Kellogg Brown & Root Services, Inc.

ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeal of -- )
)
Kellogg Brown & Root Services, Inc. ) ASBCA No. 58465)
Under Contract No. DAAA09-02-D-0007 )
APPEARANCES FOR THE APPELLANT: Thomas Barrett, Esq.
Chief Senior Counsel
David Newsome, Jr., Esq.
Senior Legal Counsel
APPEARANCES FOR THE GOVERNMENT: E. Michael Chiaparas, Esq.
DCMA Chief Trial Attorney
Douglas R. Jacobson, Esq.
Trial Attorney
Defense Contract Management Agency
Bloomington, MN
OPINION BY ADMINISTRATIVE JUDGE SHACKLEFORD
ON APPELLANT'S MOTION FOR SUMMARY JUDGMENT
Kellogg Brown & Root Services, Inc. (KBR or appellant) moves for summary
judgment, arguing that the Defense Contract Management Agency's (DCMA's or
government's) claim for $2,285,026 based on alleged unallowable costs under Federal
Acquisition Regulation (FAR) Part 31 is time-barred by the six-year statute of limitations
set forth in the Contract Disputes Act (CDA), 41 U.S.C. §§ 7101-7109. The government
opposes the motion. We deny the motion for the reasons set forth below.
STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTION
1. On 14 December 2001, the Department of the Army awarded indefinite-delivery,
indefinite-quantity Contract No. DAAA09-02-D-0007 (contract) to KBR. 1 The contract
included a base period of one year and nine one-year option periods providing a broad range
of services in support of various military operations for the Logistics Civil Augmentation
Program (LOGCAP 111). Specific work was issued via individual task orders on either a
firm-fixed-priced or cost-reimbursable basis. (App. mot. ii 1; gov't opp'n at 2; R4, tab 2)
1
The contract was originally awarded to Brown & Root Services (R4, tab 2). By
novation on 1August2003, the contractor's name was changed to Kellogg Brown
& Root Services, Inc. (app. mot. ii 1; gov't opp'n at 2).
2. The contract incorporated the following standard FAR and Defense FAR
Supplement (DFARS) clauses: FAR 52.216-7, ALLOWABLE COST AND PAYMENT (MAR
2000); FAR 52.233-1, DISPUTES (DEC 1998)-ALTERNATE I (DEC 1991); FAR 52.216-18,
ORDERING (OCT 1995); FAR 52.216-22, INDEFINITE QUANTITY (OCT 1995); FAR 52.217-8,
OPTION TO EXTEND SERVICES (Nov 1999); FAR 52.217-9, OPTION TO EXTEND THE TERM
OF THE CONTRACT (MAR 2000); DFARS 252.217-7027, CONTRACT DEFINITIZATION
(OCT 1998) (R4, tab 2 at G-67, -69, -71-72, -75 2). The contract also included a deviated
version of FAR clause 52.245-5, GOVERNMENT PROPERTY (COST-REIMBURSEMENT,
TIME-AND-MATERIAL, OR LABOR-HOUR CONTRACTS) (JAN 1986) (id. at G-77).
3. Under paragraph (a) of FAR 52.216-7, Allowable Cost and Payment clause, the
government provides payments "in amounts determined to be allowable by the
Contracting Officer in accordance with Subpart 31.2 of the [FAR] in effect on the date of
this contract and the terms of this contract" (R4, tab 2 at G-67).
4. On 13 June 2003, the contracting officer (CO) issued undefinitized
cost-plus-award-fee Task Order No. 0059 (TO 59) to KBR for logistic and life support
services to the "V Corps and Coalition forces" in support of Operation Iraqi Freedom
(app. mot. ifif 3-5; gov't opp'n at 2; R4, tabs 3, 4 at G-89). The task order's Statement of
Work (SOW) included, among other things, services for waste management and trash
removal at eight sites within Iraq (R4, tab 4 at G-94, -97, -100, -103, -106, -109, -112,
-117). Under paragraph 1.3 of the SOW, KBR was required to obtain approval from the
CO for purchases of supplies and non-durable goods above the micro-purchase threshold
of $2,500 on either a unit or cumulative cost basis, and for purchases of equipment and
durable goods above a threshold of either a unit cost of $5,000 or a cumulative cost of
$25,000 (R4, tab 4 at G-8).
5. Via execution of Modification No. 32 of TO 59 on 31March2005, the CO
definitized the task order (R4, tab 16). 3
6. Between March and July 2004, KBR obtained consent from the CO to purchase a
total of 20 trash trucks to be used in performance of the waste management and trash
removal requirements under TO 59 (app. mot. if 8; gov't opp'n at 3; R4, tab 6 at G-122-23).
7. Between 26 April 2004 and 11July2004, KBR issued the following five purchase
orders to Najd Company (Najd), a vendor located in Jordan: JP01021, JP01957, JPOl 136,
JPOl 174, and JP01025 (app. mot. ifil 6, 9; gov't opp'n at 2-3; R4, tab 6 at G-122-23).
2
Citations to the Rule 4 file are to the consecutively-numbered pages unless otherwise
indicated.
3 The original record did not include a definitized version of TO 59. At the direction of
the Board, the government supplemented the Rule 4 file with a copy (see Bd. corr.,
gov't ltr. dtd. 19 March 2015).
2
8. Between April 2004 and February 2005, KBR accepted delivery of 20 trash
trucks by Najd in Jordan (R4, tab 6 at G-122). KBR accordingly paid Najd for deliveries
under purchase orders JP01021, JP01957, JPOl 136, and JPOl 174, comprising 14 trash
trucks (id. at G-123-24 ).
9. KBR submitted invoices to the government and received payment for the
following purchase orders: JP01021 on 20 December 2004; JP01957 on 28 January
2005; and JPOl 1364 and JPOl 174 on 17 March 2005 (app. mot. ii 10; gov't opp'n at 3).
10. In January 2005, KBR transported five trash trucks to Iraq and performed an
inspection. In a 29 January 2005 memorandum, KBR's inspection unit recommended
that the trucks be rejected because they did not meet certain quality, design, safety, and
minimum industry standards and could not be operated for their specific purposes. (R4,
tab 6 at G-124, -252-53) Subsequently, KBR cancelled plans to transport the remaining
trucks in Jordan to Iraq and attempted to cancel all purchase orders in connection with the
trucks (app. mot. ii 11; gov't opp'n at 3; R4, tab 6 at G-124).
11. KBR withheld the final payment due with respect to purchase order JPO 1025
in the amount of $861,300 for six trucks delivered (R4, tab 6 at G-124 ). On or about
12 February 2006, Najd sued KBR in Amman, Jordan, for the non-payment of invoices
for those trucks (app. mot. ii 12; gov't opp'n at 3). On 15 June 2006, KBR initiated an
arbitration proceeding against Najd seeking recovery of the payments made to Najd under
four of the five purchase orders in the amount of $2,064,950, and a determination that
KBR did not owe Najd any money for the allegedly defective trucks (app. mot. ii 13;
gov't opp'n at 3; R4, tab 6 at G-124).
12. While the litigation proceedings between KBR and Najd were pending,
Mr. Ron Allen, an attorney for KBR, emailed a government official, Mr. Robert Tucker, 5
leading to the following email exchange, in pertinent part, between the two on 15 June 2006:
It appears we have litigation in progress in Jordan and
potential arbitration of our dispute in the US concerning these
[trash] trucks. I will keep you advised.
Mr. Tucker responded:
Any idea on when a decision may be made?
4It appears that there was a typographical error with respect to the invoice number in this
proposed undisputed fact in KBR' s motion that is corrected.
5 Mr. Tucker's position is not revealed in the record.
3
Will there be a negative impact on the Govemment/KBR's
case if the trucks are run periodically to lubricate the engine,
transmission and seals?
Mr. Allen responded:
No sir. Our litigators have to get the Jordan lawsuit
dismissed so they can proceed with the arbitration. I would
hope within our lifetime.
As to the maintenance, I would say we have a duty to mitigate
the overall damages which would necessitate maintenance no
matter who eventually ends up with the trash, excuse me trash
trucks. Of course, we would have to track our costs to
present to the arbitrator.
Mr. Tucker responded:
Would you please pass your thoughts regarding maintenance
to the appropriate KBR personnel so that maintenance will be
accomplished?
(App. mot., attach. A)
13. In a 30 July 2006 6 email, KBR stated to Najd that it sought reimbursement of
the payments made to Najd for the alleged unacceptable technical design of the 20
delivered trucks (R4, tab 6 at G-254).
14. On 31 December 2006, KBR and Najd settled their dispute. The settlement
resulted in KBR accepting all delivered trucks and Najd receiving the remaining $861,300
that was withheld by KBR. (App. mot. ,-i 15; gov't opp'n at 3; R4, tab 6 at G-257-59)
15. Subsequent to the settlement between KBR and Najd, KBR distributed the
remaining trucks located in Jordan during the litigation proceedings to various sites in Iraq
where the trucks were used for trash removal services (app. mot. ,-i 16; gov't opp'n at 3).
16. A memorandum, dated 2 March 2010, from the Department of Defense
Inspector General (DoD-IG) to the Director of the DCMA- Iraq, requested DCMA to
provide a "sufficiently supported account of all management decisions and actions taken
concerning the acceptance, use, and disposition of the five trash trucks" located at an
Iraqi site the DoD-IG encountered during its audit (R4, tab 6 at G-126).
6 The date on this email has "2005" which appears to be an error.
4
17. On 9 April 2010, KBR submitted a report to the DCMA administrative CO
(ACO) providing its account concerning the acquisition of the 20 trash trucks for
performing the waste management and trash removal services under TO 59 pursuant to
the DoD-IG 2 March 2010 memorandum (R4, tab 6 at G-122-25). The report maintained
that the five trash trucks identified in the memorandum were used on the trash mission,
with three of the five trucks rated as operational (id. at G-125).
18. In an audit report dated 24 May 2011 (No. 2131-2011Fl 7900001), the
Defense Contract Audit Agency (DCAA) questioned the total cost of $2,926,250 under
FAR 31.201-3, Determining reasonableness, with respect to the 20 trash trucks purchased
by KBR in support of TO 59. Among other things, DCAA found that KBR's incurred
costs were unreasonable because KBR did not "exercise sound business judgment in
providing the best value product to meet the customer's needs. In addition, it failed to
follow its established practices to perform an adequate technical evaluation to assure the
design of the product it was procuring would meet the customer's needs before
subcontract award and after." (R4, tab 8 at G-312) DCAA found that the failure to use
sound business judgment resulted in KBR being unable to self-perform the trash removal
services and outsourcing the efforts (id. at G-314). DCAA also determined that KBR
failed to take adequate action to maintain the delivered vehicles potentially resulting in
long term damage to the vehicles (R4, tab 8 at G-312).
19. On 4 October 2012, the ACO issued a final decision asserting a monetary
claim against KBR for $2,285,026, the total burdened amount for overpayments
corresponding to 15 trash trucks the government deemed unallowable based on DCAA's
24 May 2011 audit report. The ACO determined that KBR's incurred costs were not
reasonable under FAR 31.201-3, Determining reasonableness, alleging that KBR failed to
use prudent business judgment because:
There were many failures throughout this procurement
action contrary to KBR's Procurement Procedure Guidelines;
e.g. inadequate technical evaluation at pre-award; lack of
quality inspections at delivery; and failure to aggressively act
on the documentation contained in procurement file which
noted severe flaws with the equipment, were all missed
opportunities for KBR to subjugate this acquisition.
(R4, tab 15)
20. On 21December2012, KBR timely filed its notice of appeal to the Board
appealing the 4 October 2012 final decision.
5
l
DECISION
Prior to the U.S. Court of Appeals for the Federal Circuit's (CAFC's) decision in
Sikorsky Aircraft Corp. v. United States, 773 F.3d 1315 (Fed. Cir. 2014), KBR had filed a
motion to dismiss this appeal for lack of jurisdiction, asserting that the government's
monetary claim was time-barred under the CDA's statute of limitations. The CAFC held
in Sikorsky that the statute oflimitations is no longer jurisdictional. Id. at 1322. We
subsequently directed the parties to submit supplemental briefing on their views on the
effect of the CAFC's decision in light of the pending motion to dismiss (see Bd. corr. dtd.
11December2014). We granted KBR's request that the Board convert its pending
motion to dismiss to one for summary judgment, and directed the parties to submit
additional briefing (see Bd. corr. dtd. 19 February 2015). In response to our order, KBR
submitted a motion for summary judgment on 10 March 2015 and the government filed
its opposition on 10 April 2015.
In moving for summary judgment, KBR re-asserts its contention that the
government's claim is time-barred under the CDA's statute oflimitations. Since a
disposition that the government's claim is untimely would bar the government's recovery
in this appeal, KBR's contention is treated as an affirmative defense. Kellogg Brown &
Root Services, Inc., ASBCA No. 58175, 15-1BCA~35,988 at 175,825. KBR, as the
party asserting the defense, bears the burden of proof. Id.The guidelines for summary judgment are well established; the granting of
summary judgment is appropriate where there are no genuine issues of material fact and
the movant is entitled to judgment as a matter oflaw. Celotex Corp. v. Catrett, 477 U.S.
317, 322 (1986); DIRECTV Group, Inc. v. United States, 670 F.3d 1370, 1374 (Fed. Cir.
2012). The movant has the burden to establish that there are no material facts in dispute.
A material fact is one which may affect the outcome of the case. Anderson v. Liberty.
Lobby, Inc., 477 U.S. 242, 248 (1986). All reasonable inferences are drawn in favor of
the non-movant. Id. at 255. At the summary judgment stage, we do not resolve
controversies, weigh evidence, or make determinations of credibility. Id.The issue before the Board is the date the government's claim accrued. The CDA
requires a claim by the government against a contractor to be "submitted within 6 years
after the accrual of the claim." 41 U.S.C. § 7103(a)(4)(A). It is undisputed that the
government's claim was asserted in the 4 October 2012 final decision, and thus, to be
timely under the CDA the claim could not have accrued prior to 4 October 2006. While
the CDA does not define "accrual of the claim," FAR 33.201 defines that term, effective
on the date of the contract award, as follows:
Accrual of a claim means the date when all events, that
fix the alleged liability of either the Government or the
contractor and permit assertion of the claim, were known or
should have been known. For liability to be fixed, some
6
injury must have occurred. However, monetary damages
need not have been incurred.
"The events fixing liability should have been known when they occurred unless they can
be reasonably found to have been either concealed or 'inherently unknowable' at that
time." Raytheon Missile Systems, ASBCA No. 58011, 13 BCA ~ 35,241at173,017
(citing Holmes v. United States, 657 F.3d 1303, 1317-20 (Fed. Cir. 2011)). This "should
have known" test includes a reasonableness component and turns on what facts are
reasonably knowable. Id.To determine the claim accrual date, we begin with examining the legal basis of
the claim. Gray Personnel, Inc., ASBCA No. 54652, 06-2 BCA ~ 33,378 at 165,475.
The contract included FAR clause 52.216-7, Allowable Cost and Payment, whereby the
government would reimburse KBR for all allowable costs it incurred during contract
performance, including payments to subcontractors. To determine what is allowable, the
clause refers to FAR Part 31.2. In his final decision, the ACO asserted a monetary claim
demanding the return of payments made in connection with 15 of the 20 trash trucks
purchased by KBR that were deemed unallowable (SOF ~ 19). The legal basis of the
government's claim is FAR 31.201-3, Determining reasonableness, which provides,
effective on the date of contract award, that:
(a) A cost is reasonable if, in its nature and amount, it
does not exceed that which would be incurred by a prudent
person in the conduct of competitive business.
Reasonableness of specific costs must be examined with
particular care in connection with firms or their separate
divisions that may not be subject to effective competitive
restraints. No presumption of reasonableness shall be
attached to the incurrence of costs by a contractor. If an
initial review of the facts results in a challenge of a specific
cost by the contracting officer or the contracting officer's
representative, the burden of proof shall be upon the
contractor to establish that such cost is reasonable.
(b) What is reasonable depends upon a variety of
considerations and circumstances, including-
( 1) Whether it is the type of cost generally
recognized as ordinary and necessary for the conduct of the
contractor's business or the contract performance;
(2) Generally accepted sound business
practices, arm's-length bargaining, and Federal and State laws
and regulations;
7
(3) The contractor's responsibilities to the
Government, other customers, the owners of the business,
employees, and the public at large; and-
(4) Any significant deviations from the
contractor's established practices.
Here, the ACO relied on subparagraphs (b )(3) and (4) of the provision, determining that
KBR's reimbursed costs were not reasonable because it failed to take prudent business
actions in procuring the trash trucks by not complying with its own procedural guidelines
including "inadequate technical evaluation at pre-award; lack of quality inspections at
delivery; and failure to aggressively act on the documentation contained in procurement
file which noted severe flaws with the equipment" (SOF ii 19). For the purposes of claim
accrual, we must determine the date upon which the government knew or reasonably
should have known that it possessed a claim against KBR.
KBR contends that there are no material facts in dispute and it is entitled to a
finding that the government's claim is time-barred under the CDA's statute of limitations
as a matter of law. KBR advances two alternative claim accrual dates that independently
bar the government's recovery, both more than six years before the date of the
4 October 2012 final decision. KBR's initial argument is that the government's claim
accrued no later than 17 March 2005, the date upon which the government paid or had
paid KBR's invoices with respect to purchase orders JP01021, JP01957, JPOl 136 and
JPOl 174 for a sum total of 14 delivered trucks. At that point, KBR alleges that the facts
demonstrate that all events fixing its potential liability were known or should have been
known because the government knew that the trucks were purchased between April and
July 2004, provided consent to KBR to purchase the trucks, knew the trucks were
delivered and found unsatisfactory, paid KBR's invoices with respect to four of the five
purchase orders, and knew KBR attempted to recover its payments from Najd for the
unsatisfactory condition of the delivered trucks. (App. mot. at 8) The government
counters that its personnel did not review the specifications or the proposal that led to the
award of the purchase orders, did not know about KBR's 29 January 2005 memorandum
that identified problems associated with the trucks, and were unaware of the litigation
between KBR and Najd (gov't opp'n at 13-14). KBR's alternative argument is that claim
accrual occurred no later than 15 June 2006 7 , the date upon which it alleges a government
official, Mr. Tucker, became aware of litigation between KBR and Najd concerning the
purchased trucks by email from KBR's attorney, Mr. Allen (app. mot. at 8). The
government counters that the 15 June 2006 emails were devoid of any substantive details
and only provided notice of the possible existence of litigation between KBR and Najd,
7
We conclude that KBR meant to argue this date as the accrual date rather than
15 July 2006 in its motion. It appears that this was a typographical error. (See
SOF ii 12)
8
and that its claim could not accrue until the outcome of the litigation between KBR and
Najd was known (gov't opp'n at 18-20). The government maintains that its claim is
timely, accruing no earlier than 9 April 2010, the date upon which the ACO first learned
of the underlying issues with respect to KBR's procurement of the trash trucks through
documents submitted by KBR (id. at 15).
We conclude that KBR has failed to carry its burden of proving that the
government knew or should have known its potential claim accrued on either date
advanced by KBR. Contrary to KBR's assertions, the government's consent provided to
KBR prior to the issuance of the purchase orders to Najd and its subsequent payment of
KBR's invoices for 14 trucks by 17 March 2005 in and of themselves do not demonstrate
that the government actually knew or was even aware that the trucks were faulty and
non-functional upon payment. Nor do the 15 June 2006 emails, on their face, show that
the government knew that the underlying dispute between KBR and Najd involved
KBR's attempt to recover its payments made to Najd due to the unsatisfactory condition
of the trucks. The "should have known" test for claim accrual involves a reasonableness
component, determining whether the events fixing liability were reasonably knowable to
the claimant. The government asserts that it was not aware of the 29 January 2005
memorandum in which KBR inspected and first learned of the trucks' deficiencies when
it paid KBR's invoices. The government also asserts that it was unaware of the condition
of the trucks until 9 April 2010 when the ACO received documents that revealed the
issues surrounding KBR's procurement of the trucks. Drawing all reasonable inferences
and viewing the evidentiary record in a light favorable to the non-movant, here the
government, it is simply not clear when the government should have known of the claim.
Triable issues exist as to when the statute of limitations began to run and further
development of the record is necessary. See Raytheon Co., ASBCA No. 58849, 15-1
BCA,-i 36,000 at 175,868 ("Summary judgment is not normally appropriate where
reasonableness and subjective knowledge are facts at issue."). Therefore, summary
judgment is not appropriate.
CONCLUSION
Appellant's motion for summary judgment is denied.
~
Dated: 3 February 2016
RICHARD SHACKLEFORD
Administrative Judge
Vice Chairman
Armed Services Board
of Contract Appeals
(Signatures continued)
9
I concur I concur
//U0~-
MARK N. STEMPLER MARK A. MELNICK
Administrative Judge Administrative Judge
Acting Chairman Armed Services Board
Armed Services Board of Contract Appeals
of Contract Appeals
I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 58465, Appeal of Kellogg
Brown & Root Services, Inc., rendered in conformance with the Board's Charter.
Dated:
JEFFREY D. GARDIN
Recorder, Armed Services
Board of Contract Appeals
10