Appeal of an overbilling claim asserted by the government against a contractor is denied, where the contractor disregarded an agency directive that reduced the government’s requirements, did not exercise valid business judgment in disregarding the directive, and failed to challenge the factual basis of the government’s quantum calculations.
Kellogg Brown & Root Services Inc. was awarded a cost-plus-award-fee task order to provide dining services to Army personnel in Iraq. KBR subcontracted with another company to provide services at one of the contract sites called H-3. The price of the H-3 subcontract was based on a headcount of 5,400, but during performance of the task order, the Army issued Letters of Technical Direction reducing the headcount at H-3 to 1,442 people.
Despite this reduction, KBR did not amend the subcontract and continued to bill the Army as if 5,400 people were dining at H-3. After initially conceding that the government may be entitled to a credit for overbilling, KBR changed its tune, arguing that the Letters of Direction were not binding and that the failure to reduce the headcount at H-3 was consistent with reasonable business judgment. The government disagreed, assessing more than $11,000,000 against KNR for overbilling. KBR appealed to ASBCA.
As a preliminary matter, KBR argued that to the extent the Letters of Direction were intended to be contract modifications, the individual who issued the Letters on behalf of the Army, a lieutenant colonel, lacked the authority to issue them. The board rejected this argument, noting that the Procuring Contract Officer authority had delegated Administrative Contracting Officer authority under the task order to DCMA in San Antonio. DCMA-San Antonio sub-delegated this authority to DCMA-Northern Iraq. In accordance with the FAR, the lieutenant colonel in question had been appointed ACO for the KBR task order in Iraq. The task order gives the ACO authority to direct all modifications of the task order; the lieutenant colonel thus had the requisite authority. Indeed, the board further noted that KBR’s argument was undercut by the fact that when the letters were issued, the company never contacted the lieutenant colonel nor suggested that he lacked authority to issue them.
KBR next contended that the Letters of Direction were merely planning documents and not binding contract modifications. Acknowledging that the letters were not themselves agreements, the board reasoned that the parties’ contemporaneous construction of an agreement before it has become the subject of a dispute is entitled to great weight in its interpretation. Here, the weight of evidence showed that Army and KBR personnel all believed that the letters were directives that had to be followed by KBR. In fact, KBR’s project manager conceded in testimony that KBR could not simply disregard the Letters without consulting with the government.
KBR also argued that not complying with the Letters of Direction was consistent with reasonable business judgment given the wartime environment, conflicting information on headcounts, and the failure of the government to provide clear guidance. The board dismissed this argument, finding there was no contemporaneous written explanation for why KBR did not implement the Letters. Moreover, the board continued, wartime does not somehow preclude the exercise of rational business judgement.
Finally, KBR contested the quantum of the government’s claim, contending that the government’s audit of KBR’s billing was biased and flawed. But the board concluded that KBR had made no effort to challenge the factual basis of the government’s audits and made no effort to advance a different quantum calculation at the hearing. Indeed, the only calculations KBR did proffer followed the same methodology as the government.
The board denied KBR’s appeal and affirmed the government’s claim. KBR was ordered to remit $11,233,117 to the government plus interest.
KBR is represented by Jason Workmaster, Raymond B. Biagini, Alejandro L. Sarria, and Patrick J. Stanton of Covington & Burling LLP. The government is by E. Michael Chiapara and Carol Matsunaga of the Defense Contract Management Agency.
