Tuesday, December 6, 2016

Government Contracts

"Get off my plane."
--President James Marshall (Air Force One)

Donald Trump tweets that the federal government should cancel its order with Boeing (BA) for a new Air Force One because of the project's high price tag--currently about $4 billion. The list price of a 'standard' 747-8 model upon which AF1 is based is about $378 million.

Should there be more room for cancelling government contracts than there is for contracts between private buyers and sellers?

Yes. Public officials who sign contracts for products or even labor are representatives of 'the people.' But in reality not all people will be in support of the government contract. Signing a contract that forces some people to abide by stipulations that they did not agree to is grounds for voiding the contract.

Suppliers who ink contracts with government agents, which includes creditors who buy sovereign debt, should be aware of the possibility that they can be legitimately reversed. In the case of bonds, that means legitimate grounds for default.

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