               ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                )
                                            )
Laguna Construction Company, Inc.           )      ASBCA No. 58324
                                            )
Under Contract No. FA8903-04-D-8690         )

APPEARANCE FOR THE APPELLANT:                      Carolyn Callaway, Esq.
                                                    Carolyn Callaway, P.C.
                                                    Albuquerque, NM

APPEARANCES FOR THE GOVERNMENT:                    E. Michael Chiaparas, Esq.
                                                    DCMA Chief Trial Attorney
                                                   Gregory T. Allen, Esq.
                                                    Trial Attorney
                                                    Defense Contract Management Agency
                                                    Chantilly, VA

               OPINION BY ADMINISTRATIVE JUDGE DELMAN ON
                  CROSS-MOTIONS FOR SUMMARY JUDGMENT

        Laguna Construction Company, Inc. (Laguna, LCC or appellant) has filed a
motion for summary judgment in ASBCA Nos. 57977 and 58324. The government has
filed in opposition to this motion, and has also filed a cross-motion for summary
judgment limited to ASBCA No. 58324. We address the motions under ASBCA
No. 58324 herein. Appellant's motion under ASBCA No. 57977 will be addressed
separately. We have jurisdiction under the Contract Disputes Act of 1978 (CDA),
41 u.s.c. §§ 7101-7109.

        STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTIONS

       1. The Air Force Center for Environmental Excellence (AFCEE or government)
awarded to appellant Contract No. FA8903-04-D-8690, one of twenty-seven contracts for
Worldwide Environmental Remediation and Construction (WERC) in November 2003
(R4, tab 1 at 1-34).

       2. Under this contract, LCC received 16 cost-reimbursable task orders (TOs) from
the government to perform work in Iraq (compl. i! 14). Concurrent with the issuance of
these TOs, the United States was engaged in contingency operations in Iraq as defined by
FAR 2.101.
      3. The contract contained FAR 52.215-2, AUDIT AND RECORDS-NEGOTIATION
(JUN 1999); FAR 52.216-7, ALLOWABLE COST AND PAYMENT (DEC 2002)-ALTERNATE 1
(FEB 1997); FAR 52.233-1, DISPUTES (JUL 2002)-ALTERNATE 1(DEC1991);
FAR 52.244-2, SUBCONTRACTS (AUG 1998); and FAR 52.244-5, COMPETITION IN
SUBCONTRACTING (DEC 1996) (R4, tab 1 at 25-29).

       Relevant TOs and Subcontracts

        4. TO 0002 was awarded to LCC on 26 March 2004, with an estimated
cost-plus-fixed-fee of $19,511,325 to renovate and construct the Ministry of Defense
headquarters complex located in Baghdad, Iraq (compl., 253; R4, tabs 2, 50). LCC
awarded Subcontract 2004-007-SUB4, dated 13 October 2004, to Tigris River Company
(Tigris) for labor services and supplies for the Ministry of Defense project with a
not-to-exceed price of $250,000. LCC issued ten change orders to the subcontract
totaling $616,087. (Compl. ,, 214-16, 294-95)

        5. The government awarded TO 0006, dated 25 June 2004, to LCC for Phase II
construction of An Numaniyah Military Base and to construct a bridge. The total amount
of the TO was $40,843,175. (Compl., 391) Under this TO appellant awarded
Subcontract 2004-015-SUB14 to Yacoub & Ramzi Snobar (Snobar) on 6 December 2004
in the amount of $1,860,000. Three change orders were issued to the subcontract in the
total amount of$2,455,175. (Supp. R4, tab 83)

       6. The government awarded TO 0012 to LCC on 21April2005 with an estimated
cost-plus-fixed-fee of $8,589,474, to provide planning and phased construction services
at Phoenix Base, Iraq (R4, tab 6). LCC awarded Subcontract 2005-009012-SUBl1,
dated 15 May 2006, to Mercury Development Company (Mercury Development) for
constructing an office building and convoy area at Phoenix Base at the fixed-price of
$454,600. LCC issued four change orders to the subcontract totaling $379,885.
(Compl. ,, 492-93)

        7. LCC awarded a number of subcontracts to the New Millennium Company
(New Millennium) under TO 0012. LCC awarded Subcontract 2005-009 012-SUBOl,
dated 11 March 2005, to New Millennium for Convoy Area Upgrades - Phoenix Base at
the not-to-exceed total of $478,800. LCC issued ten change orders to this subcontract
totaling $2,315,147. (Compl. ,, 429-30) LCC awarded Subcontract 2005-009
012-SUB05, dated 12 May 2005, to New Millennium for the Base Gym Project - Phoenix
Base at a fixed-price of $587,350. LCC issued one change order to the subcontract totaling
$650. (Compl. ,, 461-62) LCC awarded Subcontract 2005-009 012-SUB06, dated
19 May 2005, to New Millennium for Guest Quarters at Black Hawk-Phoenix Base at the
fixed-price of $1,267,000. LCC issued four change orders to the subcontract totaling
$253,972. (Compl. ,, 466-67) LCC awarded Subcontract 2005-009 012-SUB07, dated
30 May 2005, to New Millennium, for Base Power Generation - Phoenix Base at the


                                          2
fixed-price of$1,476,000. LCC issued two change orders to the subcontract totaling
$719,655. (Compl. iiii 472-73) LCC awarded Subcontract 2005-009 012-SUB08, dated
30 May 2005, to New Millennium for renovations to the Iraqi Armed Forces Staff College
at the fixed-price of $933,690. LCC issued seven change orders to the subcontract
totaling $2,007,370. (Compl. iiii 477-78) LCC awarded Subcontract 2005-009 012-SUB09
dated 15 August 2005, to New Millennium for building of New DFAC at the fixed-price of
$1,841,000. LCC issued nine change orders to the subcontract totaling $958,144.
(Compl. iiii 484-85)

       8. The government awarded TO 0014 to LCC on 10 June 2005 in the amount of
$20,555,941 to construct two Iraqi Police Commando Facilities, Commando Sites 4 and 6,
at the Ministry of Defense Headquarters, Baghdad, Iraq (supp. R4, tab 58). LCC awarded
Subcontract 2005-010 014-SUBOl, dated 28 May 2005, to Hozan General Construction
Company for "Commando Site 4 (Site Work, Renovation Buildings, Brigade Building and
Dinning [sic] Hall)" in the total amount of $8,950,710. LCC issued thirteen change orders
under this subcontract in the total amount of$8,609,400. (Compl. iiii 508, 511) LCC
awarded Subcontract 2005-001 014-SUB04, dated 24 May 2006, to Tigris to "Add T-Wall
Separation for Detention Facility, Baghdad, Iraq" in the amount of $129,000. LCC issued
three change orders under this subcontract in the total amount of $519,290.
(Compl. iiii 593-94)

       9. The government awarded TO 0015 to LCC on 12 July 2005 at an estimated
cost-plus-fixed-fee of $17, 777 ,545 to construct the Baghdad Police College, consisting of
two classroom buildings, two barracks, an officers' club and the construction of an
improvised explosive device (IED) training course (comp I. ii 615). LCC awarded
Subcontract 2005-017 015-SUB07, dated 29 March 2007, to Aridh Al-Sahil Company
LTD (Aridh) for water supply work at the Baghdad Police College in the amount of
$920,000. LCC issued a number of change orders to Aridh under this subcontract.
(Compl. iiii 721-40) LCC issued Subcontract 2005-017 015-SUB03 to New Millennium
on 16 August 2005 for construction of two classroom buildings for the fixed-price of
$4,023, 762 (comp I. ii 619).

       10. The government awarded TO 0020 to LCC on 21December2005 for
construction and initial provisioning of a station defense training facility and an IED
course/track at various locations in Iraq for the total estimated cost-plus-fixed-fee of
$11,972,902 (supp. R4, tab 65; compl. ii 793). LCC awarded a subcontract, dated
16 December 2005, to Snobar in the amount of $3,690,000 for IED Training and Station
Defense Training Facilities, Mosul, Iraq (comp I. ii 796).

Kickbacks

        11. In or around January 2008, the government initiated an investigation into
allegations that LCC employees solicited and received kickbacks from subcontractors on


                                           3
its Iraq projects. Appellant's project manager, who later became construction manager
and ultimately area manager, was interviewed by the Federal Bureau of Investigation
(FBI) and Defense Criminal Investigative Service (DCIS). The results of interviews were
summarized in a letter from the Special Agent in Charge, FBI Albuquerque Division, to
Joseph S. Satagaj, Jr., Associate Counsel, Defense Contract Management Agency
(DCMA), Contract Integrity Center- Dallas, dated 6 October 2010. According to the
investigation, LCC's manager provided as follows:

              He advised Special Agents that he was first employed by
              LCC as a Project Manager in March 2005, then as a
              Construction Manager, then subsequently as the Area
              Manager for LCC until December 2007. During the
              interviews he admitted receiving kickbacks as an LCC
              employee and as a result of LCC subcontract awards, from a
              number of subcontractors in Iraq ....



                      The kickbacks paid by employees of these
              companies totaled over $450,000 and were paid by these
              subcontractors in order to facilitate both the awarding of
              contracts as well as the timely payment of invoices. In at
              least two cases, the kickback was paid by the owner of the
              company. [The] owner of Mercury Development, paid
              [him] $100,000 in order to facilitate Mercury Development
              getting subcontract work. [The] owner of Aridh Al-Sahil
              Company Ltd paid [him] $150,000 in order to facilitate
              Aridh Al-Sahil Company Ltd getting subcontract work as
              well as for getting invoices paid in a timely manner. [He]
              admitted specifically to receiving a kickback for the paving
              work Aridh Al-Sahil performed on the Baghdad Police
              College contract as well as from Hozan General
              Construction Company Ltd. for work performed at the
              Ministry of Defense, Commando Site 4.

(Supp. R4, tab 87 at 1157-58) According to the FBI letter, he also identified a number
of the TOs during the time he received kickbacks, including TOs 0012, 0014 and
0015 (id. at 1158).

       12. On 13 May 2010, the United States Attorney for the District of New
Mexico filed a criminal information against this project manager. The information
alleged that he conspired "[f]rom at least as early as April 2005, until in or about



                                           4
March 2008," to violate 41 U.S.C. § 53, 1 the Anti-Kickback Act, "by knowingly and
willfully soliciting, accepting, and attempting to accept one or more kickbacks,
specifically: money, payments, and commissions, in connection with [Laguna's]
award of subcontracts relating to prime contracts awarded by the United States to
[Laguna] .... " (Supp. R4, tab 84 at 1132)

       13. On 1 October 2010, this project manager pied guilty to Count One of the
13 May 2010 criminal information. That count charged him with "[c]onspiracy to pay
or receive kickbacks, in violation of 18 U.S.C. § 371 and 41 U.S.C. § 53." (Supp. R4,
tabs 86, 89)

         14. As a part of his guilty plea agreement, he acknowledged as follows:

                       From at least as early as April 2005, until
                December 3, 2007, I was employed by [LCC], a New
                Mexico-based company, and was assigned to its office in
                Baghdad, Iraq. LCC was a prime contractor providing
                contracting services to the United States. Projects in Iraq
                on which LCC served as prime contractor included, but
                were not limited to: construction, restoration, and
                renovation projects involving the Multi-National Security
                Transition Command-Iraq (MNSTC-1) Phoenix Base; the
                Iraq Ministry of Defense; the Baghdad Police College;
                Civilian Police Assistance Training Team (CPATT);
                Medical Aid Stations; the Independent Electoral
                Commission Building; the International Zone Fire Station
                and the International Zone Sanitary Sewer System, located
                in Baghdad; the An Numaniyah Military Base and the An
                Numaniyah Military Training Base West Pods, located in
                An Numaniyah; and the Charlie Forward Operating Base
                (CFOB), located in AI Hillah. These projects were under
                the authority of the Air Force Center for Engineering and
                the Environment (AFCEE) ....

                       LCC hired numerous subcontractors to complete the
                work on these projects. Under the terms ofLCC's
                cost-plus contracts with DOD, LCC would submit its
                subcontractors' invoices to DOD, which subsequently
                would reimburse LCC for the amounts of the invoices plus


1
    41 U.S.C. § 53 was subsequently re-codified as 41 U.S.C. § 8702, effective 4 January
         2011.

                                             5
              a percentage. LCC, in tum, would reimburse its
              subcontractors for the amounts specified in their invoices.

                     From April 2005 until March 2008, I agreed with
              others to accept kickbacks from LCC subcontractors,
              specifically: money payments for the purpose of
              improperly facilitating the award of LCC subcontracts and
              favorably rating the performance of subcontractors ....
              In order to make contract funds available for kickbacks,
              I would cause subcontractors to submit inflated invoices to
              LCC for presentment to the government, but to agree to
              accept lesser amounts than those specified in their
              subcontractor invoices so that contract funds were
              available to pay me kickbacks. Through this practice, I
              caused the subcontracts paid by the United States
              Government to be inflated by the amounts I would receive
              as kickbacks. I am aware that I caused LCC to submit
              kickback-inflated billings from its corporate headquarters
              in New Mexico to AFCEE in Texas causing an over-billing
              to the United States Government, namely, DOD, of
              $847,904.00.

(Supp. R4, tab 86 at 1149-50)

        15. On 28 February 2012, a federal grand jury in the United States District
Court for the District of New Mexico issued Criminal Indictment No. 12-413 MV
(Indictment No. 12-413) against three principal officers ofLCC and four principal
officers of LCC subcontractors on the WERC contract. The LCC officers indicted
were (1) the president ofLCC during LCC's performance of the WERC contract who
was in charge of all ofLCC's construction operations, including those involving
wartime reconstruction efforts in Iraq and Jordan; (2) the executive vice president and
chief operating officer ofLCC for LCC's reconstruction efforts in Iraq (hereafter vice
president for operations); and (3) LCC's contract compliance manager. (Supp. R4, tab
88 at 1161)

       16. The four subcontractor principals indicted by the grand jury were the two
owners of Snobar; the owner of Mercury Development, a Lebanese contractor that
received multiple reconstruction contracts from LCC and who also worked for New
Millennium; and the owner of Tigris (supp. R4, tab 88 at 1162).

       17. Indictment No. 12-413 alleged that Laguna's officers and employees
received kickbacks for awarding construction subcontracts to certain subcontractors on
task orders issued under the WERC contract. It asserted one count of wire fraud


                                           6
conspiracy, seventy-four counts of wire fraud, one count of illegal kickbacks, one
count of money laundering conspiracy, eleven counts of money laundering, and three
counts of income tax evasion. (Supp. R4, tab 88 at 1164-91)

        18. On 2 July 2013, the United States Attorney for the District of New Mexico
filed a criminal information against appellant's vice president for operations. The
information alleged that from in or about December 2004 through on or about
February 2009, he and others conspired to defraud the United States by providing,
soliciting, and accepting kickbacks in return for improperly providing favorable
treatment to certain subcontractors in connection with the award of subcontracts by
LCC to those subcontractors under the WERC contract. It specifically identified
numerous kickback payments to him from Snobar and Mercury Development. Total
kickbacks paid by subcontractors were alleged to be at least $1,687,310. (Supp. R4,
tab 90 at 1204-08)

        19. On 2 July 2013, appellant's vice president for operations pied guilty to
Counts 76 and 91 of the indictment. Count 76 was for solicitation and receipt of
kickbacks, a violation of 41 U.S.C. § 53. Count 91 was for federal income tax evasion,
a violation of 26 U.S. C. § 7201. He also pied guilty to the above information,
conspiracy to provide, solicit, and accept kickbacks, a violation of 18 U.S.C. § 371.
(Supp. R4, tabs 88, 90, 91, 92 at 1210).

        20. In the plea agreement of appellant's vice president for operations, he
admitted that he and others submitted AFCEE proposals under the WERC contract that
included a "competition certification" under which LCC certified "that all
subcontracting will be done using competitive bidding procedures." He identified
several specific proposals under the WERC contract where he and others had made
false statements about using competitive bidding procedures. These were: a 4 January
2005 proposal for the An Numaniyah Base Renovations Project; a 1 March 2005
proposal for the Phoenix Base Upgrade project; a 15 March 2005 proposal for the
Police Service Academy Project; an 18 April 2005 proposal for the Commando
Satellites and Site 4 and Site 6 Project; and a 21 September 2005 proposal for the
Station Defense Training Facility and Improved Explosive Device Course Track
Project. (Supp. R4, tab 91 at 1215)

      21. In the plea agreement, he also admitted that:

             [D]uring and in conjunction with the administration of the
             LCC Iraqi reconstruction prime contracts and subcontracts,
             I accepted numerous kickbacks from defendants .. .in return
             for giving them favorable treatment in connection with the
             awards of subcontracts under the WERC and HERC. I also
             have personal knowledge of [Laguna's president]'s


                                          7
               acceptance of numerous kickbacks.... These
               subcontractors were willing to pay us kickbacks because
               we circumvented the fair, open, and competitive bidding
               process required by the FAR and LCC' s policies and
               procedures, and instead directed subcontracts to these
               favored subcontractors .

                      ... To ensure that these subcontractors received
               favored treatment in the award of the various HERC and
               WERC subcontractors, [Laguna's president] and I
               subverted the bidding process ....



                      .. .I improperly manipulated the contracting process
               in order to ensure that the subcontractors who paid us
               kickbacks were awarded subcontracts. [Laguna's
               president] knew that I was not following the open, fair, and
               competitive bidding practices required by the FAR.
               Through this process [we] circumvented the competitive
               bidding process required by the FAR and LCC's own
               policies and procedures, and I was able to direct
               subcontracts to companies that were willing to pay us
               kickbacks.

(Supp. R4, tab 91 at 1219-20)

LCC' s Claim and Appeal

       22. In February 2009, the Defense Contract Audit Agency (DCAA) began an
audit ofLCC's incurred costs for its fiscal year (FY) 2006 (compl. if 32). On
17 March 2011, DCAA issued Forms 1, Nos. 2011-002 through 2011-005
disapproving a total of$17,459,674 of subcontract costs (R4, tabs 26-29). On
4 August 2011, DCAA revised the Forms 1, redesignated them as Nos. 201 l-002(a)
through 2011-005(a), and disapproved a total of $17,823,506 of subcontract costs
(R4, tabs 32-35). 2

       23. On 6 April 2012, DCAA rejected 14 LCC vouchers totaling $3,031,925 on
TOs 0002, 0005, 0010, OOll, 0012, 0014, 0015, 0017, 0018, 0020, and 0022 based on
the revised Forms 1 above (R4, tab 40 at 290; supp. R4, tab 82).

2
    For reasons discussed herein, we need not address DCAA's methodology and
         computation of the disapproved costs.

                                            8
       24. On 21 May 2012, LCC submitted a "Certified Claim under Contract
No. FA890304D8690, Task Orders 002, 0005, 0010, 0011, 0012, 0014, 0015, 0017,
0018, 0020, 0022" on behalf of LCC to the Administrative Contracting Officer (ACO).
That claim requested a decision, inter alia, "authorizing payment to Laguna of the
improperly withheld sum certain of $2,87 4,081." (R4, tab 40 at 283-84)

       25. The ACO did not issue a decision. On 18 September 2012, LCC submitted
a notice of appeal to the Board based upon the deemed denial of its claim. The Board
docketed the appeal as ASBCA No. 58324.

Pleadings and the Affirmative Defense

       26. Appellant's complaint was filed on or about 26 October 2012, and the
government's answer was filed on or about 2 January 2013. After Laguna's vice
president for operations pied guilty in July 2013, the government moved to amend its
answer to include the Affirmative Defense of fraud, as follows:

                    The Fraud By LCC Officers and Employees



             The Government is not liable for LCC's claim ... because of
             LCC's breach of Contract No. FA8903-04-D-8690 when
             its principal officers and employees solicited and accepted
             kickbacks for awarding subcontracts under task orders
             issued under that contract, which constituted fraud against
             the United States.

Appellant objected to the government's motion. The Board granted the government's
motion to amend its answer. Laguna Construction Company, ASBCA No. 58324,
13 BCA if 35,464.

                                     DECISION
Motion to Strike Documents

      Appellant moves to strike the following documents and the portions of the
government's cross motion that address them. These documents were attached to the
government's motion and were tendered as part of the government's Rule 4 file
supplement:




                                          9
              Tab 84: Criminal Information for Ismael Salinas, a.k.a.
              Mike Salinas, Criminal No. 10-1383, United States District
              Court for the District of New Mexico, dated 13 May 2010.

             Tab 85: Complaint for Forfeiture In Rem, United States
             v. 11510 Anaheim Ave. NE, Albuquerque, NM 87122 and
             Bradley Christiansen and Sara Christiansen, claimants,
             Civil No. 10-647, United States District Court for the
             District of New Mexico, filed 9 July 2010.

             Tab 86: Plea Agreement for Ismael Salinas, a.k.a.
             Mike Salinas, to plead guilty to conspiracy to pay or
             receive kickbacks, Criminal No. H-10-438, United States
             District Court for the Southern District of Texas, dated
             1 October 2010.

             Tab 87: Letter from Federal Bureau of Investigation,
             Albuquerque Division, to Joseph S. Satagaj, Jr., DCMA
             Contract Integrity Center, concerning illegal kickbacks
             from subcontractors to employees of Laguna Construction
             Company, Inc., dated 6 October 2010.

             Tab 88: Criminal Indictment for Neal Kasper,
             Bradley G. Christiansen, Sara Christiansen, Tiffany White,
             Ramzi Snobar, Yacoub Snobar, Mustapha Ahmad, and
             Ali-Ardhi, Criminal No. 12-413, United States District
             Court for the District of New Mexico, dated 28 February
             2012.

             Tab 90: Criminal Information for Bradley G.
             Christiansen, Criminal No. 12-413 MV, United States
             District Court for the District of New Mexico, dated 2 July
             2013.

             Tab 91: Plea Agreement for Bradley G. Christiansen,
             Criminal No. 12-413 MV, United States District Court for
             the District of New Mexico, dated 2 July 2013.


       The government has withdrawn tab 85 (gov't opp'n to mot. to strike at 2). We
address the remaining documents below.




                                         10
The Indictment and the Criminal Informations (Supp. R4, tabs 84, 88, 90)

        Laguna objects to the admission of these documents for the truth of the matter
stated therein on the ground of hearsay, but does not object to their admission "for the
limited purpose of showing they were issued, the criminal charges included therein,
and the persons charged" (app. reply to gov't opp'n to strike at 2). Indeed, the
government cannot reasonably tender these documents for more; these documents
provide only charges or allegations and, perforce, they are not admissible for the truth
of the matter asserted therein.

      These documents are not stricken, but they are admitted solely for the limited
purposes stated above.

The Plea Agreements (Supp. R4, tabs 86, 91)

       Appellant's chief contention is that the plea agreements are inadmissible for the
truth of the matter stated on the ground of hearsay under the Federal Rules of Evidence
(FED. R. Evm.) as applied in the federal courts. The short answer to this is that the
ASBCA is an administrative agency board that is not bound by the FED. R. Evm. as
applied in the federal courts. Rather, we are bound to follow our own published Rules,
which insofar as pertinent, permit the admission of evidence in Board proceedings
"under the Federal Rules of Evidence or in the sound discretion of the presiding
Administrative Judge or examiner." Rule lO(c). 3 This sound discretion includes the
acceptance of hearsay under appropriate circumstances. C.F. Electronics, Inc.,
ASBCA No. 43212, 95-2 BCA if 27,719 at 138,136; see E.R. McKee v. United States,
205 Ct. Cl. 303, 310 (1974) ("In an administrative [Interior Board of Contract
Appeals] hearing 'rank hearsay' not only is admissible, depending on the applicable
regulations, if any, but can constitute substantial evidence if sufficiently convincing to
a reasonable mind.").

        We find sufficient indicia of trustworthiness in this evidence under the
circumstances. The admissions of illegal activity cited in these documents were made
by the putative defendants under oath and with the advice of counsel, and subjected
them to significant criminal penalties. Indeed, appellant does not offer any affidavit,
or cite to any other evidence of record disputing the accuracy of these plea agreement
admissions. Rather, appellant asserts that these admissions are redundant, immaterial
or irrelevant to the appeals. We do not agree. The admissions in the plea agreements
provide context to the guilty pleas, and in accordance with the government's
affirmative defense, help explain and support how Laguna breached the contract (see

3
    Effective 21 July 2014, the Board's Rules were revised and renumbered. Fed. Reg.,
        vol. 79, No. 139 (July 21, 2014). See ASBCA website, www.asbca.mil. We cite
        to the revised Rule here.

                                           11
infra). The Board admits these plea agreements into evidence for the truth of the
matter stated, and appellant's motion to strike them is denied.

FBI Letter of Investigation to DCMA (Supp. R4, tab 87)

        Appellant objects, on the grounds of hearsay, to the FBI letter to DCMA dated
6 October 2010, which sets forth the FBI's findings regarding its investigation. Unlike
the plea agreements, this document does not contain any signed, sworn statement of
the accused. Rather, it contains government summaries of what was purportedly stated
by the accused during various interviews. On the other hand, the excerpts from the
letter cited by the government (gov't mot. at 14-16), a portion of which we have cited
herein (SOF ~ 11), relate to the accused's receipt of kickbacks under the contract. This
information is generally corroborated by his guilty plea and plea agreement. We also
note that appellant does not offer any evidence disputing the accuracy of this evidence.
We believe that these excerpts cited by the government contain sufficient elements of
trustworthiness so as to be admissible for the truth of the matter asserted, and
appellant's motion to strike these excerpts is denied.

       However, this FBI letter also contains matters of questionable relevance to this
appeal, including the subject's purported encounter with Customs and Border
Protection officers and a claimed consensual search of a residence. We decline to
admit this material due to lack of relevance.

     In conclusion, except as otherwise stated herein, appellant's motion to strike
documents is denied.

The Cross-Motions for Summary Judgment

       A party is entitled to summary judgment if it can show that there are no
disputes of material fact and it is entitled to judgment as a matter of law. Mingus
Constructors, Inc. v. United States, 812 F.2d 1387, 1390 (Fed. Cir. 1987). We believe
there are no disputes of material fact here, and that the appeal is amenable to summary
judgment.

       It is undisputed that in April 2012, the DCAA rejected, and the government
declined to pay 14 LCC invoices under various TOs under this contract, based upon
the DCAA's findings and calculations under the Forms 1 as revised (SOF ~ 23).
Appellant contends that the government's disapprovals, by nature and amount, were
unsupported and the government breached the contract due to its failure to pay the
invoices. Assuming, arguendo, that appellant is correct, nevertheless it is not entitled
to recover for reasons stated below.




                                           12
       In Christopher Village, L.P. v. United States, 360 F.3d 1319, 1334
(Fed. Cir. 2004), the Court summarized the well settled principle of antecedent breach:

                       When a "party to a contract.. .is sued for its breach
               [it] may ordinarily defend on the ground that there existed,
               at the time [of the breach], a legal excuse for
              nonperformance .... " In resolving disputes among parties
              who each claim that the other has breached, courts will
              "[o]ften.. .impose liability on the party that committed the
              first material breach." [Citation omitted]

       We conclude below that appellant committed the first material breach under this
contract, which provided the government with a legal excuse for not paying appellant's
mv01ces.

        Every contract contains a convenant between the parties to perform in good
faith and fair dealing. A failure to fulfill this duty is a breach of contract. Metcalf
Construction Co. v. United States, 742 F.3d 984, 990 (Fed. Cir. 2014). We believe an
essential element of this convenant is the duty of each party to perform with integrity.
A breach of such a duty is not only a breach of contract but a betrayal of trust, and
vitiates the reasonable and justifiable expectation of the parties in the performance of
that contract.

        Under the cost-reimbursable TOs of this contract, appellant's officials pled
guilty to taking kickbacks, causing appellant's vouchers to the government to be
inflated to cover the payment of these kickbacks during the course of contract
performance. We must first determine whether this criminal conduct may be imputed
to Laguna.

        The aforementioned criminal acts were performed by appellant's project
manager and by its vice president of operations, both of whom were operating under
this contract and within the scope of their employment. This supports the imputation
of their actions to Laguna. See Kellogg Brown & Root Services, Inc. v. United States,
728 F.3d 1348, 1370 n.25 (Fed. Cir. 2013); see also United States v. Acme Process
Equipment Co., 385 U.S. 138, 147 (1966) ("Since Acme selected those agents to carry
on its business in obtaining and performing government contracts, there is no obvious
reason why their conduct in that field should not be considered as Acme's conduct,
particularly where it touches the all-important subject of kickbacks.").

      Accordingly, we conclude that Laguna breached its duty under this contract to
perform in good faith and fair dealing. In addition, insofar as Laguna's vouchers to the
government were improperly inflated to include the payment of kickbacks, its



                                            13
vouchers also did not reflect allowable and reimbursable performance costs, which was
a breach of the Allowable Cost and Payment clause in the contract (SOF ~ 3).

       Next, we address whether these breaches were material. Kickbacks are
fraudulent and "any degree of fraud is material as a matter of law." Christopher Village,
360 F.3d at 1335. That the government has not proven that kickbacks were paid under
every TO or under every voucher does not render the fraud any less material. See
Joseph Morton Co. v. United States, 757 F.2d 1273, 1278 (Fed. Cir. 1985) ("balancing
test" between the fraudulent act and the work free of fraud is contrary to precedent).
Appellant's breaches here were material.

                                  CONCLUSION

       We conclude that Laguna materially breached the WERC contract through the
kickbacks taken by its agents and its billings to the government based on amounts
inflated by their kickbacks. We conclude that these criminal acts constituted a first
material breach, and this first material breach excused the government from
subsequently paying appellant's invoices. Accordingly, we grant the government's
cross-motion for summary judgment under ASBCA No. 58324, and deny appellant's
motion for summary judgment.

      ASBCA No. 58324 is denied.

      Dated: 23 September 2014




                                                Administrative Judge
                                                Armed Services Board
                                                of Contract Appeals


I concur



~E~
Administrative Judge
                                                RICHARD SHACKLEFORD
                                                Administrative Judge
Acting Chairman                                 Vice Chairman
Armed Services Board                            Armed Services Board
of Contract Appeals                             of Contract Appeals



                                          14
      I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 58324, Appeal of Laguna
Construction Company, Inc., rendered in conformance with the Board's Charter.

      Dated:



                                               JEFFREY D. GARDIN
                                               Recorder, Armed Services
                                               Board of Contract Appeals




                                         15
