Kellogg Brown & Root Services v. Army

United States Court of Appeals
for the Federal Circuit
______________________
KELLOGG BROWN & ROOT SERVICES, INC.,
Appellant
v.
PATRICK J. MURPHY,
ACTING SECRETARY OF THE ARMY,
Appellee
______________________
2015-1148
______________________
Appeal from the Armed Services Board of Contract
Appeals in No. 58492, Administrative Judge Alexander
Younger, Administrative Judge Mark N. Stempler, Ad-
ministrative Judge Richard Shackleford.
______________________
Decided: May 18, 2016
______________________
THOMAS PARKER MCLISH, Akin, Gump, Strauss,
Hauer & Feld, LLP, Washington, DC, argued for appel-
lant. Also represented by SCOTT MICHAEL HEIMBERG;
TIRZAH S. LOLLAR, Vinson & Elkins LLP, Washington,
DC; JOHN M. FAUST, Law Office of John M. Faust, PLLC,
Washington, DC.
ELLEN MARY LYNCH, Commercial Litigation Branch,
Civil Division, United States Department of Justice
Washington, DC, argued for appellee. Also represented by
2 KELLOGG BROWN & ROOT SERVICES v. ARMY
BENJAMIN C. MIZER, ROBERT E. KIRSCHMAN, JR., BRYANT
G. SNEE.
______________________
Before NEWMAN, O’MALLEY, and CHEN, Circuit Judges.
NEWMAN, Circuit Judge.
The only issue on this appeal is whether the six-year
statute of limitations of the Contract Disputes Act had
run for this claim. The claim was filed by Kellogg Brown
& Root Services, Inc. (KBR) for costs incurred by KBR for
work done by its subcontractor in performing a contract
with the Army to construct dining facilities and to provide
meal and related services for troops in Iraq. On the
Army’s motion, the Armed Services Board of Contract
Appeals (ASBCA or Board) dismissed KBR’s claim for
lack of subject matter jurisdiction, holding that the period
of limitations had run before KBR filed this claim. 1 The
claim was filed on May 2, 2012; thus, the critical date of
accrual for limitations purposes is May 2, 2006.
On review of the premises and the applicable law, we
conclude that the Board erred in law and on the applica-
tion of law to the undisputed facts. We conclude that the
KBR claim had not accrued, for limitation purposes,
before May 2, 2006. The Board’s dismissal is reversed; we
remand for determination of the merits of the claim.
BACKGROUND
In summary: on December 14, 2001, the Army and
KBR entered into a cost-plus-award-fee contract under
the Logistics Civil Augmentation Program. KBR subcon-
1 Kellogg Brown & Root Servs., Inc. v. Dep’t of the
Army, ASBCA No. 58492, 14-1 BCA ¶35,713 (“Board
Op.”).
KELLOGG BROWN & ROOT SERVICES v. ARMY 3
tracted with a joint venture between The Kuwait Compa-
ny for Process Plant Construction & Contracting K.S.C.
and Morris Corporation (AUST) PTY Ltd. (KCPC/Morris),
to implement certain work release orders for construction
of dining facilities and provision of food services at two
locations in Iraq. On July 31, 2003, KBR terminated the
subcontract for “fail[ure] to bring conditions to full con-
tract performance as of 31 July, 2003,” as required by the
subcontract. Army Br. at 4. KCPC/Morris disputed the
termination, and, at KBR’s request, also continued per-
formance until transition to a new subcontractor on
September 12, 2003.
The ensuing determination of reimbursable costs and
termination conditions included a suit filed in 2004 by
KCPC/Morris against KBR in the United States District
Court for the Eastern District of Virginia, in which
KCPC/Morris stated (and KBR disputed) that an oral
settlement had been reached and sought its enforcement.
On January 24, 2005, KBR and KCPC/Morris entered into
a written agreement, described by the Board as follows:
[T]he parties divided KCPC/Morris’ costs into two
groups: (a) the “Settlement Amount” of
$17,400,000; and (b) KCPC/Morris’ costs incurred
and profit related to its performance under the
Master Agreement and the termination of the
Work Releases . . . including overhead, G&A, prof-
it and certain costs incurred in preparing requests
for payment to the U.S. Government.
Board Op. at 3. This agreement also converted the de-
fault termination into a termination for convenience. Id.
The group (a) “Settlement Amount” of $17,400,000
was paid, and is not at issue. This CDA action concerns
only the group (b) component. For the group (b) costs, the
agreement stated that KBR and KCPC/Morris would
cooperate “to prepare a well-supported invoice or invoices
to the U.S. Government,” the agreement also stating that
4 KELLOGG BROWN & ROOT SERVICES v. ARMY
“[i]n no event shall KBR submit an invoice to the Gov-
ernment for any portion of the JOINT VENTURE’s costs
that KBR does not believe is supportable.” 2005 Settle-
ment Agreement at 4.
On August 26, 2006, KCPC/Morris submitted to KBR
a certified claim for the “outstanding payments, costs and
lost profit associated with the termination for convenience
by [KBR] of the [] contract.” Army Br. at 5. On November
3, 2006, KBR forwarded KCPC/Morris’ claim to the Army,
with a letter stating that KBR “does not certify or com-
ment to the validity of these costs and does not have any
other supporting documentation for validation.” Letter
from Senior Manager, Contracts, KBR, to Chief, LOGCAP
Branch, Department of the Army (Nov. 3, 2006) (“KBR
Letter”).
The Army responded to KBR on May 30, 2007, stating
that “it is KBR’s management responsibility to negotiate
or discuss claims with its subcontractors and the Army
does not comment in advance as to whether a claim or
certain costs are appropriate. Therefore, the Army will
not meet with, or correspond directly with KBR’s subcon-
tractors.” See Board Op. at 5 (quoting Army Sustainment
Command Letter to KBR (May 30, 2007)). The Army
refused to consider the submitted information, and di-
rected KBR to “settle a claim by its sub with the sub, then
bill the government.” E-mail from Chief, Contracting
Division, Logistics Civil Augmentation Program, Army
Sustainment Command, to Senior Manager, Contracts,
Kellogg Brown and Root, “RE: Request for additional
information regarding draft settlement” (July 19, 2007)
(“Army Email”).
On October 10, 2007, KBR “sponsored” the
KCPC/Morris claim, followed by certification of the claim
by letter dated January 10, 2008. On September 8, 2010,
KBR withdrew the claim, stating that “[u]pon further
review of the data provided by KCPC/Morris, KBR has
KELLOGG BROWN & ROOT SERVICES v. ARMY 5
determined that this constitutes a business dispute
between KBR and KCPC/Morris and should be resolved in
accordance with KBR’s subcontract with KCPC/Morris.”
Letter from Senior Manager, Contracts, Kellogg Brown
and Root, to Army Contracting Command, “Subject:
DAAA09-02-D-0007: Subcontractor Claim KCPC/Morris.”
The record before us does not provide details, but KBR
states that the asserted costs were eventually reduced by
about $2.1 million. KBR Br. 20.
On August 4, 2011, KCPC/Morris filed suit against
KBR in the United States District Court for the Eastern
District of Virginia, stating in its complaint that “KBR
allowed [KCPC/Morris’ claim] to languish with the Gov-
ernment, . . . and then inexplicably withdrew the entire
claim in September 2010 without consulting
KCPC/Morris. . . . KBR has failed to submit and pursue
the portions of the claim it concedes are well support-
ed . . . .” Compl. at 2, Kuwait Co. for Process Plant Const.
& Contr. v. Kellogg, Brown & Root Servs., Inc., 1:11-cv-
824-CMH/TRJ, (E.D. Va. August 4, 2011). This suit was
withdrawn after KBR and KCPC/Morris entered into an
agreement dated February 17, 2012, for payment to
KCPC/Morris of $10,464,493, which the Board summa-
rized as for “construction costs, equipment, expenses such
as medical care and travel, meals served, overhead and
G&A, profit, and termination settlement costs.” Board
Op. at 4–5. On May 2, 2012, KBR filed a certified claim
with the Army for this amount. The contracting officer
did not act on the claim, thereby placing it in “deemed
denied” status. KBR then appealed to the Board.
The Army moved to dismiss, stating that the six-year
CDA statute of limitations had run. The Board granted
the motion, finding alternative dates for the accrual of the
claim, both dates before the critical limitations date of
May 2, 2006. The Board found, first, that the claim
accrued on September 12, 2003, the date when
KCPC/Morris ended its work under the subcontract; and
6 KELLOGG BROWN & ROOT SERVICES v. ARMY
alternatively on January 24, 2005, when KBR and
KCPC/Morris agreed to cooperate to present an invoice to
the Army for costs above the “Settlement Amount” of
$17.4 million. The Board held that there was no basis for
equitable tolling of the limitations period. Board Op. at
10–11 (“With a record that reflects such lengthy time gaps
as this . . . , we cannot say that KBR has actively pursued
its remedies. In addition, [the record] does not support
any conclusion of trickery or other misconduct.”) (internal
quotations marks omitted). This appeal followed.
DISCUSSION
The limitations period is determined in accordance
with the Contract Disputes Act (CDA), which provides
that a claim “shall be submitted within 6 years after the
accrual of the claim.” 41 U.S.C. § 7103(a)(4)(A). We start
with the Board’s ruling that the claim accrued on the date
the subcontractor ended its work.
“Accrual” When Subcontractor Work Ended On
September 12, 2003
The FAR defines “accrual” of a contract claim as:
the date when all events, that fix the alleged lia-
bility 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 injury must have occurred. However, mone-
tary damages need not have been incurred.
48 C.F.R. § 33.201. Precedent elaborates that whether
and when a CDA claim accrued is determined in accord-
ance with the FAR, the conditions of the contract, and the
facts of the particular case. Parsons Global Servs. v.
McHugh, 677 F.3d 1166, 1170 (Fed. Cir. 2012) (“we evalu-
ate whether a particular request for payment amounts to
a claim based on the FAR implementing the CDA, the
language of the contract in dispute, and the facts of each
case.”); James M. Ellett Constr. Co. v. United States, 93
KELLOGG BROWN & ROOT SERVICES v. ARMY 7
F.3d 1537, 1542 (Fed. Cir. 1996) (the existence of a CDA
claim “is based on the FAR definition of a claim, the
contract language, and the facts of the case”); Reflectone,
Inc. v. Dalton, 60 F.3d 1572, 1575 (Fed. Cir. 1995) (en
banc) (“we must assess whether a particular demand for
payment constitutes a claim, based on the FAR imple-
menting the CDA, the language of the contract in dispute,
and the facts of the case.”).
The Board reasoned that “liability was fixed” on Sep-
tember 12, 2003, because the claim was for the “alleged
entitlement to the net costs of performance of the termi-
nated KCPC/Morris subcontract, including costs for
construction of sites C-1 and C-2, meals served, overhead,
G&A and profit (statement 19).” Board Op. at 7. KBR
responds that until the amount of payment to be request-
ed of the Army was determined, the claim had not come
into existence and thus could not accrue. KBR points to
the Army’s requirement that KBR resolve all subcontrac-
tor issues in order to “permit assertion of the claim.” FAR
§ 33.201. “Claim” is defined as:
“Claim” means a written demand or written as-
sertion by one of the contracting parties seeking,
as a matter of right, the payment of money in a
sum certain, the adjustment or interpretation of
contract terms, or other relief arising under or re-
lating to the contract. However, a written de-
mand or written assertion by the contractor
seeking the payment of money exceeding $100,000
is not a claim under 41 U.S.C. chapter 71, Con-
tract Disputes, until certified as required by the
statute. . . .
48 C.F.R. § 2.101; see also id. § 52.233-1(c)(same).
Fixing the date of accrual of a claim requires first that
there is a “claim” as defined in the Contract Disputes Act
and associated Regulations. KBR states that “a sum
certain” could not have been demanded or asserted on
8 KELLOGG BROWN & ROOT SERVICES v. ARMY
September 12, 2003, because the reimbursable costs and
profit entitlements were not then known, and in view of
disputes including termination conditions, could not
reasonably have been known. KBR states that until
KCPC/Morris sent KBR its documented and certified
claim on August 26, 2006 (after the critical date of May 2,
2006), there was not a basis for determining the “sum
certain” that is required for a CDA claim. KBR points out
that the Army refused to consider the KCPC/Morris
certified claim when forwarded by KBR, and that the
Army required KBR to resolve all issues with the subcon-
tractor: “KBR is required to settle a claim with the sub-
contractor, then bill the government.” See Army Email.
The Army does not state that the amount of the claim
was reasonably known in 2003 or 2005; the Army’s argu-
ment is that liability was “fixed” by KBR’s cost-reimbursal
contract with the Army, although the amount of the
liability was not established. Army Br. at 12–15 (“Even
though the exact amount of money that KBR owed
KCPC/Morris had not yet been established . . .[,] KBR’s
liability to KCPC/Morris was fixed because KBR knew
that it owed KCPC/Morris money. . . . When
KCPC/Morris’ claim accrued against KBR, so too did
KBR’s claim accrue against the government.”). However,
by FAR definition, a “claim” for “the payment of money”
does not “accrue” until the amount of the claim, “a sum
certain,” FAR § 2.101, is “known or should have been
known,” id. § 33.201.
In Parsons Global, this court observed that determi-
nation of whether a claim accrued is based on the particu-
lar circumstances. 677 F.3d at 1170 (“we evaluate
whether a particular request for payment amounts to a
claim based on . . . the facts of each case.”). KBR states
that it did not have sufficient information to request a
sum certain until KCPC/Morris first presented its claim
to KBR on August 26, 2006, after the critical date. The
KELLOGG BROWN & ROOT SERVICES v. ARMY 9
Board did not find otherwise, and the Army does not
argue otherwise.
Instead, the Board adopted the theory, presented by
the Army, that the payment of the remaining subcontrac-
tor costs was a “non-routine” request for payment, and
thus accrued as of the date the subcontractor ended its
work, on September 12, 2003. Reflectone, explains the
distinction between routine and non-routine requests for
payment in CDA matters: “A routine request for payment
is made under the contract, not outside it,” 60 F.3d at
1575, while a non-routine request seeks “compensation
because of unforeseen or unintended circumstances,” id.
at 1577. The Board held that any termination of a sub-
contract is unforeseen or unintended, and therefore
produces the immediate accrual of any compensation
owed. Board Op. at 10.
The Board’s holding is a misapplication of so-called
“non-routine” requests. The origin of this rule, as ex-
plained in James M. Ellett, 93 F.3d at 1543, is to permit a
contractor that has been injured by “some unexpected or
unforeseen action on the government’s part that ties it to
the demanded costs,” in the words of Parsons Global, 677
F.3d at 1171, to seek immediate payment of any damages
flowing from the government’s action. Termination of a
subcontractor by the prime contractor is not a per se
“unexpected or unforeseen government action” that per-
mits and requires an immediate claim by the prime
contractor. The Army does not argue otherwise.
Whether a request for payment is deemed routine or
non-routine in the context of accrual of a CDA claim
against the government is “dependent on the circum-
stances in which the requested costs arose.” Id. at 1170.
KBR states that the group (b) costs for which payment is
requested are the routine costs of performance and termi-
nation, and did not arise from unexpected government
10 KELLOGG BROWN & ROOT SERVICES v. ARMY
action, but from subcontractor inadequacy in performance
of its obligations under the subcontract.
The Army argues that KBR’s November 3, 2006 letter
to the Army (after the critical date) was a “non-routine”
request for payment, for this letter states that KBR “does
not certify or comment to the validity of these costs and
does not have any other supporting documentation for
validation.” See KBR Letter. However, the Army refused
to accept this letter as a “claim,” either routine or non-
routine.
KBR states that whether its November 3, 2006, letter
forwarding the KCPC/Morris claim is viewed as a “rou-
tine” or “non-routine” request is irrelevant to the limita-
tions issue, for it occurred after the critical date of May 2,
2006. We agree that this letter did not retrospectively
convert the termination date of September 12, 2003, into
the “accrual” of a “claim” that was not even arguably
presented until after the critical limitations date.
In other, related situations, precedent illustrates that
the limitations period does not begin to run if a claim
cannot be filed because mandatory pre-claim procedures
have not been completed. See Crown Coat Front Co. v.
United States, 386 U.S. 503, 510-12 (1967) (pre-CDA case,
finding that the government contractor’s claim “first
accrued . . . upon the completion of the administrative
proceedings contemplated and required by the provisions
of the contract”). Here, the Army required that KBR
resolve disputed costs with the subcontractor before KBR
could present a claim for reimbursement of those costs.
See Bay Area Laundry and Dry Cleaning Pension Trust
Fund v. Ferbar Corp. of Calf., Inc., 522 U.S. 192, 200–01
(1997) (rejecting as “inconsistent with basic limitations
principles” the position that a limitations period can
commence when the claimant’s suit would be premature
because required pre-suit procedures had not taken
place).
KELLOGG BROWN & ROOT SERVICES v. ARMY 11
The Army also states that the Severin Doctrine re-
quires that this claim accrued on September 12, 2003.
That is not an apt application of Severin v. United States,
99 Ct. Cl. 435 (1943), where the court held that “if plain-
tiffs had proved that they, in performance of their con-
tract with the government[,] become liable to their
subcontractor for damages which the latter suffered, that
liability, though not yet satisfied by payment, might well
constitute actual damages to plaintiffs and sustain their
suit.” Id. at 443. The Army states that “Severin describes
precisely the situation that we have here—KBR became
liable to its subcontractor for damages that the subcon-
tractor suffered because of KBR’s default termination
decision.” Army Br. 13.
The Army argues, “When KCPC/Morris’ claim accrued
against KBR, so too did KBR’s claim accrue against the
government.” Id. at 14. Severin does not so hold. The
prime contractor may indeed be liable for damages that
the prime inflicts on the subcontractor. However, Severin
does not hold that the date of “accrual” of the prime’s
claim against the government is the date of termination of
the subcontractor. Accrual in accordance with FAR
§ 33.201 does not occur until KBR requests, or reasonably
could have requested, a sum certain from the government.
As the Army repeatedly told KBR here, it would not
consider any of KBR’s submissions until after resolution
of the subcontractor issues.
The Army also argues that the government’s exposure
in “pass-through” suits for subcontractor claims is limited
to the amount of the prime contractor’s liability for the
subcontractor’s costs. Accepting this position for this
case, it does not follow that KBR’s claim against the
government accrued before the subcontractor submitted
its certified claim to KBR. Severin is concerned with
liability among government, contractor, and subcontrac-
tor, see 99 Ct. Cl. at 443, not with dates of “accrual” of
“claims” as defined by the FAR. And the Severin Doctrine
12 KELLOGG BROWN & ROOT SERVICES v. ARMY
is directed to liability resulting from government action
harming the subcontractor.
KBR criticizes the Army’s position that prime contrac-
tors have ripe CDA claims against the government at the
moment that dispute arises with a subcontractor, even if
the government is not involved in the dispute; even if, as
here, the Army required KBR to resolve its subcontractor
issues before the Army would consider the claim. KBR
states that the Board’s ruling and the Army’s position
would require cost-reimbursement contractors to request
payment of subcontractor costs while those costs are
under dispute, lest the prime contractor lose the right to
recover those costs. KBR correctly observes that the CDA
does not require the filing of protective claims related to
subcontractors while those claims are being resolved
between the prime and sub.
We conclude that the Board erred in holding that be-
cause subcontract activity by KCPC/Morris ended on
September 12, 2003, the KBR claim for group (b) costs
accrued on that date.
Alternate Accrual in January 2005
The Board held alternatively that KBR’s claim ac-
crued when, “in January 2005, KBR had sufficient actual
knowledge to enter into a written settlement agreement
segregating subcontract costs into a ‘Settlement Amount’
and other costs above that amount.” Board Op. at 8.
This appeal relates only to the “other costs” above the
Settlement Amount. The January 2005 agreement also
established conversion from termination for default to
termination for convenience, adding the need for KBR and
the subcontractor to resolve the issue of lost profits.
Indeed, the Army does not argue that “a sum certain” was
known at the time the January 2005 agreement was
entered.
KELLOGG BROWN & ROOT SERVICES v. ARMY 13
In accordance with the FAR, KBR’s claim for the “oth-
er costs” did not alternatively accrue when KBR and the
subcontractor agreed to resolve these costs and cooperate
to present a claim when the costs were resolved. We
conclude that the Board erred in holding that KBR’s claim
accrued with the January 24, 2005 agreement.
Other Arguments
We have considered the other issues and arguments.
We agree with the Board that KBR’s withdrawn 2008
claim did not toll the limitations period, although this is
irrelevant in view of our holding that this claim did not
accrue before the critical date.
We take note of the Board’s concern for the lengthy
pendency of this claim, and the Board’s suggestion that a
contractor could indefinitely delay the accrual of its claim.
KBR responds that the Allowable Cost and Payment
clause of the Contract Disputes Act limits the time in
which a contractor may seek reimbursement after a
“physically complete contract” has been performed, citing
48 C.F.R. § 52.216-7(d)(5). KBR states that the FAR
requires it to submit a “completion invoice or voucher,”
including “settled subcontract amounts,” within 120 days
after indirect cost rates are determined for all years of the
contract, id., and KBR must then release the government
from further liabilities and claims under the contract,
except for specified claims and unknown claims,
id. § 52.216-7(h). KBR points out that a contractor cannot
postpone a request for payment either unilaterally or
indefinitely. The Army does not argue otherwise. Nor
does the Army argue that the cost-plus-award-fee contract
between KBR and the government became a physically
complete contract at any time prior to the filing of the
claim.
The court has confirmed that the limitations period of
the Contract Disputes Act is not jurisdictional. See Sikor-
sky Aircraft Corp. v. United States, 773 F.3d 1315 (Fed.
14 KELLOGG BROWN & ROOT SERVICES v. ARMY
Cir. 2014). However, in view of our decision that the
statute of limitations does not bar this claim, equitable
tolling need not be considered.
CONCLUSION
The Board’s dismissal on statute of limitations
grounds is reversed. The case is remanded to the Board
for determination of the merits of the claim.
REVERSED AND REMANDED