Kellogg Brown & Root Services v. Secretary of the Army
973 F.3d 1366
| Fed. Cir. | 2020Background
- The Army awarded KBR a LOGCAP III contract (Task Order 59, Change 5) requiring KBR to provide trailers and related life‑support services in Iraq; the prime contract included an H‑16 Force Protection Clause obligating the Service Theater Commander to provide convoy/site force protection.
- KBR subcontracted manufacture and delivery of thousands of trailers to First Kuwaiti (Kuwaiti/FKTC) with performance dates in December 2003; deliveries were to be transported by truck convoys across the Kuwait–Iraq border.
- Due to security/escort shortages and other wartime conditions, trailers accumulated at the border, incurring claimed costs for idle trucks and “double handling” (storage, unloading/reloading, repairs, etc.).
- FKTC sought equitable adjustments from KBR; KBR paid FKTC roughly $48.75 million for idle‑truck and double‑handling claims (total claim to government ~$51.27M including indirects/award fee) and submitted claims to the government seeking reimbursement.
- The administrative contracting officer allowed about $3.78M (land lease) but denied the bulk of the delay/double‑handling costs; the Armed Services Board of Contract Appeals denied KBR’s appeal, finding KBR failed to show the government breached (in part) and, alternatively, that KBR had not shown its settlement costs were reasonable.
- The Federal Circuit affirmed the Board solely on the ground that KBR failed to prove its claimed costs were reasonable (so the court did not decide whether the government breached the Force Protection Clause); dissent argued the matter should be remanded for application of the reasonableness standard and that breach was established in related proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether government breached the Force Protection Clause, entitling KBR to equitable adjustment | KBR: Army failed to provide required convoy/site force protection, causing delays and extra costs | Army: security conditions/war made delays inevitable; Change 5 didn’t guarantee convoy placement without delay | Majority did not decide breach (assumed arguendo for reasonableness analysis); Board earlier found no requirement to place trailers into convoys without delay; dissent cites companion ASBCA/Fed. Cir. holdings supporting breach |
| Whether KBR’s payments to subcontractor were recoverable under prime contract | KBR: payments to Kuwaiti were costs under prime contract and reimbursable if reasonable | Army: KBR must substantiate costs and cannot recover unsupported/subcontractor costs | Court: payments are costs under the prime contract, but recovery requires proof that costs are reasonable; KBR failed to meet burden |
| Whether KBR proved reasonableness of claimed idle‑truck and double‑handling costs | KBR: used FKTC delay models (uniform‑rate assumption) and a $300/day per truck composite rate; argued these represented fair commercial practice | Army: models were speculative, inconsistent with FKTC records, and failed to separate government delays from other causes; no supporting cost data or witness proof | Held for Army: Board’s finding that KBR did not show reasonableness is supported by substantial evidence (models unrealistic, contradicted records, no substantiating cost data or witness/expert proof) |
| Whether the ‘‘jury‑verdict’’ method could apply to fix damages | KBR: where exact accounting is unavailable, jury‑verdict method can produce a reasonable approximation | Army: more exact methods and cost substantiation required under FAR; jury‑verdict not a license to recover unreasonable amounts | Court: jury‑verdict method is disfavored and does not relieve a contractor of FAR reasonableness requirement; KBR failed to show other methods were unavailable or to justify jury‑verdict recovery |
Key Cases Cited
- Castle v. United States, 301 F.3d 1328 (Fed. Cir. 2002) (declining to reach liability when claimant fails to establish entitlement to damages)
- Agility Logistics Servs. Co. KSC v. Mattis, 887 F.3d 1143 (Fed. Cir. 2018) (contract interpretation reviewed de novo)
- Kellogg Brown & Root Servs., Inc. v. United States, 728 F.3d 1348 (Fed. Cir. 2013) (reasonableness of costs is a fact question and contractor bears the burden of proof)
- Sauer Inc. v. Danzig, 224 F.3d 1340 (Fed. Cir. 2000) (contractor must separate government‑caused delay from its own delays to recover delay damages)
- Dawco Constr., Inc. v. United States, 930 F.2d 872 (Fed. Cir. 1991) (jury‑verdict method is not favored and is a method of last resort)
- Delco Elecs. Corp. v. United States, 909 F.2d 1495 (Fed. Cir. 1990) (jury‑verdict method may be used to approximate damages when precise methods are unavailable)