July 7, 2014

$56M Government Claim Against KBR Invalid Because Untimely

Arnold & Porter Advisory

The Armed Services Board of Contract Appeals (Board) has held that a Government claim for recovery of payments made for allegedly unallowable costs accrues as soon as the Government becomes aware of the fact that the contractor is incurring those costs. The Government has six years from that date to issue a Contracting Officer's Final Decision demanding repayment of the unallowable costs. 

On January 30, 2013, the Army issued a final decision demanding that Kellogg Brown & Root Services, Inc. (KBR) repay US$56 million that the logistics contractor had incurred in Iraq on private security companies (PSCs) hired to protect KBR's and its subcontractors' personnel, convoys, and operations in that country. The Board dismissed the claim as "untimely and thus invalid and a nullity." Kellogg Brown & Root Servs., Inc., ASBCA No. 56358, June 17, 2014, 2014 WL 2931488.  The Board identified various Government personnel who knew that KBR was using PSCs in Iraq long before January 30, 2007 - as early as August 29, 2004. The DCMA Commander overseeing KBR's performance in Iraq, the procurement contracting officer in Rock Island, Illinois, and the Army battalion officer responsible for approving all of KBR's movements into and out of Iraq all knew that KBR was using PSC escorts instead of military escorts, which, the Government alleged, contravened Department of Defense policy prohibiting PSCs unless they are expressly approved by the cognizant U.S. commander.

Interestingly, the Board focused on the knowledge element of claim accrual, and did not address the question of injury. Presumably, the knowledge of use of the PSC escorts in performance of the contracts would be contemporaneous with KBR charging costs of the PSC escorts to the government contracts. Notably, the Government did not respond to KBR's argument regarding application of the statute of limitations.

Although the case does not contain a fulsome analysis of the subject of claim accrual, it demonstrates that mere knowledge of a fact, without subjective analysis, is sufficient for claim accrual. This is consistent with pre-existing case law that claim accrual "objectively turns upon what facts are reasonably knowable." Raytheon Missile Sys., ASBCA No. 58011, 13-1 BCA ¶ 35241. And, the case shows the entrenchment of rapidly-developing case law involving application of the statute of limitations.

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