Case: 19-1683 Document: 52 Page: 1 Filed: 09/01/2020
United States Court of Appeals
for the Federal Circuit
______________________
KELLOGG BROWN & ROOT SERVICES, INC.,
Appellant
v.
SECRETARY OF THE ARMY,
Appellee
______________________
2019-1683
______________________
Appeal from the Armed Services Board of Contract Ap-
peals in Nos. 57530, 58161, Administrative Judge Mark A.
Melnick, Administrative Judge Owen C. Wilson, Adminis-
trative Judge Richard Shackleford.
______________________
Decided: September 1, 2020
______________________
EDWARD SANDERSON HOE, Covington & Burling LLP,
Washington, DC, argued for appellant. Also represented
by RAYMOND B. BIAGINI, HERBERT L. FENSTER; ALEJANDRO
LUIS SARRIA, JASON NICHOLAS WORKMASTER, Miller &
Chevalier Chartered, Washington, DC.
DAVID W. TYLER, Commercial Litigation Branch, Civil
Division, United States Department of Justice, Washing-
ton, DC, argued for appellee. Also represented by ETHAN
P. DAVIS, RUSSELL B. KINNER, WILLIAM JAMES GRIMALDI,
ROBERT EDWARD KIRSCHMAN, JR., PATRICIA M. MCCARTHY,
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2 KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE
ARMY
MICHAL L. TINGLE, ANDY J. MAO, PATRICK KLEIN, II; CAROL
MATSUNAGA, Defense Contract Management Agency, Car-
son, CA; KARA KLAAS, Chantilly, VA.
______________________
Before NEWMAN, DYK, and WALLACH, Circuit Judges.
Opinion for the court filed by Circuit Judge DYK.
Dissenting opinion filed by Circuit Judge NEWMAN.
DYK, Circuit Judge.
Kellogg Brown and Root Services, Inc. (“KBR”) con-
tracted with the government to provide trailers to house
coalition personnel at military camps in Iraq. KBR claimed
that the government breached the contract by failing to
provide “force protection” to the trucks delivering the trail-
ers to the military camps. KBR sought to recover payments
made to its subcontractor, First Kuwaiti Co. of Kuwait
(“Kuwaiti”), for costs caused by the government’s alleged
breach. The administrative contracting officer in large
part denied the claim, and KBR appealed to the Armed Ser-
vices Board of Contract Appeals (“Board”). The Board
found that KBR was not entitled to any additional recovery
and denied its appeal.
We affirm the Board’s decision on the ground that the
Board properly determined that KBR’s costs had not been
shown to be reasonable, and we do not reach the question
whether the government breached the “force protection”
provision of the contract.
BACKGROUND
In 2001, the United States Army awarded Contract No.
DAAA09-02-D-0007 (“Contract 0007”) in the U.S. Army’s
Logistics Civil Augmentation Program (“LOGCAP III”) to
KBR. Among other things, the contract required KBR to
provide logistical support in the form of goods (such as
trailers used for temporary housing) for the government
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pursuant to a series of task orders. LOGCAP III contained
a provision (“the Force Protection Clause”) requiring that
the Army provide “force protection” for the contractor’s con-
voys for providing these goods and services. It stated:
H-16 Force Protection
While performing duties [in accordance with] the
terms and conditions of the contract, the Service
Theatre Commander will provide force protection
to contractor employees commensurate with that
given to Service/Agency (e.g. Army, Navy, Air
Force, Marine, DLA) civilians in the operations
area unless otherwise stated in each task order.
J.A. 242.
In June 2003, the government executed Task Order 59,
a cost-plus-fixed-fee order for KBR to provide support to
operations in Iraq. This case concerns the government’s
October 10, 2003, modification to Task Order 59 (“Change
5”), which required KBR to “provide accommodations and
life support services to [Command Joint Task Force 7
(“CJTF7”)] and coalition forces in various locations in Iraq.”
J.A. 291. The “accommodations and life support services”
were trailers for temporary housing of Army personnel.
Change 5 states that “[i]t is the Commander’s intent to rap-
idly bed down the remainder of CJTF soldiers, building
within battalion sets, simultaneously as opposed to sequen-
tially, in accordance with established and provided priori-
ties.”
Id. KBR was originally required to furnish the
trailers by December 15, 2003.
The trailers were to be manufactured in Kuwait and
then transported to Iraq by Kuwaiti in truck convoys. Sec-
tion 1.10 of Change 5 again addressed the issue of force
protection, stating that “[t]he government will provide for
the security of contractor personnel in convoys and on site,
commensurate with the threat, and [in accordance with]
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4 KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE
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the applicable Theater Anti-Terrorism/Force Protection
guidelines.” J.A. 292.
On October 17, 2003, KBR and Kuwaiti entered into a
firm-fixed-price subcontract (“the Subcontract”) for the pro-
curement and delivery of 2,252 trailers to Camp Anaconda
in fulfillment of part of KBR’s obligations under Change 5.
In accordance with Change 5, the Subcontract required Ku-
waiti to complete performance by December 15, 2003, with
“[a]llowances” in the event of “delays in KBR convoy coor-
dination and support.” J.A. 1153. The Subcontract pro-
vided that if KBR ordered any changes to performance that
resulted in an increased cost of performance to Kuwaiti,
Kuwaiti would be entitled to request an equitable adjust-
ment. On December 13, 2003, KBR issued another change
order, directing Kuwaiti to deliver and install an additional
1,760 trailers to a second Army camp in Iraq, Camp Vic-
tory.
The Army’s failure to provide force protection in Iraq
became an issue between the government and KBR, and
another such dispute resulted in a previous Board decision
finding that the Army failed to meet its force protection ob-
ligations. See Sec’y of the Army v. Kellogg Brown & Root
Servs., Inc., 779 F. App’x 716, 718 (Fed. Cir. 2019). As rel-
evant here, the Board found that by late November of 2003,
“dangerous conditions in Iraq” and “limitations upon the
military’s resources to escort convoys” and the prioritiza-
tion of other Army needs resulted in the failure to provide
necessary force protection and convoy delays. J.A. 7.
Kuwaiti alleged that the delays resulted in delivery de-
lays and a backup of trailers at the Kuwait/Iraq border. It
alleged that it was eventually required to store the trailers
on rented land (a “laydown yard”) in Kuwait and incurred
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KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE 5
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costs for double handling, i.e., unloading and then reload-
ing the trailers onto its trucks. 1 J.A. 7.
On August 1, 2004, and August 4, 2004, KBR and Ku-
waiti executed two change orders adding a total of
$48,754,547.25 in equitable adjustments for idle truck
costs due to the backup of trailers at the border and double-
handling costs.
As would be expected, KBR, as the prime contractor,
then filed two requests for equitable adjustments with the
government, asserting that it was entitled to recover the
payment to Kuwaiti because the delay and double-han-
dling costs were due to the government’s failure to provide
the required force protection. The final amount sought by
KBR, which included the $48,754,547.25 paid to Kuwaiti
as well as indirect costs and the award fee, 2 totaled
$51,273,482.
On July 29, 2011, the administrative contracting of-
ficer issued a final decision allowing $3,783,005 in costs as-
sociated with the land leased to store the trailers (including
indirect costs and award fees) but rejecting the remainder
of KBR’s requested costs for delay and double handling.
KBR timely appealed to the Board, arguing that it was
entitled to recover the rejected delay costs and double-han-
dling costs because the government violated the contract
by failing to provide the required force protection. It
1 “The term ‘double handling’ . . . refer[red] to both
the transfer on and off trucks at the camps [due to delays
in site preparation], as well as onto and off the [laydown
yard].” J.A. 8.
2 Under the Federal Acquisition Regulation (“FAR”),
an “award fee” is “an award amount, based upon a judg-
mental evaluation by the Government, sufficient to provide
motivation for excellence in contract performance.” 48
C.F.R. § 16.305.
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6 KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE
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argued that it was entitled to recover the disallowed costs
($47,490,477) and that these costs were reasonable.
The Board found that KBR was not entitled to reim-
bursement on the ground that the government had not
breached the Force Protection Clause because “nothing in
Change 5 required the government to place [Kuwaiti]’s
trailers into convoys without delay.” J.A. 16. The Board
further concluded that even if the government had
breached the contract by failing to meet its force protection
obligations, KBR had not shown that its settlement costs
with Kuwaiti were reasonable. The Board concluded that
(1) “KBR ha[d] not shown that a prudent person conducting
a competitive business would have resolved [Kuwaiti]’s de-
lay [equitable adjustment] based upon the model submit-
ted by [Kuwaiti],” J.A. 21, and (2) for similar reasons, “KBR
ha[d] not shown that its settlement of the double[-]han-
dling [equitable adjustment] . . . was reasonable,” J.A. 22.
The Board stated that KBR had failed to provide the actual
costs incurred by Kuwaiti, as is typical in claims for equi-
table adjustments in other contracts. Instead, KBR’s
claimed costs were based solely on Kuwaiti’s estimates.
The Board found that the damages models were “unrealis-
tic,” “inconsistent,” “flaw[ed],” “unreasonable” and as-
sumed a “perfect world.” J.A. 10, 17–18, 21. The Board
concluded that “KBR [was] not entitled to any recovery.”
J.A. 22.
KBR appeals, and we have jurisdiction under 41 U.S.C.
§ 7107(a)(1)(A) and 28 U.S.C. § 1295(a)(10).
DISCUSSION
Our review of the Board’s decision is limited by statute.
See 41 U.S.C. § 7107. We review the Board’s legal conclu-
sions de novo, but we may only set aside a factual finding
if it is “(A) fraudulent, arbitrary, capricious; (B) so grossly
erroneous as to necessarily imply bad faith; or (C) not sup-
ported by substantial evidence.”
Id. § 7107(b). Contract
interpretation is a question of law. Agility Logistics Servs.
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Co. KSC v. Mattis,
887 F.3d 1143, 1148 (Fed. Cir. 2018).
The reasonableness of a cost is a question of fact based on
applicable legal principles. Kellogg Brown & Root Servs.,
Inc. v. United States,
728 F.3d 1348, 1360 (Fed. Cir. 2013).
I
KBR argues that, under Change 5, the government was
obligated to “furnish convoy escorts well before the
[Change 5] deadlines,” Appellant’s Br. 19, and that but for
the government’s breach, KBR would have been able to
“meet the express dates for trailer installation,” Reply
Br. 12. We need not reach the issue of whether the govern-
ment breached the contract by failing to provide adequate
force protection because the Board did not err in concluding
that KBR’s claimed costs were not shown to be reasonable
(a prerequisite to its requested relief). See Castle v. United
States,
301 F.3d 1328, 1341 (Fed. Cir. 2002) (“[W]e find that
[the plaintiffs] have not established their entitlement to
damages . . . . Accordingly, . . . we expressly decline to con-
sider the liability issue.”). In addressing the issue of cost
reasonableness, we assume that the government was re-
quired to provide reasonable force protection to enable
KBR to timely perform under the contract. 3
Before addressing the reasonableness issue, we note
that the government argues on appeal that KBR was re-
quired to submit not only the actual costs that KBR in-
curred, but the actual costs incurred by its subcontractor,
Kuwaiti. It argues that under the Subcontract, Kuwaiti
was required to maintain “‘records [that] relate to cost re-
imbursement,’ and provide to KBR ‘[c]opies of documents
3 However, as the Board found, nothing in Change 5,
including the Force Protection Clause, “constituted a guar-
antee by the government that its convoy security would en-
able KBR to comply” with the December 15, 2003,
completion date. J.A 16.
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8 KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE
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and records supporting requests for payment.’” Appellee’s
Br. 53 (alterations in original) (quoting J.A. 1166). The
government’s reliance on the Subcontract is misplaced. As
the government conceded at oral argument, the amounts
paid by KBR to Kuwaiti were “costs” under the prime con-
tract, and there is no provision in the prime contract that
required KBR to submit the actual costs incurred by its
subcontractor. KBR’s obligation was to show that the pay-
ments to Kuwaiti were “reasonable.” See 48 C.F.R.
§ 31.201-2(a)(1). While the failure to collect and submit
Kuwaiti’s costs bears on the reasonableness of the pay-
ments, submission of the subcontractor’s costs is not a sep-
arate requirement.
The FAR provides:
A cost is allowable only when the cost complies
with all of the following requirements: (1) Reason-
ableness . . . .
Id. § 31.201-2(a).
(a) A cost is reasonable if, in its nature and amount,
it does not exceed that which would be incurred by
a prudent person in the conduct of competitive
business. Reasonableness of specific costs must be
examined with particular care in connection with
firms or their separate divisions that may not be
subject to effective competitive restraints. No pre-
sumption of reasonableness shall be attached to
the incurrence of costs by a contractor. If an initial
review of the facts results in a challenge of a spe-
cific cost by the contracting officer or the contract-
ing officer’s representative, the burden of proof
shall be upon the contractor to establish that such
cost is reasonable.
(b) What is reasonable depends on a variety of con-
siderations, including . . . [g]enerally accepted
sound business practices, arm’s length bargaining,
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and . . . [a]ny significant deviations from the con-
tractor’s established practices.
Id. § 31.201-3 (emphasis added).
The FAR thus makes clear that the burden is on the
contractor to establish the reasonableness of its costs and
that there is no presumption of reasonableness. We have
similarly explained that there is no presumption that a
contractor is entitled to reimbursement “simply because it
incurred . . . costs.”
Kellogg, 728 F.3d at 1363.
A
KBR only devotes two pages of its brief to defending the
reasonableness of its costs and fails to describe in any de-
tail KBR’s cost calculation methodology or why its method-
ology was reasonable. This alone would justify affirmance,
since KBR has not meaningfully briefed the issue. See
SmithKline Beecham Corp. v. Apotex Corp.,
439 F.3d 1312,
1320 (Fed. Cir. 2006). We nevertheless have looked to
KBR’s justifications for its claimed costs (as argued to the
Board) to determine whether the costs were reasonable.
We begin with KBR’s arguments directed to the alleged de-
lays at the Iraq/Kuwait border.
KBR stated that the claimed costs related to delays
were not based on documented costs incurred by Kuwaiti,
but were instead estimated “based upon 83,078 days of idle
truck time and a truck and driver daily cost rate of $300.”
J.A. 2928. We briefly describe how KBR arrived at those
numbers. 4
Under Change 5, KBR was required to deliver 2,252
trailers to Camp Anaconda and 1,760 trailers to Camp
4 In its certified claim, KBR used the same estimates
that Kuwaiti used in its original request for equitable ad-
justments. For convenience, we refer to these as KBR’s es-
timates.
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Victory by December 15, 2003. It was understood as a prac-
tical matter that the delivery of the trailers would occur
over the entire period of performance. KBR began with the
assumption that, if the government had provided adequate
force protection, Kuwaiti would have delivered a uniform
number of trailers each day to each camp. Under this as-
sumption, KBR estimated that it would have delivered 135
and 58 trailers per day for Camp Victory and Camp Ana-
conda, respectively, to complete the deliveries in accord-
ance with the December 15, 2003, deadline in Change 5.
This translated to an assumption that 193 trucks would
have crossed the Iraq/Kuwait border each day during the
original period of performance. We refer to this as the “uni-
form rate assumption.”
KBR then assumed that any deviation from the uni-
form rate assumption was attributable to government-
caused delay. To calculate the number of supposedly idle
trucks on a particular day, KBR subtracted the total num-
ber of trucks that had crossed the border (from the start
date of the Subcontract up to that day) from the total num-
ber of trucks that would have crossed the border under the
uniform rate assumption. For example, if, on a particular
day, Kuwaiti’s records showed that a total of 100 trucks
had crossed the border, but 193 trucks would have crossed
the border under the uniform rate assumption, KBR’s
model would claim 93 idle truck days. KBR then multiplied
the total number of idle truck days by $300, which it
adopted as a “reasonable market price for idle trucks based
upon a review of other business KBR conducted.” J.A. 17.
There are several reasons why KBR’s model is not a
reasonable cost calculation—each of which, standing alone,
is sufficient to defeat its claims.
First, contrary to KBR’s model, the Board found that
Kuwaiti “did not always have the number of trucks availa-
ble at the border dictated by the model or have access to
the model’s required number of trucks.” J.A. 10. “In fact,
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it was not known where all the trucks were at any given
time.”
Id. A December 15, 2003, email from the Operations
Manager at Camp Anaconda stated that Kuwaiti did not
have trailers ready at the border, and that, “[w]hile [Ku-
waiti] may have [had] hundreds of trailers waiting at the
border, they apparently [were] not bound for [Camp] Ana-
conda.” J.A. 4065. KBR assumed “perfect performance
where everything worked flawlessly” on the part of Kuwaiti
(despite records showing the contrary). J.A. 10. As the
Board found, “KBR has not demonstrated that [the] model
approximates the actual events that occurred.” J.A. 18.
Indeed, the Board found that KBR’s estimates as to the
number of trucks at the border were inconsistent with the
only evidence that KBR did submit. For example, “[Ku-
waiti] reported on December 2, 2003, that it had 150 trucks
waiting, but the model charged for 403 [idle truck days].”
J.A. 10. The Board noted that “[Kuwaiti] and KBR also
maintained status reports showing the number of trailers
waiting at the border on specific days, and a Delivery Re-
port for particular days showing the number of trailers
waiting on trucks,” and that “[t]hese reports generally
showed lower numbers than” KBR’s estimates.
Id. Finally,
the Board cited “numerous communications” attached to
the request for equitable adjustment “discussing signifi-
cantly different numbers of trucks and trailers available at
the border than shown in the [KBR] model.”
Id. KBR pro-
vided no explanation for why its model could be reliable
when it was “inconsistent” with the records that Kuwaiti
did maintain. J.A. 9.
Second, KBR’s model “assumed [that] every truck ar-
riving at the [Iraq/Kuwait] border would be placed into a
convoy for Iraq the very next day” and that all delays at the
border were the result of inadequate government force pro-
tection. J.A. 10. In fact, substantial evidence supported
the Board’s findings that other factors outside of the gov-
ernment’s control (in addition to KBR’s delay in providing
trucks at the border) contributed to delays. See Sauer Inc.
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v. Danzig,
224 F.3d 1340, 1348 (Fed. Cir. 2000) (“[T]o es-
tablish a compensable delay, a contractor must separate
government-caused delays from its own delays.”). Even
with “unlimited force protection assets, security threats
and other constraints, such as the status of communication
lines,” “intelligence [reported] that the roads were too dan-
gerous for travel at all,” and insurgent attacks could delay
the delivery of the trailers. J.A. 6. Yet KBR assigned every
delay at the border to the lack of force protection without
attempting to disaggregate the causes of those delays.
KBR’s assumption was simply “not realistic.” J.A. 10.
Third, KBR’s spreadsheets calculating idle truck days,
“without substantiating data or records,” were insufficient
to establish the reasonableness of its costs. J.A. 9. KBR
offered no fact or expert witnesses to support the reasona-
bleness of its estimated number of idle truck days. Alt-
hough Change 5 did not require KBR to provide actual
costs to support its claim, the Board properly determined
that KBR’s failure to provide any supporting data was fatal
to its claim. Under KBR’s contract with Kuwaiti, Kuwaiti
was obligated to “maintain books and records” reflecting
actual costs, and KBR had the right to “inspect and audit”
those records. J.A. 1166. As the Board found, it was simply
not plausible that Kuwaiti did not record “how long trucks
actually waited” at the border, J.A. 18, and KBR made no
attempt to access or utilize these records. At bare mini-
mum, KBR was required to support its estimates with rep-
resentative data as to the number of trucks actually
delayed. In fact, KBR supplied no representative data
whatsoever. Without further evidence demonstrating the
reliability of KBR’s estimates, the Board properly found
that KBR’s claimed costs were not reasonable.
Fourth, KBR only offered conclusory testimony, unsup-
ported by any data or evidence in the record, that the daily
rate of $300 was a reasonable “composite rate” for each
truck, trailer, and driver, “based on [KBR’s] market re-
search and . . . pricing data available . . . at the time.”
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J.A. 3002. In fact, KBR knew (from the redacted truck
leases submitted by Kuwaiti) that Kuwaiti had records
showing more precise daily costs for its idle trucks. The
Board found that “[i]t simply strain[ed] credulity” that Ku-
waiti, a “sophisticated company” having “over 70 subcon-
tracts with KBR alone,” would “not record how much it
actually paid its drivers while they waited at the bor-
der . . . , especially given that it would ultimately seek mil-
lions of dollars in additional compensation for these
events.” J.A. 18. At oral argument, the only reason KBR
gave for its failure to inquire into the costs charged by Ku-
waiti was that it “wanted to move this matter along.” Oral
Arg. at 40:08–12. The Board properly concluded that
KBR’s testimony did not establish what Kuwaiti “actually
paid to lease the trucks (which [Kuwaiti] knew but did not
disclose) and how much it actually paid its drivers.”
J.A. 18.
Finally, KBR charged a $300 rate for all claimed delay
days, implicitly assuming that each trailer was always at-
tached to a truck with a driver. This was despite the fact
that Kuwaiti was also claiming double-handling costs for
the trailers, which it claimed were offloaded and stored—
unattached to any trucks—in its laydown yard. The basis
for claiming additional delay costs related to drivers and
trucks for such stored trailers was not explained and, as
the Board found, “ignored the fact that, once [Kuwaiti] pro-
cured land for a laydown yard at the border, it removed the
trailers from trucks and placed them in the yard, relieving
at least some trucks and drivers from having to remain idle
the entire time the trailers were delayed.” J.A. 18.
In Kellogg, another case between the same parties,
KBR “declined to present independent evidence of the rea-
sonableness of . . . [its] costs.”
Kellogg, 728 F.3d at 1363.
We held that KBR failed to satisfy its burden of proving the
reasonableness of its costs.
Id. The record in this case
leads to the same result. Despite having ample oppor-
tunity to do so, KBR supplied no meaningful evidence to
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the Board showing the reasonableness of its costs, nor has
it explained the inconsistencies between its proposed cost
model and the factual record.
We conclude that the Board’s determination that KBR
had failed to demonstrate that its delay costs were reason-
able was supported by substantial evidence.
B
We turn to KBR’s costs related to double handling.
Here, KBR sought reimbursement for the cost of the entire
facility used to store the trailers, apparently on the theory
that every cost related to the facility was attributable to
the alleged government delay. 5 In this respect, KBR’s dou-
ble-handling claim suffered from many of the same defi-
ciencies as its delay claim. There were, in addition, other
deficiencies.
KBR failed to support the reasonableness of its claimed
costs with any record evidence. Although KBR stated that
it “engaged . . . procurement personnel to obtain pricing
from sources other than [Kuwaiti] to negotiate the double[-
]handling claim,” J.A. 2927, its certified claim for double-
handling costs contained only spreadsheets summarizing
monthly costs. KBR never submitted pricing data from its
other sources.
Not only was the pricing not supported—the descrip-
tion of the work performed was lacking in necessary detail
or described work unrelated to any government-caused de-
lay. Kuwaiti had claimed costs related to “skilled workers,”
at various rates (ranging from $2,000 to $3,500 per person
per month) without explaining what these workers did, or
5 KBR also sought costs related to double handling
due to “late site preparation.” J.A. 21. As with KBR’s other
double-handling costs, it failed to support these claimed
costs with adequate data.
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even what their “skills” were. J.A. 8. Kuwaiti also charged
$3,090,750 in “Repair Cost Consequent on Double Han-
dling [sic].” J.A. 4798. The administrative contracting of-
ficer noted that, while “some damage [to the trailers] will
occur during double handling,” “some of the damage
charged [for] in the [equitable adjustment] was also appar-
ently attributed to vandalism.” J.A. 1892. KBR’s submis-
sions to the Board “did not describe any [double-handling]
repairs, or what might have happened to require any [re-
pairs].” J.A. 8. KBR simply made no effort to “field verify
any additional equipment, manpower, protection, land
preparation, repairs, and double installations” from the
double handling. J.A. 12.
KBR itself expressed concern with the reasonableness
of Kuwaiti’s proposed double-handling costs, stating that
Kuwaiti’s quoted prices were “too high” and that “if this
was a claim and if this was being assessed as per the
FAR[] . . . there would be a very high possibility that this
would be dismissed.” J.A. 4800. KBR also noted during its
negotiations with Kuwaiti that “the numbers [of trailers]
that were said to have been repaired daily . . . [did] not add
up.” J.A. 4801.
Under these circumstances, we conclude that the
Board did not err in finding that KBR had failed to prove
the reasonableness of its double-handling costs.
II
KBR finally argues on appeal that the Board failed to
apply the “jury verdict” method. The jury verdict method
is “not favored and may be used only when other, more ex-
act, methods cannot be applied.” Dawco Const., Inc. v.
United States,
930 F.2d 872, 880 (Fed. Cir. 1991), overruled
on other grounds by Reflectone, Inc. v. Dalton,
60 F.3d 1572
(Fed. Cir. 1995). As previously discussed, KBR has not
shown that other, more exact, methods were unavailable.
We affirm the Board’s holding that “[t]he jury verdict
Case: 19-1683 Document: 52 Page: 16 Filed: 09/01/2020
16 KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE
ARMY
method does not relieve KBR from FAR Part 31’s limitation
of its recovery to costs that are reasonable.” J.A. 21.
AFFIRMED
Case: 19-1683 Document: 52 Page: 17 Filed: 09/01/2020
United States Court of Appeals
for the Federal Circuit
______________________
KELLOGG BROWN & ROOT SERVICES, INC.,
Appellant
v.
SECRETARY OF THE ARMY,
Appellee
______________________
2019-1683
______________________
Appeal from the Armed Services Board of Contract Ap-
peals in Nos. 57530, 58161, Administrative Judge Mark A.
Melnick, Administrative Judge Owen C. Wilson, Adminis-
trative Judge Richard Shackleford.
______________________
NEWMAN, Circuit Judge, dissenting.
With the expedition of United States forces to Iraq, the
Army contracted with Kellogg Brown & Root Services, Inc.
(“KBR”) for various services including the provision of pre-
fabricated housing for thousands of troops. As described
by the Armed Services Board of Contract Appeals
(“ASBCA”), 1 “soldiers slept wherever they could
1 Kellogg Brown & Root Servs., Inc., ASBCA No.
57530, 19-1 BCA ¶ 37,205,
2018 WL 6431434 (Nov. 19,
2018) (“ASBCA Op.”).
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2 KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE
ARMY
in . . . abandoned schools, . . . tents, vehicles, the ground,
or any other place soldiers could put a sleeping bag.”
ASBCA Op. at 2. By contract LOGCAP III, KBR would
“provide accommodations and life support services to [the
soldiers] and coalition forces in various locations in
Iraq . . . to rapidly bed down the remainder of [the sol-
diers].” J.A. 291. This “Bed Down Mission” was a priority
Army activity, scheduled to be completed before Christmas
2003, for reasons of both morale and military prepared-
ness. The ASBCA reports that over 18,000 such living
trailers were included, for multiple military locations.
ASBCA Op. at 2.
KBR and subcontractor First Kuwaiti Trading Com-
pany (“FKTC”) designed, furnished, equipped, and brought
to the Kuwait-Iraq border the contracted living trailers.
However, delivery was often delayed due to unavailability
of military force protection for convoys and installation.
KBR paid an equitable adjustment to FKTC for this delay,
but the ASBCA denied reimbursement to KBR, on the
grounds that the government had not breached its obliga-
tion to provide force protection, and also that KBR had em-
ployed an incorrect methodology for calculating the
equitable adjustment.
On KBR’s appeal, my colleagues on this panel, while
correctly rejecting the ASBCA’s reasons for denying com-
pensation as contrary to the contract, nonetheless err in
implementing the correct standard. My colleagues hold
that the correct standard is “reasonableness,” and while
complaining about the absence of evidence and witnesses
and argument on this standard, my colleagues make exten-
sive findings on information that has not been presented,
and decide the issue of reasonableness without participa-
tion of the parties.
Thus the panel majority now finds that our new stand-
ard is not met, and denies all reimbursement. From this
Case: 19-1683 Document: 52 Page: 19 Filed: 09/01/2020
KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE 3
ARMY
flawed procedure and incorrect result, I respectfully dis-
sent.
DISCUSSION
At issue in this appeal is the measure of damages for
government-caused delay in performance of the contract to
provide 2,252 living trailers for installation at Camp Ana-
conda by December 15, 2003, and 1,760 trailers for Camp
Victory with completion extended to January 1, 2004. KBR
and its subcontractors designed, obtained, furnished,
equipped, and trucked the trailers to the Kuwait-Iraq bor-
der. The war was active, and transport along the main sup-
ply route from Kuwait was under attack, as the ASBCA
reported:
Because there was a war on, MSR [Main Supply
Route] Tampa was extremely dangerous. Insur-
gent attacks began in the spring of 2003 and people
were shot and killed. Among those who frequently
lost their lives were KBR affiliate personnel. . . . In
June 2003, the military imposed movement re-
strictions, requiring military control and escorts
into Iraq of all assets, including contractors.
ASBCA Op. at 4–5 (internal citations omitted). The KBR
contract and subcontracts required the government to pro-
vide force protection for delivery and installation of the
trailers:
H-16 Contractor Force Protection
While performing duties [in accordance with] the
terms and conditions of the contract, the Service
Theater Commander will provide force protection
to contractor employees commensurate with that
given to Service/Agency (e.g. Army, Navy, Air
Force, Marine, DLA) civilians in the operations
area unless otherwise stated in each task order.
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4 KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE
ARMY
J.A. 242; see also J.A. 1157 (Subcontract 11, Prime Con-
tract). The ASBCA found that “[b]ecause of the dangerous
conditions in Iraq, and the limitations upon the military’s
resources to escort convoys, trailers backed up at the Ku-
wait/Iraq border waiting for escorts.” ASBCA Op. at 6. De-
spite the priority of the Bed Down Mission, due to delays
in military force protection the delivery of living trailers to
Camp Victory was not completed until May 10, 2004, and
to Camp Anaconda on June 28, 2004.
By its subcontract, FKTC was entitled to an equitable
adjustment if government or KBR delay caused substan-
tially increased cost or time of performance:
§ 3.2.5. If [FKTC’s] performance of the Sublet
Work is delayed by [the government or KBR’s] fail-
ure to perform their obligations hereunder, or by
orders of [KBR] delaying or suspending the work,
[FKTC] shall be entitled to an equitable adjust-
ment in the compensation or time of performance,
or both, if the delay substantially increases the cost
to [FKTC] of the Sublet Work or the time that
[FKTC’s] equipment and forces are required at the
site.
J.A. 1162 (LOGCAP III); see also J.A. 1176–77 (Subcon-
tract 11, Special Provisions, §§ 4.2, 4.4).
The ASBCA acknowledged that “Under the subcon-
tract, KBR was responsible for paying an ‘equitable adjust-
ment’ to FKTC in the event of a government performance
failure causing delay.” ASBCA Op. at 16. KBR and FKTC
negotiated this adjustment, and KBR paid the negotiated
amount. However, the ASBCA refused to reimburse KBR
for this payment, or any portion thereof. That is the subject
of this appeal.
A
It is not disputed that five to eight months of delays in
delivery occurred due to the unavailability of force
Case: 19-1683 Document: 52 Page: 21 Filed: 09/01/2020
KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE 5
ARMY
protection, and that trailers “piled up” at the Kuwait-Iraq
border. It is not disputed that heavy costs were incurred:
costs of storage, handling, maintenance, repairs, person-
nel, and vandalism. KBR and FKTC agreed to the adjust-
ment methodology of a fixed sum of $300 per delay day per
trailer. The ASBCA disapproved of this methodology as
not in conformity with the Federal Acquisition Regulation
(“FAR”), and held that none of the equitable adjustment
would be reimbursed.
I agree with my colleagues that the ASBCA applied an
incorrect standard for measuring delay damages. As the
majority reports, at the oral argument of this appeal the
government conceded that “there is no provision in the
prime contract that required KBR to submit the actual
costs incurred by its subcontractor.” Maj. Op. at 8. Thus I
agree that the ASBCA’s decision must be vacated.
I also agree that the correct standard is “reasonable-
ness.” However, my colleagues do not remand for applica-
tion by the ASBCA of this standard; they do not discuss
whether the methodology used by KBR was reasonable, alt-
hough this aspect was the subject of testimony at the
ASBCA; and they do not consider whether any of the costs
of delay were reasonable in the circumstances that existed.
Instead, my colleagues extract isolated costs from un-
briefed documents, and rule, with no briefing and no argu-
ment, that reasonableness was not shown.
Although KBR requested remand to the ASBCA if this
court agrees that the ASBCA’s decision should be reversed,
remand is not provided. KBR has no opportunity to meet
this court’s new standard. Instead, my colleagues scavenge
among assorted materials that were provided in other con-
texts, and complain about the absence of evidence and ex-
pert testimony related to the court’s new standard.
B
The ASBCA also held that “nothing in Change 5 re-
quired the government to place FKTC’s trailers into
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6 KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE
ARMY
convoys without delay.” ASBCA Op. at 15. The govern-
ment argues that FKTC “assumed the risk” of delay, and
that the government had not breached its contractual obli-
gation to provide force protection. That is incorrect, and in
a related case concerning the same contract, the ASBCA
held that the government’s failure to provide force protec-
tion was indeed a breach of contract.
In companion litigation on the same contract require-
ment, the ASBCA found that the government breached its
contract obligation, when the Army “did not have sufficient
resources to provide . . . protection to KBR[ ].” Kellogg
Brown & Root Servs., Inc., ASBCA No. 56358, 17-1 BCA ¶
36,779,
2017 WL 2676674 (June 8, 2017).
The Federal Circuit affirmed that the contract was
breached by the Army’s insufficiency “to provide military
escorts for its contractors and several KBR employees and
subcontractors were killed in the attacks,” stating that the
breach “eviscerated the promise at the heart” of the con-
tract. Sec’y of the Army v. Kellogg Brown & Root Servs.,
Inc., 779 F. Appx 716, 717, 719 (Fed. Cir. 2019).
That final decision estops the government’s present ar-
gument that the failure to provide force protection did not
breach the contract. My colleagues state that they do not
reach the question of breach, but they nonetheless appear
to give weight to the government’s argument that it was
the war, not the government, that caused the Army’s de-
lays in providing force security. The government states
that the delays were due to “efforts to militarily secure the
country, discovery of explosives on the roads, and other rea-
sons that inevitably occur while performing such opera-
tions over the extended distances in a warzone,” Govt. Br.
19 (internal quotation marks omitted).
The panel majority agrees that “factors outside of the
government’s control” contributed to the delays, and ap-
pears to deem such factors to weigh on the side of withhold-
ing the contract-mandated adjustment for delays in
delivery and installation of the living trailers. Maj. Op. at
Case: 19-1683 Document: 52 Page: 23 Filed: 09/01/2020
KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE 7
ARMY
11. However, an equitable adjustment is required by con-
tract, and reinforced by the breach.
C
The issue before the ASBCA was the reasonableness of
the methodology used to measure the equitable adjustment
that KBR paid. The ASBCA held that the FAR requires
actual costs and payments, and rejected the KBR method-
ology of negotiating a daily lump sum.
KBR summarized that costs arose from the delay-re-
quired storage, maintenance, handling, and repairs of
trailers and trucks, as well as personnel costs and site
preparation and installation. KBR argued to the ASBCA
that its methodology was reasonable. Although my col-
leagues reject the ASBCA’s requirement of detailed cost
and payment records, my colleagues criticize the pieces of
cost data that they can scour from various documents, and
summarily deny all recovery. The court complains about
the absence of evidence and expert testimony 2—although
the court does not remand for evidence and expert testi-
mony.
The court denies KBR the opportunity to demonstrate
reasonableness, and appears to require the same degree of
detail for which the court has reversed the ASBCA. The
court criticizes the absence of detailed evidence, stating
that “KBR only devotes two pages of its brief to defending
the reasonableness of its costs.” Maj. Op. at 9. The court
ignores that KBR’s action in the ASBCA was to support the
methodology by which it settled the equitable adjustment
2 The panel majority complains that “KBR offered no
fact or expert witnesses to support the reasonableness of
its estimated number of idle truck days,” Maj. Op. at 12.
There indeed were expert witnesses, arguing for the rea-
sonableness of the settlement methodology based on a fixed
daily cost and the number of delay-days. KBR Br. 36.
Case: 19-1683 Document: 52 Page: 24 Filed: 09/01/2020
8 KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE
ARMY
owed to FKTC, not to meet this court’s new and undefined
reasonableness standard.
The panel majority concludes that KBR is entitled to
no recovery at all, although there was no hearing, no testi-
mony, no briefing, and no argument on the court’s new
standard—either to clarify this standard, or to provide ev-
idence to which the standard is applied.
Instead, my colleagues cite records not presented for
this purpose, and complain of their inadequacy. The vari-
ous spreadsheets were presented to the ASBCA to support
the argument that the methodology that was used was rea-
sonable. There is no record for whatever standard of rea-
sonableness the court now intends.
For example, in the criticized “two pages” on reasona-
bleness in KBR’s brief, KBR states that “the record at the
ASBCA contained ample evidence upon which it could have
calculated a ‘fair, equitable and reasonable amount’ of com-
pensation” by the jury verdict method. KBR Br. 36. The
majority does not mention KBR’s evidence “including five
delay day models, reports and testimony from multiple ex-
pert witnesses and the [Administrative Contracting Of-
ficer’s] initial, unbridled conclusion that KBR was entitled
to recover at least $25.5 million.”
Id. The Administrative
Contracting Officer had found that the methodology that
was used reflected “commercial procedures” and that “ade-
quate price analysis was provided.” ASBCA Op. at 10 (al-
terations omitted).
Precedent illustrates that when there is question con-
cerning the method of determining compensable costs, this
“[does not] mandate that Delco recover nothing.” Delco El-
ecs. Corp. v. United States,
17 Cl. Ct. 302, 324 (1989), aff’d,
909 F.2d 1495 (Fed. Cir. 1990). The jury verdict method
has served to determine an “appropriate amount for a rea-
sonable recovery” that is a fair approximation of damages
“in light of all the facts.”
Id. at 323–24. In Delco this
method was invoked to determine damages in the absence
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KELLOGG BROWN & ROOT SERVICES v. SECRETARY OF THE 9
ARMY
of adequate cost and pricing data—the issue on which my
colleagues now focus.
KBR has requested remand, to provide the opportunity
to establish “fair, equitable, and reasonable” compensation.
At issue is not only the resolution of this case; at issue is
the public’s confidence in fair, equitable, and reasonable
government dealings with those who are willing to provide
their expertise and resources to the nation.
I respectfully dissent.
