The 2-1 decision by the U.S. Court of Appeals in Washington came in a lawsuit by Anthropic challenging its March designation by the Pentagon as a national security supply chain risk, which the startup says has cost it billions of dollars in lost business and damaged its reputation ahead of a highly anticipated initial public offering.

The court’s majority said it was reasonable for the Pentagon to designate Anthropic after it refused to allow its products to be used for autonomous weapons or mass surveillance. It rejected Anthropic’s claim that the Pentagon had retaliated against it for its views on AI safety and ethics.

Siding with Hegseth’s argument that Anthropic’s safety restrictions could compromise military operations, the majority said, “The Secretary raises the deeply sobering prospect of overly constrained AI models shutting down unexpectedly and thus causing important military operations to fail,” in an opinion by Judge Gregory Katsas.

San Francisco-based Anthropic said in a statement Friday that it respectfully disagrees with the decision but remains confident in its position and is considering its options, including review of the three-judge panel’s decision by the full appeals court.

The White House and the Department of Defense did not immediately respond to emails seeking comment.

A federal judge in San Francisco last month struck down a parallel designation under a different law, finding the administration had unlawfully retaliated against Anthropic for its views on AI safety. U.S. District Judge Rita Lin in San Francisco also blocked Trump’s government-wide ban on Anthropic and Hegseth’s order barring military contractors from doing any business with the startup.

Hegseth designated Anthropic as a risk under two different laws after Anthropic refused to remove guardrails against its technology being used for autonomous weapons or mass domestic surveillance.

The unprecedented move came after months of negotiations ended in failure and public recriminations by Hegseth and Trump, who accused Anthropic of endangering American lives with ideological posturing.

Anthropic denied that characterization and said AI is not yet reliable enough to be safely used in autonomous weapons. The company also said it opposes domestic surveillance as a violation of fundamental rights.

The $1.1 billion figure is not a measure of taxpayer savings, according to the VA Office of Inspector General. It represents the total value of the contracts over their full performance periods and does not show how much had already been paid or how much the government ultimately spent to end the agreements.

The review examined the contract-cutting effort that was initiated when VA received requests from the General Services Administration, VA senior advisers and representatives of the Department of Government Efficiency, or DOGE, to terminate certain contracts.

The OIG’s finding contrasts with the $120.9 billion in contract value VA reported to Congress on May 16, 2025, a figure the OIG found contained significant errors.

VA’s May submission reported that the department had terminated 446 contract actions with a combined value of about $120.9 billion. The OIG found that only 357 of those actions had actually been terminated as of April 30, 2026. Eleven had been terminated and later reinstated, while 78 had never been terminated.

Errors were also found with the values of the contracts reported by VA.

VA’s May list included 16 contract actions valued at $1 billion or more. The OIG found that none actually exceeded $150 million. One contract reported at more than $21 billion had an estimated total value of just over $74 million, according to the review.

A VA contracting official told investigators that a department dashboard used to track terminated contracts had miscalculated contract values. Another VA official said some errors stemmed from employees who were unfamiliar with federal contracting and acquisition terminology.

The July 2025 submission contained another mismatch.

VA told Congress it had terminated or was in the process of terminating 1,667 contracts, while the list contained 1,664 contract actions and reported a combined value of more than $1.4 billion. The OIG found that VA had actually terminated 366 of those actions, including 17 that were later reinstated.

Sen. Richard Blumenthal, D-Conn., who requested the OIG review with Sen. Angus King, I-Maine, said Wednesday that the report confirmed concerns he had raised about the cancellation campaign.

“This report confirms my repeatedly expressed concerns that VA has recklessly cancelled hundreds of contracts with no consideration of the impact on veterans or VA operations,” Blumenthal said in a statement. “Secretary Collins owes us answers on how VA will replace lost services and how much this fiasco has cost taxpayers in arbitration, settlements, and reinstatements.”

VA defended the cancellation effort and said it had saved more than $1 billion.

“The IG report simply confirms what we’ve said from the beginning: VA terminated hundreds of wasteful and duplicative contracts, saving the department more than $1 billion,” VA Press Secretary Quinn Slaven told Military Times.

Slaven also said VA’s review process prevented disruptions to veterans’ services.

“Thanks to the methodical and careful review process VA put in place, these contract cancellations had no negative impact whatsoever on VA care and benefits,” Slaven said.

He shared that the department is reinvesting what VA describes as savings into improvements to veterans’ care and benefits.

The OIG did not calculate savings from the contract terminations. Instead, it reported the $1.1 billion as the total value of the 435 terminated contract actions and said that figure does not reflect amounts already paid or settlement costs. The OIG found that VA had agreed to about $10.6 million in settlement costs for 117 completed settlements.

The VA established procedures to review contracts before terminating them, and the agency’s contracting officials generally complied with federal acquisition requirements, the OIG reported.

‘Confusion and frustration’

The OIG documented challenges created by the speed and volume of the cancellation requests.

On Feb. 21, 2025, VA officials were instructed to review 1,049 contract actions in fewer than 11 hours, obtain the necessary approvals and report their findings to department leadership. Some offices did not finish their reviews by the deadline.

According to the OIG, VA senior advisers and DOGE representatives directed officials to terminate the contracts on Feb. 25, 2025, despite some reviews remaining incomplete. As the reviews continued, the number of contracts proposed for termination fell.

The OIG found that department contracting officials received instructions from multiple individuals and offices and received various lists of contracts that were inconsistently formatted, making them difficult to track.

VA and Veterans Health Administration officials told investigators the process created “confusion and frustration” and required staff to devote significant time to monitoring the lists and related correspondence.

The department created a database in April 2025 to better track the cancellations.

What was cut

The OIG found that 375 of the 435 terminated contract actions, or 86%, involved consulting services. Those contracts primarily covered management consulting, administrative management, program management and strategic communications.

But some contracts initially marked for termination were brought back.

One contract that was terminated but later reinstated involved financial audit services for invoices from contractors performing medical disability examinations. It was terminated Feb. 25, 2025 and reinstated about six months later.

The OIG also found that VA’s July 2025 report to Congress included hundreds of contract actions that had not actually been terminated.

Among them were 974 supply-related contract actions, including contracts involving prosthetics, surgical implants and wheelchair ramps. Another 151 health care-related actions, including nursing-home services, had not been terminated.

The OIG reviewed 2,210 unique contract actions. It determined that 435 were terminated, 100 were terminated and later reinstated, and 1,675 were never terminated.

Of the 435 terminated contract actions, VA had completed settlement agreements for 267 of them, with 150 that were no-cost settlements.

In January 2026, the OIG briefed VA officials on the preliminary findings from its investigation.

Following the briefing, VA submitted an updated list of terminated contracts to Congress on April 13, 2026, after revising its information to distinguish contracts it had terminated, reduced in scope or chosen not to extend through option periods.

The OIG did not independently review the accuracy or completeness of that April 2026 submission.

Blumenthal and King requested the OIG investigation in June 2025 amid concerns about the cancellation process, including the impact on veterans, the use of algorithms in decision-making, the involvement of career VA subject-matter experts and the financial consequences of terminating contracts.

The OIG made no recommendations requiring VA action, but the review found that the department had repeatedly provided Congress with inaccurate information about the contracts it said it had terminated.

“This report shows that VA failed multiple times to submit accurate data and are still in the process of correcting mistakes their process created,” Blumenthal said.

The president cited national security concerns for the move, echoing the rationale offered for the roughly $400 million ballroom complex being built on the site of the White House’s former East Wing, which was demolished to make way for the project. He did not identify any specific threats.

The projects are part of Trump’s ambitious effort to reshape Washington, including a push to add his name to the John F. Kennedy Center for the Performing Arts. The plans have drawn criticism from preservationists and others who argue they could alter or diminish historic landmarks.

In a social media post, Trump said that at the “strong request” of the military he had agreed to turn the 250-foot (76-meter) arch “into a top grade Military Complex/Triumphal Arch, to house, store, and have the rapid ability to use large numbers of drones, plus Snipers, on both the roof and plaza areas, and additionally have and hold large quantities of sniper ammunition in storage.”

The White House and the Pentagon did not immediately respond to a request for comment.

The Federal Aviation Administration said last week that the arch would not pose a hazard to aircraft but would be required to have an “eternal flame” on top, clearing an aviation hurdle for the arch, which Trump proposed to mark the nation’s 250th anniversary.

Aviation experts have raised safety concerns given its proximity to Reagan Washington National Airport, while veterans have sued to block the arch, arguing it would destroy the historic sightline between the Lincoln Memorial and Arlington National Cemetery.