract-specific authority is best read as prospective. It addresses future subcontracting decisions, not the unwinding of an already-performing subcontract. The government, therefore, could have used a narrower, forward-looking measure while existing arrangements transitioned off on a defined timeline.
Instead, according to the public record in the Anthropic litigation, it chose a much broader covered procurement action, and the record does not show that narrower alternatives were meaningfully considered. Indeed, Judge Lin noted that the congressional notices required by § 3252(b)(3)(B) did not contain the required discussion of less intrusive measures, and the government conceded that omission at oral argument.
An Unusual Course of Action . . . Even for Government Procurement
There is no public record of Section 3252 being used to designate a domestic company as a supply chain risk. No president has ever directed government-wide exclusion of a named contractor by social media post. The government designated Anthropic a supply chain risk to national security and then gave itself six months to keep using Anthropic’s products on classified systems.
According to Anthropic’s complaint and supporting declarations, the government at one point threatened to both invoke the Defense Production Act to compel Anthropic to provide its services and designate it a supply chain risk, thereby excluding it—contradictory remedies directed at the same company in the same dispute. And as I type this sentence, according to Anthropic’s court filings, the contractor the government branded a national security threat continues to maintain its Top Secret facility security clearance, issued by the same government that currently declares it a threat to the United States government.
On February 27, the President posted on social media directing every federal agency to “IMMEDIATELY CEASE all use of Anthropic’s technology.” The post characterized Anthropic as a “RADICAL LEFT, WOKE COMPANY” and threatened “major civil and criminal consequences,” without citing a single source of authority for this extraordinary action. Court filings show that Anthropic had contracts or usage with at least 16 federal agencies. Treasury Secretary Bessent posted on X that the department was “terminating all use of Anthropic products.” The Federal Housing Finance Agency and the General Services Administration (GSA) followed. One after another, all on social media, none citing any statutory authority.
Later that day, Secretary Hegseth posted on social media, directing the Department to “designate Anthropic a Supply-Chain Risk to National Security.” No statute was cited. The Secretary described Anthropic’s stance as “fundamentally incompatible with American principles,” criticized its “defective altruism” and “Silicon Valley ideology,” and declared: “This decision is final.” He also directed that “no contractor, supplier, or partner that does business with the United States military may conduct any commercial activity with Anthropic.”
On March 3, the joint recommendation and risk analysis materialized, along with the statutory bases, which had appeared in neither of the social media posts. The Secretary signed the Secretarial Determination the same day the recommendations were submitted. The government’s opposition brief characterizes the Secretary’s February 27 social media post as “the beginning” of the decision-making process and argues it was not final agency action.
So, let’s take them at their word. The Secretary publicly announced the outcome, directed subordinates to produce the justification, and the justification confirmed the predetermined conclusion four days later. The record went from initiation to final determination without the contractor ever having an opportunity to respond before the decision was made.
None of the Established Processes Were Used
The government did not terminate Anthropic’s contracts for convenience; it directed every federal agency to stop using Anthropic’s products via social media. It did not initiate suspension or debarment proceedings before an SDO; the decision was made by a political appointee who had already announced the result on social media before any internal process had commenced. At the March 24 hearing, the government’s theory narrowed to speculation that Anthropic might install a “kill switch” or manipulate its software during operations. Anthropic’s counsel denied that the company has any such capability once Claude is deployed, and the government’s lawyer could not confirm otherwise.
The Secretary’s post also directed that “no contractor, supplier, or partner that does business with the United States military may conduct any commercial activity with Anthropic,” a directive for which the government later conceded there was no statutory basis. At the March 24 hearing, the government’s lawyer further conceded that the statement had “absolutely no legal effect at all.” Judge Lin then pressed the government on what, if anything, prevents the Department from changing its position on how the sentence would operate.
The Exclusion Without a Name
Courts have long recognized that a government agency’s conduct can effectively result in a government-wide exclusion without formal debarment proceedings ever being initiated. In Old Dominion Dairy Products, Inc. v. Secretary of Defense, the D.C. Circuit emphasized the severe economic and reputational consequences of effectively excluding a contractor from further government work, including the loss of contracts that would otherwise have been awarded and the effective destruction of the business.
De facto debarment is notoriously difficult to prove. As Dominique Casimir and Alexandra Barbee-Garrett explain in their piece, The Government’s Just Not That Into You—Is it De Facto Contractor Debarment?, the contractor typically faces “an uphill battle,” where their proposals “simply lose out quietly to those of its competitors, again and again, making it difficult to discern that a de facto debarment is occurring.” Courts generally require either an agency statement that it will not award future contracts or agency conduct demonstrating the same.
That’s what makes this case so remarkable. De facto debarment cases usually require painstaking reconstruction of a pattern of informal agency conduct, such as repeated nonresponsibility findings, back-channel communications between acquisition professionals, or unexplained refusals to award. This one came with a press release. And the President later stated: “I fired [them] like dogs.”
The kinds of economic and reputational harm Old Dominion described were already underway before any statutory process had begun.
What Kind of Business Partner Does the Government Want to Be?
If the government can brand a contractor a national security threat for refusing to accept contract terms, every federal contract negotiation becomes existential. At the March 24 hearing, Judge Lin pressed the government on precisely this point, asking whether an IT vendor can be designated a supply chain risk because it “is stubborn and insists on certain terms and it asks annoying questions.” She called that “a pretty low bar.”
The deterrent effect extends beyond Anthropic. It reaches every contractor that might push back on terms it considers unworkable, unsafe, or commercially unreasonable. The procurement system depends on good-faith negotiation between the government and its contractors. Contractors must be able to say no without the government branding them a national security threat—not for protection, but as punishment for driving a hard bargain.
I have been writing, teaching, and advising on suspension and debarment for nearly two decades. I know what it looks like when the government excludes a contractor. I know what it looks like when the government abuses the process. And I know what it looks like when the government skips the process entirely.
The corporate death penalty has rules. What happened here followed none of them.