PCI has started a new webinar series, the Case of the Month Club.  Each month PCI’s Government Contracts law experts will discuss one or two recent cases.  The second October case is Kellogg Brown & Root Services, Inc. v. Secretary of the Army. If you want to learn more about the Case of the Month Club, click here.

Kellogg Brown & Root Services, Inc. v. Secretary of the Army
United States Court of Appeals for the Federal Circuit
Decided September 1, 2020

Facts: The Army awards KBR a task order to provide temporary housing trailers for troops in Iraq.  The underlying IDIQ requires the government to provide security for contractor employees.   KBR subcontracts with First Kuwaiti, who would build the trailers in Kuwait, and then transport them to Iraq.  Various conditions prevented KBR and First Kuwaiti from transporting the trailers, incurring significant costs.  KBR files a request for equitable adjustment for $51 million.  The ACO allows $3.7 million.

KBR appeals to the ASBCA for the full amount on the grounds that it would not have incurred the costs if the Government had provided the security services promised in their contract.  The ASBCA denied KBR’s claims on two grounds. First, the ASBCA holds that KBR has not shown its costs to be reasonable.  Second, even if their costs were reasonable, the Government’s security promise did not require they provide security such that their trailers incurred no delay costs associated with the security.

KBR appeals to CAFC.

Issue: Were their costs reasonable?

Is the Government required to provide security in a way that would prevent all delays?

Holding: Their cost estimating model is not sufficient.

CAFC did not reach the issue of security.

Reasoning:  The court rejected KBR’s estimating model on different grounds than the ASBCA.  CAFC claims that since the contract with First Kuwaiti was fixed price, there was no need to show that First Kuwaiti’s actual costs.  Instead, KBR only needed to show that its payments to First Kuwaiti were reasonable.

CAFC then holds that KBR has not shown that its payments to First Kuwaiti are reasonable.  It comes to this decision because of numerous places where KBR uses abstract figures rather than real numbers from the performance of the subcontract.  For one example, the daily rate per truck assumed 100% uptime for each truck, despite a 100% uptime being impossible.

Dissent:  The dissent in this case argues that the CAFC should have remanded the case for additional fact finding.