                ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of --                              )
                                           )
Reed International, Inc.                   )        ASBCA Nos. 61451, 61452, 61453
                                           )
Under Contract No. H92237-10-C-0548 et al. )

APPEARANCES FOR THE APPELLANT:                      Armani Vadiee, Esq.
                                                    Todd M. Garland, Esq.
                                                     Smith Pachter McWhorter PLC
                                                     Tysons Corner, VA

APPEARANCES FOR THE GOVERNMENT:                     Jeffrey P. Hildebrant, Esq.
                                                     Air Force Deputy Chief Trial Attorney
                                                    Phillip E. Reiman, Esq.
                                                    Colby L. Sullins, Esq.
                                                     Trial Attorneys

                OPINION BY ADMINISTRATIVE JUDGE WOODROW

        This case concerns the application of Federal Acquisition Regulation (FAR)
52.229-6, TAXES – FOREIGN FIXED-PRICE CONTRACTS (June 2003), to a series
of contracts to provide private security services to military bases in Afghanistan. Reed
International, Inc. (Reed) appeals the contracting officer’s deemed denial of three
certified claims, totaling $351,180.62, all derived by fees imposed by the Government
of the Islamic Republic of Afghanistan (GIRA) on private security companies (PSC)
operating in Afghanistan with more than 500 employees.

       The parties elected to proceed without an evidentiary hearing, via Board Rule 11,
with each side relying upon the Rule 4 file and its supplements and submitting opening
and reply briefs in accordance with an agreed-upon schedule. For the reasons set forth
below, we conclude that Reed’s claims are time-barred. We deny the appeals.

                                FINDINGS OF FACT

I. Afghan Government Regulation of Private Security Contractors

      1. In February 2008, GIRA issued a directive entitled “Procedure for
Regulating Activities of Private Security Companies in Afghanistan” (PSC
Regulation) (R4, tab 6 at 13).
       2. Article 7 of the PSC Regulation required all PSCs to observe Afghanistan
law, including the PSC Regulation: “A Security Company is obliged to observe the
provisions of the valid laws of the country and this procedure.” (R4, tab 6 at 18)

       3. Article 10 provided: “The number of staff of each Security Company shall
not be more the [sic] 500 people, unless the Council of Ministers agrees an increased
number of staff.” (R4, tab 6 at 19)

       4. Although the PSC Regulation limited the number of PSC personnel at 500,
the regulation did not provide for imposing fees on PSCs operating in Afghanistan that
exceeded the 500 person limit (see generally R4, tab 6).

II. The Private Security Contracts

       5. On May 19, 2010, the Department of Defense, through the Combined Joint
Special Operations Task Force-Afghanistan (CJSOTF-A) Contracting Office
(government), awarded to Reed, Contract No. H92237-10-C-0519 for the provision of
security services for Camp Lawton in Herat, Afghanistan (Lawton Contract) (R4, tab 1).

       6. The Lawton Contract was for a base period of six months. The government
extended Reed’s performance through May 31, 2011. Reed provided a total of
38 personnel on the Lawton Contract during the relevant time (R4, tabs 1-5; compl.
¶ 22).

      7. On June 30, 2010, the government awarded to Reed Contract
No. H92237-10-C-0538 for the provision of security services for Camp Mes in
Mazar E Sharif, Afghanistan (Mes Contract) (R4, tab 7).

       8. The Mes Contract was for a base period of six months. The government
extended Reed’s performance through July 31, 2011. Reed provided a total of
61 personnel on the Mes Contract during the relevant time (R4, tabs 7-11; compl.
¶ 24).

      9. On July 16, 2010, the government awarded to Reed Contract
No. H92237-10 C-0548 for the provision of security services for Forward Base
Thomas in Shindad, Afghanistan (Thomas Contract) (R4, tab 13).

        10. The Thomas Contract was for a base period of six months. The
government extended Reed’s performance through July 31, 2011. Reed provided a
total of 64 personnel on the Thomas Contract during the relevant time (R4, tabs 13-18;
compl. ¶ 26).
                                          2
       11. Each contract incorporated by reference FAR 52.229-6, TAXES –
FOREIGN FIXED-PRICE CONTRACTS (June 2003). The clause provides, in
relevant part: “The contract price shall be increased by the amount of any
after-imposed tax . . . that the Contractor is required to pay or bear.” (R4, tabs 1, 7,
13)

       12. Each contract required Reed to comply with local law (R4, tabs 1, 7, 13).

III. Afghanistan Government Issues Presidential Directive Enforcing PSC Regulation

     13. On March 15, 2011, the GIRA issued Presidential Directive No. 7339
(PD7339) (R4, tab 6 at 113).

      14. PD7339 required that all PSCs operating in Afghanistan pay a fee of
100,000 Afghanis (AFN) for each person over the 500 employee cap and 250,000
AFN for each foreign national working without an Afghan visa (R4, tab 6 at 114).

       15. On March 24, 2011, the GIRA implemented PD7339 by assessing fees for
each individual Reed employed over the 500 person limit (R4, tab 6 at 8, 118-19).
Specifically, GIRA initially assessed a fee for 741 unregistered Afghan citizens and
67 unregistered foreign citizens (R4, tab 6 at 9). GIRA’s initial fine totaled
90,850,000 AFN ($2,018,888) (R4, tab 6 at 9).

       16. On March 26, 2011, Reed personnel met with Brigadier General Margaret
Boor, the United States official in charge of the effort aimed at transitioning
Afghanistan from PSCs to its own Afghan public protection force. General Boor
explained that PSCs had 15 days from receipt of the GIRA’s fee assessment to pay the
fines or appeal the assessment to the GIRA. (R4, tab 6 at 6-7, 118-19)

       17. On April 7, 2011, Reed appealed the assessment to the GIRA (R4, tab 6 at 9).

       18. On May 3, 2011, GIRA responded to Reed’s appeal and reduced the fine to
account for only its 592 unregistered Afghans and 34 unregistered foreign nationals
(R4, tab 6 at 9, 122). However, Reed continued to dispute the fine and the GIRA
issued a final assessment on July 6, 2011 with a final reduction to 62,600,000 AFN
($1,349,138) (R4, tab 6 at 9, 124).

       19. On July 13, 2011, Reed paid this fine (R4, tab 6 at 128).




                                             3
IV. Procedural History

        20. On July 12, 2017, Reed submitted its claims under each contract to the
CJSOTF-A seeking reimbursement for the amounts allocable to each contract (R4,
tabs 6, 12, 19).

      21. Reed claimed $81,892.68 under the Lawton Contract (R4, tab 6 at 4, 11),
$131,406.04 under the Mes Contract (R4, tab 12 at 4, 11), and $137,881.90 under the
Thomas Contract (R4, tab 19 at 4, 11).

       22. To date, the government has not issued any contracting officer final
decisions (COFDs).

       23. Reed appealed to the Board on December 7, 2017, on the basis of deemed
denials.

                                      DECISION

I. Standard of Review

        Board Rule 11 permits parties “to waive a hearing and to submit [their] case
upon the record.” The standards of review and burdens of proof of a motion for
summary judgment and a decision on the merits under Board Rule 11 vary
substantially. DG21, LLC, ASBCA No. 57980, 15 BCA ¶ 36,016 at 175,909 n.1.
Unlike a motion for summary judgment, which must be adjudicated on the basis of a
set of undisputed facts, pursuant to Board Rule 11, the Board “may make findings of
fact on disputed facts.” Grumman Aerospace Corp., ASBCA No. 35185, 92-3 BCA
¶ 25,059 at 124,886 n.13.

II. Whether Reed Presented its Claim Beyond the Six-Year Presentment Period

        A contractor must submit its claim to the contracting officer within six years after
accrual of that claim. 41 U.S.C. § 7103(a)(4)(A); Sikorsky Aircraft Corp. v. United
States, 773 F.3d 1315, 1320 (Fed. Cir. 2014). The failure of a party to submit a contract
claim within the six-year limitations period is an affirmative defense to that claim. Alion
Science & Tech. Corp., ASBCA No. 58992, 15 BCA ¶ 36,168 at 176,488-89.

        In this appeal, the government bears the burden of demonstrating that Reed’s
claim accrued on or before July 12, 2011, six years prior to the date on which Reed
submitted its claims to the contracting officer. The government contends that Reed’s
liability affixed on March 24, 2011, the date on which GIRA assessed its fines. Reed,
in contrast, contends that its claim did not accrue until July 13, 2011, the date on
which it paid the assessment.

                                            4
       A. The Legal Basis for Reed’s Claim

       The question of “whether and when a CDA claim accrued is determined in
accordance with the FAR, the conditions of the contract, and the facts of the
particular case.” Kellogg Brown & Root Servs., Inc. v. Murphy, 823 F.3d 622, 626
(Fed. Cir. 2016). Although the CDA does not define the term “accrual,” the FAR
defines “accrual of a claim” as “the date when all events, that fix the alleged liability
of either the government or the contractor and permit assertion of the claim, were
known or should have been known.” FAR 33.201. To determine when a claim
accrued, and the events that fix the alleged liability, we start by examining the
legal basis for the particular claim. Environmental Safety Consultants, Inc., ASBCA
No. 54615, 07-1 BCA ¶ 33,483 at 165,984; Gray Personnel, Inc., ASBCA No. 54652,
06-02 BCA ¶ 33,378 at 165,475-76; Raytheon Co., Space & Airborne Systems,
ASBCA No. 57801 et al., 13 BCA ¶ 35,319 at 173,376 (“To evaluate when the
claimed liability was fixed, we look to the legal basis of the claim”).

      Our analysis of the legal basis for Reed’s claim begins with FAR 52.229-6,
which is incorporated into each of Reed’s contracts with the government (finding 11).

       FAR 52.229-6 provides:

              (d) The contract price shall be increased by the amount of
              any after-imposed tax or of any tax or duty specifically
              excluded from the contract price by a provision of this
              contract that the Contractor is required to pay or bear,
              including any interest or penalty, if the Contractor states in
              writing that the contract price does not include any
              contingency for such tax and if liability for such tax,
              interest, or penalty was not incurred through the
              Contractor’s fault, negligence, or failure to follow
              instructions of the Contracting Officer or to comply with
              the provisions of paragraph (i) below.

        If we accept Reed’s contention that the GIRA assessment is an “after-imposed
tax,” then Reed’s legal obligation to pay the assessment arises when Reed is “required
to pay or bear” the assessment. Here, there is no dispute that GIRA demanded
payment of the assessment on March 24, 2011. (Finding 15)

       To counter this conclusion, Reed makes two arguments regarding its legal
obligation to pay the GIRA assessment. First, Reed contends that its claim did not
accrue until it actually paid the assessment (app. reply br. at 3-4). According to Reed,
the legal basis for its claims is the obligation to reimburse it for “after-imposed” taxes.

                                             5
Specifically, Reed contends that the government’s contractual obligation to reimburse
Reed only arises after Reed paid the assessment – on July 13, 2011. (App. reply br.
at 3-4)

        In contrast, the government contends that Reed’s legal obligation to pay the
penalty was set on March 24, 2011, when GIRA assessed the penalty. According to
the government, incurred costs are costs for which a party has some sort of legal
liability to make payment. Here, the government asserts that the government’s
liability would attach when “the contractor is required to pay or bear” such a tax.
(Gov’t br. at 5-8)

       Reed relies on Raytheon Co., ASBCA Nos. 57576, 57679, 13 BCA ¶ 35,209 for
the proposition that a claim does not accrue until an actual payment is made (app.
reply br. at 4). Reed stretches the holding in Raytheon too far.

        In Raytheon, the government, as claimant, sought to recover costs it had already
paid to Raytheon. The issue in Raytheon was when the government knew, or should
have known, that it had overpaid. 13 BCA ¶ 35,209 at 172,751. In Raytheon, we held
that the government’s claims to recover costs in fiscal years in which it had already
made overpayments accrued when it audited those costs and determined that they were
unallowable. (Id.) However, with respect to subsequent fiscal years, we held that the
government’s claims were timely, because the government could not have known of
any overpayments in these years “until the advent of these years and until payments
were made under government contracts in those years” (Id. at 172,752) It is logical
that a claim to recover an overpayment cannot accrue until the overpayment has
occurred, because the claimant cannot know it has overpaid until it has made a
payment.

       Here, in contrast, the issue is when Reed knew, or should have known, that it
had an obligation to pay the GIRA assessment. Reed knew it was obligated to pay the
GIRA assessment when it received GIRA’s demand letter on March 24, 2011.

        Once Reed became legally obligated to pay the assessment, the costs were
incurred. The fact that the final amount could change does not matter, nor does the
fact that actual payment had not yet occurred. Gray Personnel, Inc., 06-02 BCA
¶ 33,378 at 165,476; see also McDonnell Douglas Services, Inc., ASBCA No. 56568,
10-1 BCA ¶ 34,325 at 169,528. Indeed, the CDA permits contractors to submit claims
before they have incurred the total costs relating to the claim. Gray Personnel, Inc.,
06-02 BCA ¶ 33,378 at 165,476. This is because the incurrence of costs – and the
tolling of the statute of limitations – occurs when the claimant is legally obligated to
pay. The legal obligation to pay arises when a fee is assessed or a fine is levied, not
when the claimant decides to actually pay the assessment or fine. Id. at 165,476


                                           6
(holding that once a party is on notice that it has a potential claim, the statute of
limitations can start to run).

        Alternatively, Reed contends that the relevant legal obligation is the
government’s contractual obligation to reimburse Reed, and that obligation arises only
after the date Reed paid its fine (July 13, 2011) (app. reply br. at 3). This argument
misses the mark. The relevant point in time is when Reed became aware that it was
obligated to pay, not when the government might conceivably be required to reimburse
Reed for Reed’s payment. The statute of limitations applies to the claimant (here,
Reed), and is necessarily viewed from the perspective of when the claimant knew, or
should have known, of its obligation to pay the fee. KBR v. Murphy, 823 F.3d at 628
(holding that accrual is based on when the claimant could have requested a sum certain
from the government); see also Raytheon Co., Space & Airborne Systems, ASBCA
No. 57801 et al., 13 BCA ¶ 35,319 at 173,376 (holding that a claim accrues when the
claimant knew, or should have known, that some costs have been incurred, even if the
amount is not finalized).

       On March 24, 2011, GIRA assessed a penalty on Reed in the amount of
90,850,000 AFN (finding 15). Therefore, we conclude that the legal obligation to pay
the fine – the final amount of which was yet to be determined – arose when GIRA
assessed the fine on March 24, 2011.

III. Whether Reed’s Appeal of the GIRA Assessment Tolls the Statute of Limitations

        We next examine whether Reed’s appeal of the GIRA assessment tolls the
limitations period. Reed contends that, even if it was “required to pay or bear” the
taxes before payment, its claims did not accrue until after Reed exhausted its appeal
rights. (App. reply br. at 6-7) In particular, Reed contends that, by announcing to the
government that it was “appealing the entire imposed [GIRA] fee,” Reed had not yet
incurred any costs (app. reply br. at 7). We disagree, and hold that appealing the
GIRA fine did not toll the limitations period.

        The Federal Circuit recently held that “the limitations period does not begin to
run if a claim cannot be filed because mandatory pre-claim procedures have not been
completed.” Kellogg Brown & Root Services, Inc. v. Murphy, 823 F.3d 622, 628 (Fed.
Cir. 2016); see also Bay Area Laundry & Dry Cleaning Pension Trust Fund v. Ferbar
Corp. of California, Inc., 522 U.S. 192, 200-01 (1997) (holding under “basic
limitations principles” that the statute of limitations cannot begin until such time as the
claimant is legally eligible to bring the claim).

       In KBR v. Murphy, the Army required KBR to first resolve disputed costs with
its subcontractor before KBR could present a claim for reimbursement of those costs.
The Federal Circuit held that KBR’s claim accrued only after KBR had resolved the

                                             7
disputed costs with its subcontractor and the contractor had received a claim from its
subcontractor. KBR v. Murphy, 823 F.3d at 628.

        This appeal is distinct from KBR v. Murphy in three key ways. First, Reed
seeks reimbursement from fees imposed on it, not those of a subcontractor. Second,
there is no evidence that the Army ever told Reed to defer submitting its claim until
after Reed had resolved its appeal with the GIRA (finding 19). KBR v. Murphy, 823
F.3d at 626-27. Third, Reed possessed the information necessary to present a claim
for a sum certain on March 24, 2011, when Reed received GIRA’s demand letter. In
contrast, as the Federal Circuit points out, KBR did not possess the necessary
information to present a claim for a sum certain until after the critical limitations date.
(Id. at 627)

       In this appeal, we conclude that the process of appealing the fine levied on
Reed was not mandatory, but was rather an optional process Reed elected to undergo
in order to potentially reduce the amount of the fine (finding 19). Therefore, the
appeal process did not toll the statute of limitations.

        Finally, even if we were to conclude that appealing the GIRA fine tolled the
statute of limitations, it would have paused the limitation period only until the appeal
was resolved. The appeal was resolved and Reed received GIRA’s final assessment on
July 6, 2011 (finding 19). That date is seven days outside the six-year limitations
period, which began on July 13, 2011. Therefore, even if we accept Reed’s argument
that its claims did not accrue until after it exercised its appeal rights, we still must
conclude that its claims are time-barred.

      B. Whether Reed Could File a Claim While Simultaneously Appealing the
         Fine

        In an alternative argument, Reed contends, without support, that it could not file
a claim while simultaneously appealing the fine, arguing that to do so would have
“potentially subjected Reed to liability under the False Claims Act, 31 U.S.C. § 3729
et seq.” Reed warns that it “would have been seeking to recover amounts from the
U.S. government while at the same time arguing to the GIRA that those amounts were
not due and owing.” (App. reply br. at 7) We disagree.




                                             8
       FAR 52.229-6(i) expressly requires the contractor to take all reasonable action
to obtain exemption from or refund of any taxes or duties:

              (i) The Contractor shall take all reasonable action to
              obtain exemption from or refund of any taxes or duties,
              including interest or penalty, from which the United States
              Government, the Contractor, any subcontractor, or the
              transactions or property covered by this contract are
              exempt under the laws of the country concerned or its
              political subdivisions or which the governments of the
              United States and of the country concerned have agreed
              shall not be applicable to expenditures in such country by
              or on behalf of the United States.

Pursuant to this provision, Reed had a duty to appeal the fine levied by GIRA, if it
believed in good faith that it had a reasonable basis for challenging the amount of the
assessment.

       In addition, FAR 52.229-6(j) requires the contractor to “promptly notify the
Contracting Officer of all matters relating to taxes or duties that reasonably may be
expected to result in [] an increase . . . in the contract price . . . .” This prompt notice
provision is prospective in nature, in that it requires notice of taxes or duties that “may
be expected” to increase the contract price. Pursuant to this provision, therefore, Reed
had a duty to promptly notify the government as soon as GIRA assessed the penalty on
March 24, 2011. See, e.g., Gazpromneft–Aero Kyrgyzstan LLC v. United States,
132 Fed. Cl. 202 (2017) (holding that contractor’s failure to provide timely notice of
after-imposed taxes barred it from seeking reimbursement).

       Thus, pursuant to FAR 52.229-6, Reed had a duty both to notify the government
of the potential fine and to challenge the amount of the fine. In light of Reed’s
contractual duties, we cannot conclude that filing a claim, while simultaneously
appealing the assessment, would have subjected Reed to liability under the False
Claims Act.




                                             9
                                   CONCLUSION

       For these reasons, we conclude that Reed’s claims under each of its contracts
are time-barred. Accordingly, the appeals are denied.

       Dated: April 16, 2020




                                                  KENNETH D. WOODROW
                                                  Administrative Judge
                                                  Armed Services Board
                                                  of Contract Appeals

 I concur                                         I concur




 RICHARD SHACKLEFORD                              OWEN C. WILSON
 Administrative Judge                             Administrative Judge
 Acting Chairman                                  Vice Chairman
 Armed Services Board                             Armed Services Board
 of Contract Appeals                              of Contract Appeals


      I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA Nos. 61451, 61452, 61453,
Appeals of Reed International, Inc., rendered in conformance with the Board’s
Charter.

       Dated: April 17, 2020


                                                  PAULLA K. GATES-LEWIS
                                                  Recorder, Armed Services
                                                  Board of Contract Appeals


                                          10
