                ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of --                               )
                                           )
Kellogg Brown & Root Services, Inc.         )     ASBCA Nos. 56358, 57151
                                           )                 57327,58559
                                           )
Under Contract No. DAAA09-02-D-0007         )

APPEARANCES FOR THE APPELLANT:                    Jason N. Workmaster, Esq.
                                                  Herbert L. Fenster, Esq.
                                                  Raymond B. Biagini, Esq.
                                                  Daniel L. Russell, Jr., Esq.
                                                  Alejandro L. Sarria, Esq.
                                                  John W. Sorrenti, Esq.
                                                   McKenna Long & Aldridge LLP
                                                   Washington, DC

APPEARANCES FOR THE GOVERNMENT:                   Raymond M. Saunders, Esq.
                                                   Army Chief Trial Attorney
                                                  Stephanie B. Magnell, Esq.
                                                  MAJ Samuel E. Gregory, JA
                                                   Trial Attorneys

                OPINION BY ADMINISTRATIVE JUDGE FREEMAN

       In ASBCA Nos. 56358, 57151and57327, Kellogg Brown & Root Services, Inc.,
(KBRS) appeals the deemed denial of its claims under the Contract Disputes Act of 1978
(CDA), 41 U.S.C. §§ 7101-7109, for funds totaling $44,059,024.49 withheld by the
government from KBRS' invoices under the captioned cost-reimbursement contract
(hereinafter "Contract 0007"). The government's reason for the withholding was that the
funds at issue had been previously paid to KBRS for costs of private security companies
(PSCs) which the government has subsequently alleged were unallowable under the
terms of the contract. In ASBCA No. 58559, KBRS appeals a final decision of the
contracting officer asserting a government claim against KBRS under the CDA for the
allegedly unallowable PSC costs in the total amount of$55,620,591.55. The appeals
were consolidated for hearing. A hearing was held for 24 days, with 24 witnesses and
more than 37,000 pages of documents admitted in evidence. We sustain the appeals in
ASBCA Nos. 56358, 57151and57327 in the total amount claimed plus CDA interest.
We dismiss the appeal in ASBCA No. 58559 for lack of jurisdiction.
                                    FINDINGS OF FACT

       1. We assume familiarity with our decision in Kellogg Brown & Root Services,
Inc., ASBCA No. 56358, 12-1BCA~35,001.

        2. On 14 December 2001, the Army Operations Support Command, Rock Island,
Illinois, awarded Contract 0007 to "BROWN & ROOT SERVICES, DIV OF
KELLOGG, BROWN & ROOT, INC" (R4, 1 tab 1 at 1). After award the contractor
changed its name to Kellogg Brown & Root Services, Inc., and the procuring agency had
several name changes. In this decision, we refer to the contractor at all times as KBRS
and to the procuring agency as "Rock Island."

                      Pertinent Terms and Conditions of Contract 0007
                             and Task Orders Issued Thereunder

       3. Contract 0007 was a cost-plus-award-fee, indefinite quantity, indefinite
delivery contract with a base period of one year and nine one-year option periods
thereafter (R4, tab 1 at 5-26). Contract 0007 was part of the U.S. Army's Logistics Civil
Augmentation Program (LOGCAP) and is also referred to as the LOGCAP III contract.
LOGCAP was a program for civilian contractors to "provide the Army with an additional
means to adequately support the current and programmed force by performing selected
services in wartime and other operations" (id. at 56).

       4. Contract 0007 included among other general provisions, the FAR 52.211-15,
DEFENSE PRIORITY AND ALLOCATION REQUIREMENTS (SEP 1990) clause (hereinafter "the
DPA clause"); and the FAR 52.216-7, ALLOWABLE COST AND PAYMENT (MAR2000)
clause (hereinafter "the Allowable Cost clause") (R4, tab 1 at 3 7).

       5. The DP A clause stated: "This is a rated order certified for national defense use,
and the Contractor shall follow all the requirements of the Defense Priorities and
Allocations Systems regulation ( 15 CFR 700)." The cited regulation stated in pertinent
part:

                § 700.3 Priority ratings and rated orders.

                       (a) Rated orders are identified by a priority
               rating .... Rated orders take preference over all unrated orders
               as necessary to meet delivery dates ....

                      (b) Persons receiving rated orders must give them
               preferential treatment as required by this regulation. This

1
    We cite to the Rule 4 file in ASBCA No. 56358, unless otherwise noted.

                                               2
             means a person must accept and fill a rated order for items
             that the person normally supplies ....

                    (c) All rated orders must be scheduled to the extent
             possible to ensure delivery by the required delivery date.



             § 700. 7 Compliance

                    (a) Compliance with the provisions of this
             regulation .. .is required by the Defense Production Act ....
             Violators are subject to criminal penalties.

      6. The Allowable Cost clause of Contract 0007 stated in pertinent part:

                    (a) Invoicing. The Government shall make payments
             to the Contractor when requested as work progresses .. .in
             amounts determined to be allowable by the Contracting
             Officer in accordance with Subpart 31.2 of the Federal
             Acquisition Regulation (FAR) in effect on the date of this
             contract and the terms of this contract.

        7. FAR 31.201-2, Determining allowability, in effect on 14 December 2001 stated
in pertinent part:

                   (a) The factors to be considered in determining
             whether a cost is allowable include the following:

                    (I) Reasonableness.

                    (2) Allocability.

                    (3) Standards promulgated by the CAS Board, if
             applicable; otherwise, generally accepted accounting
             principles and practices appropriate to the particular
             circumstances.

                    (4) Terms of the contract.

                    (5) Any limitations set forth in this subpart.




                                             3
        8. FAR 31.201-3 Determining reasonableness, in effect on 14 December 2001
stated in pertinent part:

                   (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 ....

                   (b) What is reasonable depends upon a variety of
             considerations and circumstances, including -

                    ( 1) Whether it is the type of cost generally recognized
             as ordinary and necessary for the conduct of the contractor's
             business or the contract performance;

                    (2) Generally accepted sound business practices,
             arm's-length bargaining, and Federal and State laws and
             regulations;

                   (3) The contractor's responsibilities to the
             Government, other customers, the owners of the business,
             employees, and the public at large; and

                    (4) Any significant deviations from the contractor's
             established practices.

      9. Contract 0007 also included a "Section H, Special Contract Requirements -
continued" that stated in pertinent part:

                     Special Provisions for Peacetime Contracts

            This general guidance addresses the deployment of contractor
            personnel into a theater of operations in support of a
            contingency or exercise.

            The general guidance provided by this provision is not
            all-inclusive nor are all items required for all situations. Each
            contingency will evolve differently depending upon theatre
            commander's guidance impacting on the deployment. The
            Contracting Officer may tailor these provisions as appropriate
            for individual task orders.




                                            4
In the event that the contractor deploys individuals into the
area of operations in support of a contingency or exercise, the
following conditions may apply:

H-13 Management

• The contractor shall ensure that all personnel hired by or
  for the contractor will comply with all guidance,
  instructions, and general orders applicable to the U.S.
  Armed Forces and DoD civilians as issued by the Theater
  Commander or his/her representative. This will include
  any and all guidance and instructions issued based upon the
  need to ensure mission accomplishment, force protection,
  and safety, unless directed otherwise in the task order
  sow.
• The contracting officer is the only authorized official who
  shall increase, decrease, or alter the scope of work to be
  performed ....

• The contractor shall comply, and ensure that all deployed
  employees, subcontractors, subcontractors employees,
  invitees and agents comply with pertinent Service and
  Department of Defense directives, policies, and
  procedures, as well as federal statutes, judicial
  interpretations and international agreements .... Host Nation
  laws .... may take precedence over contract requirements.



H-16 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.




                              5
              H-21 Weapons and Training

              •   Whether contractor personnel will be permitted to carry a
                  government furnished weapon for self-defense purposes in
                  the Area of Operations (AO) is at the discretion of the
                  Theater Commander. However, Contractor personnel will
                  not possess personally owned firearms in the AO. The
                  government may at its discretion issue weapons and
                  ammunition (M9 Pistols) for self-defense to the contractor
                  employees ... .If accepted the contractor will maintain a
                  listing of employees possessing a government firearm and
                  provide notification to the Contracting Officer .... Also
                  when accepted, only military issued ammunition may be
                  used in the weapon.

              • Prior to issuing any weapons to contractor employees, the
                government at its discretion may provide the contractor
                employees with weapons familiarization training
                commensurate to training provided to Department of
                Defense civilian employees.

              • The contractor shall ensure that its employees adhere to all
                guidance and orders issued by the Theater Commander or
                his/her representative regarding possession, use, safety,
                and accountability of weapons and ammunition.

              •   Upon redeployment or notification by the government, the
                  contractor shall ensure that all government issued weapons
                  and ammunition are returned to government control.

              •   Contractors will screen employees, and subcontractors, to
                  ensure that employees may be issued a weapon in
                  accordance with U.S. or applicable host nation laws.
                  Evidence of screening will be presented to the contracting
                  officer.

(R4, tab 1 at 96-98, 101-02)

       10. Section 1.3. l of the Contract 0007 Statement of Work (SOW) stated in
pertinent part that: "All work to be performed shall be awarded by individual task
orders" (R4, tab 1 at 56). Section 7.1 of the Contract 0007 SOW stated in pertinent part:




                                             6
              7.1 General. The Contractor is obligated to follow and
              adhere to the Governing directives and applicable documents
              as listed in the contract and the SOW. Supplements or
              amendments to those documents shall be considered to be in
              full force and effect upon receipt by the Contractor, except
              when such document is deemed to cause an increase or
              decrease in the cost of contract performance. In such event,
              the Contractor shall inform the Contracting Officer in writing
              prior to implementation of such supplement or change. If
              applicable, a negotiated change in contract price shall be
              made to the mutual satisfaction of both the Contractor and
              Government prior to implementation of the change.

(R4, tab 1 at 79)

        11. Following the invasion and occupation of Iraq in March 2003, Rock Island
issued a number of task orders under Contract 0007 for logistic and life-support services
for the coalition combat forces at designated sites in Iraq. The life-support services
included, among other things, billeting and food service operations. (R4, tab 3 at 14-49)
Task Order (TO) 59, effective 24 June 2003, with an initial total ceiling price of
$802,065,733 and its successor TO 89 effective 1 May 2005, with an initial total ceiling
price of $4,972,882,216, were the largest cost-plus-award-fee task orders by dollar
amount for these services in Iraq during the years 2003-2006 (R4, tab 3 at 1-2, tab 5 at
1-2).

       12. From September 2004 to May 2010 Mr. James Loehrl, a senior executive at
Rock Island, was responsible for the Contract 0007 task order procurements (tr. 10/7). At
hearing he described the scope of TO 59 as follows:

              Task Order 59 to the best of my recollection encompassed all
              of the support, logistics support, in Iraq minus some of the
              theater transportation mission .... That was under task order 44.

                     Also there was some performance that was specific to
              the State Department in the Green Zone that it didn't cover.
              And there were some task orders in support of... the Intel
              folks that were based at Camp Victory that were on a separate




                                             7
                task order. Basically, all of the baseline support in Iraq minus
                those things is what it covered.

(Tr. 10/57)

        13. Paragraph 1.10 in Change 5 to the TO 59 SOW, effective 27 August 2003,
stated: "Contractor Force Protection. The government will provide for the security of
contractor personnel in convoys and on site, commensurate with the threat, and [in
accordance with] the applicable Theater Anti-Terrorism/Force Protection guidelines."
(R4, tab 3 at 99) Paragraph 1.7 of the TO 89 SOW issued on 1 May 2005 stated:
"Contractor Force Protection. The Government will provide for the force protection and
security of contractor personnel in convoys and on site, commensurate with the threat,
and [in accordance with] the applicable Theater Anti-Terrorism/Force Protection
guidelines." (R4, tab 5 at 1, 16)

              The Need for PSCs to Supplement Government Force Protection
                  for Government Contractors and Subcontractors in Iraq

      14. On 27 June 2003, a KBRS employee was shot and injured while traveling in a
motor vehicle convoy in southern Iraq. By email of the same date, the KBRS contracts
manager (Ms. Mary Wade) told the lead Rock Island procurement contracting officer
(PCO) for Contract 0007 (Ms. Mary Beth Watkins) 2 that:

               This incident underscores the threat to U.S. personnel
               identified in the ... classified message that informed cleared
               KBR personnel that movement along the MSR [Main Supply
               Route] in IRAQ, particularly during the next 72 hrs, poses a
               significant risk to both personnel and materiel for all US
               personnel.

               As a result of this incident as well as the threat conditions
               identified in the message, safety and security considerations
               mandate that movement of KBR and subcontractor vehicle
               convoys be delayed until such time as the U.S. Government
               provides force protection assets adequate to the threat level.

               KBR is acutely aware that time is of the essence in providing
               food service support to V Corps, however, failure of the U.S.
               Government to provide adequate Force Protection in

2
    Ms. Watkins was the Rock Island lead PCO for Contract 0007 from the date of award
        (R4, tab 1 at 1) to October 2004 (tr. 5/142). During that period, she was never in
        Iraq (tr. 4/170).

                                               8
              accordance [with] the LOGCAP III Contract is impacting our
              ability to perform.

(Ex. A-23)

       15. On 28 June 2003, a KBRS subcontractor's convoy was attacked with two
drivers killed, four missing and six trucks destroyed. This incident was reported on
1 July 2003 by KBRS to the Rock Island PCO in an email chain which included the
information that:

              2.     Military has decided to escort convoys but it appears it
                     will take a little time to lash up the movement
                     requirement, the convoys, and escort.
              3.     Some subcontractors have security, others do not. Main
                     reason for no security is the inability to get permits to
                     arm their security personnel.

(Ex. A-24 at 1, 2)

      16. The Coalition Forces Land Component Command (CFLCC) was the military
command responsible for the movement of logistical supplies from Kuwait into Iraq.
The Deputy Commanding General ofCFLCC from June 2003 to July 2004 was,
Major General (MG) Stephen Speakes. At hearing, MG Speakes described the contractor
convoy security situation in Iraq in June 2003 as follows:

              I had arrived in late June. It was obvious to me very quickly
              that we were taking new levels of threat to our supply and
              relief formations across Iraq, some situations more serious
              than others, and that we had to be very thoughtful about how
              we organized and supported convoys.

              And so early on what I asked our theater to do is to give a
              thoughtful examination to options. And the options that I
              outlined ranged the spectrum of capability. Most desirable,
              frankly, would be more combat support capability units be
              dedicated to the mission ....

              The other thing I wanted to do is look at expanding our
              capability by missioning [sic] more units to provide the
              capability. And the other thing that I early on had said is let's




                                               9
               look at the potential for some form of the hired contractual
               capability.

(Tr. 8/8, 49-50)

        17. On 3 July 2003, the KBRS contract manager (Ms. Wade) notified the
Rock Island PCO (Ms. Watkins) that over 1,000 trucks were awaiting convoy support
into Iraq at the NAVISTAR staging area in Kuwait. The message described the materials
being transported and concluded that if not delivered, "the other missions that are
dependent on the Truck Driver providing the transportation will come to a screeching halt
and the Client as well as KBR, will be in jeopardy of mission failure." (Ex. A-27)

       18. The Rock Island PCO referred this message to the Rock Island operations
personnel with the comment that: "The lack of required force protecting [sic] is having
direct mission impact and needs resolution soonest. The contractor will have grounds for
government caused delay, but more importantly the mission needs of the warfighter are in
jeopardy of not being met. Request theater assistance to resolve." At hearing,
Ms. Watkins testified that up until the time she left the contract as PCO in the fall of
2004, "there were continued force protection issues." (Ex. A-27; tr. 41199-201, 204)

       19. On 9 July 2003, KBRS met with MG Speakes and reported that the personnel
and equipment casualties from attacks on its convoys and those of its subcontractors
from mid-May to date were 7 killed, 7 wounded, 4 missing and 10 trucks missing.
MG Speakes noted, among other things that: "Tomorrow the government will provide
convoy protection for 46% of the convoys waiting to travel north. This level of support
must increase, but presently the government is short convoy escort vehicles and shooters
(shotgun riders)." The parties discussed KBRS contracting for private security, and
agreed that "LOGCAP Planners will develop a revised statement of work requesting
contracted security." (Ex. A-29 at 1, 3)

       20. On 19 September 2003, MG Speakes sent the following message and formal
request to the Rock Island Commander with copies to, among others, the Deputy
Commanding General and senior logistics staff officer of CJTF-7 :3

               Subject: CFLCC Request for Help with LOGCAP Contractor
               Convoy Security.




3
    Combined Joint Task Force-7 (CJTF-7) was the initial designation of the coalition military
       forces in Iraq (tr. 5/188-89). On 15 May 2004, the designation was changed to Multi
       National Force-Iraq (MNF-I) (ex. G-173). CJTF-7 and MNF-I reported to the Theater
       Commander, CENTCOM (tr. 8/17).

                                             10
[I]n message below we request your help in solving one of
our most vexing problems, specifically convoy security for
contracted operations in Iraq .... [W]e see no other optoin [sic]
but to ask that the current contract provisoins [sic] be
amended to support operations in Iraq. We appreciate your
support and hope that this is a request that is supportable ....



MEMORANDUM FOR Commander, Army Field Support
Command. Rock Island, Il 61299

SUBJECT: Adequate Force Protection for the Logistics Civil
Augmentation Program (LOGCAP) Convoys in Kuwait and
Iraq

1. Request Army Field Support Command (AFSC) review
the basic LOGCAP contract and provide a contractual
recommendation allowing Kellogg Brown & Root (KBR) the
authorization to pursue a civilian transport and transportation
security company to conduct convoy escorts missions for the
execution of convoys in Iraq during the movement of
government materiel on theater supply routes. The current
force protection posture, pending reductions in force
structure, present and future demands for military police
forces, all support the need to explore options other than
military escorts in order to conduct secure and unhindered
convoy operations.

2. The LOGCAP Basic contract and Statements of Work
(SOW) needs to be modified to allow for KBR to provide
contract security for their convoys moving government
materiel on theater supply routes in Kuwait and Iraq. This
change to authorization and utilization of contracted security
should be in compliance with US Federal and Military
Regulations that established the current base contract.

3. The contract should be administered by KBR or its
subcontractor, with standards and operating procedures in
accordance with the senior military police organization in
theater. The scope of operations or task execution plan will
be developed by KBR and accepted through the appropriate
contracting and command channels.


                               11
              4. We understand that there will be legal and perception
              concerns in the use of contracted security, but with pending
              reductions in force structure, present and future demands on
              contractor support, we must ensure unimpeded flow of
              supplies. We believe this is a viable course of action.

(Ex. A-41 at 3-5)

        21. MG Speakes expected that Rock Island would prepare a proposal for contract
modification that he could submit for approval by the CJTF-7 combat commander in Iraq
and the Theater Commander at CENTCOM. However, he testified: "Despite my
repeated efforts, to my knowledge I never got a formal proposal back, and I never was
able to take anything and formally bring it up to a higher staff to ask for their help."
(Tr. 8/55-56)

       22. On 26 September 2003, CJTF-7 Fragmentary Operations Order (FRAGO) 889
described the current convoy security situation in pertinent part as follows:

             BA'ATH PARTY SECURITY FORCE ELEMENTS,
             RELIGIOUS EXTREMISTS/FOREIGN TERRORISTS,
             AND CRIMINAL ELEMENTS CONTINUE TO A TTACK
             INDIVIDUAL OR SQUAD-SIZED UNITS WITH SMALL
             ARMS, RPGS, OR SNIPER FIRE AGAINST CONVOYS
             AND CRITICAL NODES IN THE CJTF-7 AOR. THERE
             CONTINUES TO BE NUMEROUS ATTACKS ALONG
             MSR TAMPA BETWEEN CSC NAVISTAR AND LSA
             ANACONDA .... IT IS ASSESSED THAT THESE SMALL
             GROUPS ... OF ARMED INDIVIDUALS WILL
             CONTINUE TO EMERGE. ATTACKS WILL CONTINUE
             DUE TO THE ACCESSIBILITY OF WEAPONS AND
             ABSENCE OF MILITARY PRESENCE IN THE SMALLER
             OUTLYING TOWNS.

(Ex. A-44 at 1)

       23. On 24 November 2003, the commander of the Defense Contract Management
Agency (DCMA) activity in Kuwait, CDR Kent Caldwell, USN, sent a message to the
CFLCC 143rd Transportation Command. The message cited the conflicting standards in
operation orders (OPORDS) issued by CFLCC and CJTF-7 for convoy protection, and
further stated in pertinent part:




                                           12
             As convoy security is contractually required to be provided
             by the government and be consistent with the standards set
             for all DOD civilians, I believe the government is faced with
             an unexecutable task. As I understand it, they are no longer
             resourced to comply with either standard, especially when
             you consider that contractors cannot carry weapons. Their
             need for external security is greater [than] that of armed
             soldiers moving in military convoys for which the majority of
             the guidance found in both OPORD's applies.



                     While I understand and appreciate the resource
             restrictions on both soldiers and government equipment to
             perform the missions assumed by KBR under the LOGCAP
             III contract, the Army has entered into a contract with KBR
             and is apparently unable to provide the requisite security and
             protection requirements established by either CFLCC or
             CJTF-7. If uncorrected this will significantly impact the fuel,
             line haul, mail, and Class 1 transportation mission areas
             supported under this contract.

(Ex. A-56 at 2)

      24. On 19 December 2003, CJTF-7 FRAGO 1242, (KBR Convoy Security
Procedures) stated in relevant part:

             ATTACKS AGAINST KELLOGG, BROWN AND ROOT
             (KBR) CONVOYS HAVE DRAMATICALLY
             INCREASED DURING THE MONTHS OF OCTOBER
             AND NOVEMBER. BASED UPON INTELLIGENCE
             ESTIMATES, THE THREAT OF FUTURE ATTACKS
             AGAINST KBR CONVOYS IS PROJECTED TO
             INCREASE DURING THE MONTHS OF DECEMBER
             2003 THROUGH APRIL 2004 .... SINCE THE BEGINNING
             OF OCTOBER, TH[E] MAJORITY OF ATTACKS
             AGAINST KBR CONVOYS HAVE BEEN THE RESULT
             OF IEDS AND SMALL ARMS FIRE. NINETY PERCENT
             OF ALL ATTACKS DIRECTED SPECIFICALLY
             AGAINST KBR CONVOYS HAVE OCCURRED ON MSR
             TAMPA. HOWEVER, SEGMENTS OF ASR JACKSON,
             MSR MICHIGAN, MSR MIL TON AND MSR MOBILE
             REMAIN EXTREMELY DANGEROUS TO KBR


                                           13
               CONVOYS. KBR CONVOYS REMAIN EXTREMELY
               VULNERABLE TO ATTACKS AT REST STOPS, REFUEL
               POINTS, TRAFFIC CHOKE POINTS, LOCATIONS OF
               VEHICLE BREAKDOWNS, HAND-OFF POINTS FOR
               CONVOY SECURITY ESCORTS, MSC BOUNDARY
               LINES ... AND MOVEMENT UNDER OVERHEAD
               PASSES.

(Ex. A-64 at 2)

       25. On 31 December 2003, the Coalition Provisional Authority (CPA), the civil
government of Iraq from 8 May 2003 to 30 June 2004,4 recognized the need for and
authorized the presence of private security companies in Iraq in its Order Number 3
(Revised) entitled "WEAPONS CONTROL." Section 3 of the order distinguished
possession of firearms by "Private security firms" from possession of firearms by other
"Groups" and "individuals" where it stated in pertinent part:

                       Authorized Possession and Use of Firearms
                                and Military Weapons

               1)   The following individuals are authorized to possess and
                    use issued Firearms and Military Weapons ...

                    a) Coalition Forces,

                    b) Iraqi security forces, and

                    c) Groups and individuals who have been authorized to
                       carry weapons in the course of their duties by the
                       CPA or Commander, Coalition Forces or their duly
                       authorized delegates.

               2)   Private security firms may be licensed by the Ministry of
                    the Interior to possess and use licensed Firearms and
                    Military Weapons .. .in the course of their duties,
                    including in public places.

               3)   Individuals may be authorized to possess Firearms for
                    personal use by obtaining authorization from the


4
    See United Nations Security Council Document S/2003/538 and Security Council
         Resolutions 1483 (2003) and 1546 (2004).

                                             14
                     Ministry of Interior, as described in Section 5 of this
                     Order,

(Bd. ex. 2 at 2-3)

       26. Lieutenant Colonel (L TC) Damon Walsh was the DCMA Northern Iraq
Commander from August 2003 to January 2004 (tr. 13/106). By letter dated
14 December 2003, LTC Walsh told KBRS that CJTF-7 was considering options "for
enhancing the protection of convoys and commercial traffic throughout Iraq" and
requested KBRS to provide an outline of the conditions and procedures that should be in
place for the government to issue weapons and ammunition to KBRS employees
(ex. A-65 at 2).

       27. By letter dated 26 January 2004 addressed to the Rock Island PCO
(Ms. Watkins), KBRS replied to the 14 December 2003 request. The substance of the
reply was that:

              KBR has made the decision that the arming of truck drivers as
              a means of self defense to mitigate the dangers facing these
              personnel as they travel the roads of Iraq, is not a viable
              option. However, we do offer an alternative for convoy
              escort security that would free up the military assets currently
              utilized in this mission and enable them to focus on their core
              mission of providing route security.

              With the issuance of indemnification for KBR, and
              acceptance of the concept of operations (att. a) KBR stands
              ready to subcontract out the armed convoy escort for those
              trucks under KBR LOGCAP responsibility and control across
              the Major Supply Routes of Iraq.

(Ex. A-74 at 8241)

      28. At hearing Ms. Watkins could not recall sending a written reply to the KBRS
26 January 2004 proposal, but testified that "We discussed and verbally it was
communicated back to KBR that we were not inclined to indemnify" (tr. 4/213-14).

        29. At hearing, L TC Walsh testified that he interpreted the contract as requiring
the government to provide the force protection and that KBRS "could not charge the
government for armed security as the contract stood at that time." However, he also
testified that: "There was nothing [in the contract or task orders] that specifically said
thou shalt not use private security companies." (Tr. 13/114) Moreover, when asked
whether he thought the use of PSCs should have been allowed, he testified:


                                              15
                     A. Yeah, absolutely.

                     Q. Why?

                      A. Because it was a dangerous place, and I mean I
              was pretty unequivocal from the word go, that I thought a
              better approach to providing security would have been for the
              contractor to be able to either acquire protection through one
              of the, you know, we had an army of private contractors
              running around Iraq ....

                     [Q.] Private security contractors?

                     [A.] Yes ....

                     A. You couldn't swing a dead cat without knocking
              down half a dozen guys walking around with M4s .... [T]o
              answer your question, yes, absolutely I thought that KBR
              should have been able to do that.

(Tr. 13/175-76)

        30. On 22 February 2004, the KBRS Deputy Area Manager for V Corps North
sent the following message to the troop unit that was responsible for force protection in
that area:

              For your information the military has failed to comply with
              providing escort requirements. Time and time again we have
              sent emails after emails and made phone calls after phone
              calls to get this escort requirement taken care of. As you
              know last week a convoy was arranged for four (4) trucks and
              they were abandoned while in route because of the speed of
              travel. I would like to point out this same subcontractor had
              employees shot in a drive by shooting yesterday around B3,
              so they are a marked target.

             It was also briefed on the last [meeting with the government]
             that [the government] would prefer to have at least nine (9) to
             ten (10) trucks in a convoy. We consulted with our
             subcontractor and they hired additional trucks for a total of
             ten (I 0) trucks which are loaded and ready to go, when
             request for convoy was acquired today, KBR was told [the


                                            16
              government] was not able to provide the escorts due to lack of
              assets and would not have the assets for two to three weeks if
              then. This has directly affected our ability to carry out our
              tasked assigned to KBR by CJTF7, plus is causing the
              subcontractor to occur [sic] unexpected costs.

(Ex. A-80 at 2)

         31. The government answer to KBRS' 22 February 2004 message was that:
(i) "these combat units were sent here to fight the war, not do escorts for KBR ONLY";
(ii) the tasking placed on the troop unit responsible for providing the force protection was
"enormous"; and (iii) when the troop unit was ready to resume escort duty, "I will let
you ... know" (ex. A-80 at 1).

        32. On 12 April 2004, CJTF-7 FRAGO 622 described the current convoy security
situation as follows:

              THE ENEMY IS PROSECUTING A DELIBERATE
              OPERATION TO INTERDICT OUR LINES OF
              COMMUNICATION (LOC). WITH THE
              SIMULTANEOUS ATTACKS ON SIX OVERPASSES ON
              10-12 APRIL 04, IT IS APP ARENT THE ENEMY HAS
              TAKEN HIS CAMPAIGN BEYOND HARASSMENT
              THROUGH DIRECT ACTION TO A DELIBERATE
              EFFORT FOCUSED ON THEATER LOC INTERDICTION.

             CURRENT SITUATION. ALONG MSRS LEADING INTO
             AND OUT OF BAGHDAD THERE HAVE BEEN 66 ATTACKS
             IN THE LAST WEEK, 49 ATTACKS ONE WEEK AGO, AND
             50 TWO WEEKS AGO. THERE HAVE BEEN 3 COMPLEX
             ATTACKS/AMBUSHES IN LAST THREE DAYS RES UL TING
             IN THE DESTRUCTION OF A REFUELING
             CONVOY ... DESTRUCTION OF 4 OVERPASSES ... AND THE
             AMBUSH OF A CONVOY .... THE MSRS BETWEEN 1)
             BAGHDAD AND BALLAD, 2) BAGHDAD AND KARBALA,
             AND 3) BAGHDAD AND FALLUJAH ARE EXTREMELY
             DANGEROUS AND CONTINUE TO BE HIGHLY
             SUSCEPTIBLE TO THREAT ACTIVITY RANGING FROM
             IEDS TO SMALL ARMS AND RPG ATTACKS/AMBUSHES.

             CURRENT ASSESSMENT: ATTACKS ARE MUCH
             HIGHER THIS WEEK AND UPWARD TREND IS LIKELY
             TO CONTINUE AS A RESULT OF THE CONTINUED


                                            17
              SADR/MAHDI MILITIA UNREST, AND OPERATIONS
              AGAINST THREAT FORCES IN WESTERN IRAQ.

(Ex. A-96 at 2)

       33. On 14 April 2004, the DCMA administrative contracting officer (ACO) for
TO 59 (MAJ Hills) reported to the Commander, DCMA Northern Iraq (LTC Blaine) the
following:

             All indications are that the government has failed to live up to
             its contractual obligation to provide Force Protection (FP) to
             the TTM convoys (T00059). Given that, KBR is currently
             not required to run most (if any) convoy routes. They did run
             three convoys to Anaconda today. Only one made it. The
             other two got lost. They are now at an FOB. KBR may not
             run any convoys tomorrow if the government does not
             improve its track record on FP. The same MP escorts that got
             them lost are to bring the two convoys in to Anaconda
             tomorrow. The best I can tell at this time is that they have
             never ran the route they are about to set out on. Based on my
             discussions with TTM' s PM .. .I went over and talked to the
              13th COSCOM CC .. .I told him ofKBR's concerns. I feel
             contractually the government is not living up to its contractual
             obligations. [The COSCOM Commander] stated that
             COSCOM was doing their part by providing a soldier for
             every third truck. He said it was the 15th MP's that were
             providing the escort not COSCOM and that the issue of
             getting lost was ... not a FP issue " ... they are all safe aren't
             they." I just want to go on record that absent any new
             information from the government, I concur with KBR in that
             the government is not providing FP commensurate with the
             threat. If they choose not to run tomorrow I would be hard
             pressed to disagree with them. Oh by the way, one of the
             trucks in one of the lost convoys got destroyed by an IED.

(Ex. A-98 at 2-3)

       34. On 26 June 2004, CPA Memorandum Number 17 entitled "REGISTRATION
REQUIREMENTS FOR PRIVATE SECURITY COMPANIES (PSC)" was issued to
"establish a mechanism whereby all PSC will be registered, regulated and vetted and to
update Iraqi law as it relates to PSC." The memorandum set forth detailed requirements
and procedures for licensing, use of force, code of conduct, etc. (Ex. G-189) As of



                                            18
25 November 2006, more than 100 PSCs were registered or in the process of being
registered with the Iraq Ministry of Interior (MOI) (ex. A-154).

       3 5. Lieutenant General (L TG) Ricardo Sanchez was the commanding general of
CJTF-7 and its successor MNF-I from 14 June 2003 to 4 July 2004 (tr. 5/163, 203).
When asked at hearing if he had any comment on reports in the press that the Army Chief
of Staff (General Shinseki) had advised Congress and the President that it would take
200,000 men to occupy Iraq, LTG Sanchez testified:

               He was about right. And as you' 11 see from the end of my
               description here, it was, as a nation, America did not have
               sufficient capacity to accomplish the tasks that were assigned
               to the force that was on the ground during that time frame.

(Tr. 5/175-76) When asked whether he had the resources to provide the same level of
force protection to KBRS as was provided to the civilians in the CPA he replied: "clearly
not, clearly not" (tr. 6/40).

       36. When asked whether there were any areas in Iraq where it would have been
acceptable to travel without armed escorts, LTG Sanchez testified:

               [F]rom the very beginning we established a requirement that
               there was an absolute minimum ... standard of force
               protection. We never wavered from that. There was never
               any segment of the country where we said this is benign
               enough, or it's peace time, completely peace time and there is
               not [sic] threat of attack. No, we never did that.

(Tr. 6/102-03)

     37. With respect to the origin of the need for PSCs in the occupation of Iraq,
LTG Sanchez testified:

               [T]he key factor is that DOD [Department of Defense] does
               not have the military capacity to secure all of the missions
               Ambassador Bremer hasY 1 It's a massive requirement,
               and ... the numbers of forces that we have on the ground and
               the tremendous challenge that the country has to sustain that
               requirement over time. It's just not there.




5
    Ambassador Bremer was the Administrator of the CPA.

                                             19
                           ... [B]ecause of the analysis that we have done in
                 the ... fall and early winter of 2003, we very clearly
                 established, unequivocally established within the command
                 that the capacity of the force, the quantity of the force, and
                 the demands of the mission both from a war fighting
                 perspective and the growing requirement that we foresaw
                 coming from the reconstruction mission, that we were not
                 going to be able to continue to support that without private
                 security. And then that discussion really got started in earnest
                 to integrate private security companies under
                 government/military contracts ....

(Tr. 6/22, 67)

       38. LTG Sanchez estimated that there were at least 10 and possibly 20 PSCs
operating in Iraq in March 2004 (tr. 6/25). Moreover, their presence in the battle space
was not merely tolerated, it was welcomed by the combat troop commanders.
L TG Sanchez testified:

                 We allow them to come in, and we encourage them to come
                 in at the different levels of command to get situational
                 awareness briefings, to briefthem on what is available for
                 them in the event that they get into a situation that they can't
                 handle. We have quick reaction forces that are in every
                 sector that can respond to an incident on the major routes that
                 they're operating in .



                         ... [I]f a private security entity or a contractor came to a
                 battalion commander or a brigade commander and asked to
                 move with private security, I'm absolutely sure that that
                 young commander would have said be my guest. You know,
                 that's necessary to accomplish your mission of feeding my
                 fellow battalion across the street, go ahead and do it.

                        We were not concerned with ... and commanders at that
                 level were definitely not concerned with going up to the next
                 higher headquarters to brigade or division and say hey, can I
                 move this? What they were trying to do was actually get the
                 mission done, and the reality of the complexity and the



                                                 20
             density, and the demand that was on the ground at that time
             was basically for them to get the mission done.

                    And this was not just in moving a box of tomatoes, it
             was across the board .... [T]he demands that we were placing
             on these young commanders was massive. We were asking
             them to fight, we were asking them to set up local
             governments, local schools. The last thing that they want to
             be doing was diverting their combat power to those kinds of
             missions, so if they saw the opportunity they- clearly, in my
             mind, they would have taken it. And I would not have
             objected to that if that had happened, and not had been told
             about it.

(Tr. 6/24-25, 35-36)

       39. On 30 June 2004 the CPA was terminated and the Interim Iraq Government
(IIG) was established as the civil government of Iraq (ex. A-113). On 4 July 2004
CENTCOM issued a Warning Order (WARNORD) entitled "CONTRACTOR RISK
MITIGATION" which stated in pertinent part:

             THIS IS AWARNING ORDER (WARN ORD). REQUEST
             COMMANDER, MNF-1, IN COORDINATION WITH
             CHIEF OF MISSION (COM) AND INTERIM IRAQ
             GOVERNMENT (IIG), DEVELOP COMMANDERS
             ESTIMATE AND COURSES OF ACTION (COAS) FOR
             USG CONTRACTOR RISK MITIGATION IN IRAQ.
             PROVIDE ESTIMATE WITH COAS TO CENTCOM NLT
             13 JULY 2004 .... SITUATION. 1.A. A MAJOR USG
             CONTRACTOR IN IRAQ IS CONSIDERING
             SUSPENDING OPERATIONS DUE TO CONCERNS
             OVER THE SECURITY ENVIRONMENT IN IRAQ. THE
             SUCCESS OF US EFFORTS IN IRAQ DEPENDS IN PART
             ON THE ABILITY TO RETAIN AND MANAGE
             CONTRACTORS FOR SERVICES, PROTECTION AND
             CONSTRUCTION. TO DATE, COMMNF-1 HAS NOT
             PROVIDED PROTECTION FOR CONTRACTORS, AS
             CONTRACTOR SECURITY IS NOT A SPECIFIED
             MILITARY MISSION. CONTRACTORS ARE
             PRIMARILY RESPONSIBLE FOR THEIR OWN
             SECURITY, AND CONTRACTOR SELF-PROTECTION
             WAS ASSUMED TO CONTINUE BEYOND THE 30 JUNE
             TRANSFER OF POWER. UNSCR 1546 AND THE


                                          21
             ANNEXED LETTER BY IRAQ PRIME MINISTER
             ALLA WI GIVE THE MULTI-NATIONAL FORCES THE
             MANDATE TO CONTRIBUTE TO THE MAINTENANCE
             OF A SECURE AND STABLE ENVIRONMENT IN IRAQ.
             THIS INCLUDES THE AUTHORITY TO DEFEND USG
             CONTRACTORS. l .B. GIVEN THE CURRENT
             SECURITY ENVIRONMENT IN IRAQ, ALL USG
             AGENCIES MUST COORDINATE PROTECTION OF
             USG CONTRACTORS THROUGH A COMBINATION OF
             COALITION MILITARY FORCES, IRAQ SECURITY
             FORCES AND PRIVATE SECURITY COMPANIES.
             CONTRACTORS CONTINUE TO HAVE THEIR RIGHT
             OF SELF DEFENSE AND MAY, IN SOME
             CIRCUMSTANCES, ARRANGE FOR CONTRACTOR
             SECURITY THROUGH A SUBCONTRACT WITH A
             PRIVATE SECURITY COMPANY.

(Id.)

       40. From 14 March to 21 September 2004, there were 15 reported attacks on
KBRS subcontractor employees and vehicles at LOGCAP headquarters in Baghdad and 5
of the "B" worksites. In these attacks, 5 employees were killed, 1 beaten, and 25 were
missing or held captive. (Ex. G-232 at 5-9)

       41. From June through November 2004, L TC Sean O'Day was Commander,
DCMA Northern Iraq, responsible for overseeing KBRS' performance of TO 59 in
northern and western Iraq (tr. 12/8). On 29 August 2004, KBRS notified LTC O'Day and
others that a subcontractor convoy escorted by an Iraqi private security company had
been ambushed and three trucks were missing. LTC O'Day answered the notification
with the following remark: "The question may come back why were these guys using a
private security detail instead of military escorts." (Ex. A-126 at 2, 4) At hearing,
LTC O'Day testified:

                    Security was always a big issue ....

                  .. .It was that security thing that always held them
             [KBRS] up on bringing stuff in ....



                    [T]here weren't enough military forces in Iraq to do
             everything that had to be done and convoy security for
             contractors as well as security for somebody like me to get


                                           22
             around because I didn't have a combat force that was at my
             beckon [sic] call to take me around Iraq.

(Tr. 12/32-33)

       42. On 31 December 2004, the Multi National Corps-Iraq (MNC-I), the tactical
troop command under the MNF-I, issued a FRAGO, "SUBJECT: TACTICS,
TECHNIQUES AND PROCEDURES (TTP) TO REDUCE VEHICLE MOVEMENT
FRATRICIDE." Paragraph I .A. of this order recognized the presence and usefulness of
the PSCs in accomplishing the coalition mission in Iraq as follows:

             THERE ARE APPROXIMATELY 30,000 PRIVATE
             SECURITY CONTRACTORS (PSCS) IN ADDITION TO
             MILITARY AND DOD PERSONNEL IN IRAQ
             PERFORMING SECURITY DUTIES IN SUPPORT OF
             MNFI, DEPARTMENT OF STATE (DOS),
             INTERNATIONAL DIPLOMATIC MISSIONS, AND
             OTHER OPERATIONS VITAL TO THE FUTURE OF
             IRAQ. THEIR MISSIONS INCLUDE SECURING KEY
             COALITION PERSONNEL AND CRITICAL MATERIALS.

(Ex. A-139 at 1)

        43. On 22 April 2005 the award fee determining official issued his determination
of the award fee for KBRS' performance of TO 59 from 13 June 2003 to 31 January
2005. The overall performance rating was excellent. The determining official noted the
arduous circumstances under which the task order was performed, including among
others, "the attacks on and hijacking of your convoys" and "a lack of force protection to
escort convoys with needed materials." (Ex. A-144 at 1-3)

      44. LTC Scott Sheridan succeeded LTC O'Day as Commander DCMA North
from November 2004 to May 2005 (tr. 12/121-22, 124). At a KBRS briefing in
December 2004, LTC Sheridan was told that 64 KBRS direct hires and subcontractor
employees had been killed in hostile action (tr. 12/164).

        45. On 23 April 2005, LTC Sheridan presented a briefing on the award fee
determination decision for KBRS' performance of TO 59 for the period 1 February to
30 April 2005. The briefing slides included one for "Special Considerations" with two
major bullet points-"Operating in a non-permissive environment" and "Availability of
escorts." Two of the sub-bullets under non-permissive environment were "Loss of
material-Hijacked, destroyed," and "Loss of employees, due to death/fear of losing
life." (Ex. G-276 at 5) At hearing, when asked whether at any time during his tour of


                                           23
duty in Iraq convoys were not attacked for some prolonged period of time, LTC Sheridan
answered "I don't believe that ever happened while I was there" (tr. 12/167).

                   KBRS Prime Contractor Use of PSCs on Contract 0007

        46. From late January 2004 to I April 2005, Mr. Craig Peterson was the KBRS
Program General Manager for Contract 0007 activities in the CENTCOM area which
encompassed 23 different countries. For the first four months in 2004, he stationed
himself in Iraq. (Tr. 6/123, 125, 129) At hearing, Mr. Peterson testified that his policy in
Iraq was not to use private security on Contract 0007 "because the Army was supposed to
provide our protection. And if we went willy-nilly off and decided to do our own, then, I
probably wouldn't have ... a good leg to stand on when arguing with the Army to provide
the force protection." Mr. Peterson's view was based on the fact that the contract said
that force protection would be provided by the Army and not because he thought the
contract prohibited the use of PSCs. (Tr. 6/185-87)

      4 7. After Mr. Peterson left Iraq, the senior personnel he hired to manage the
KBRS activities in Iraq did use PSCs for their movements, and this was known by both
the DCMA Commander Iraq and the Rock Island PCO in 2004. Colonel (COL)
Ainsworth Mills, the DCMA Commander Iraq from April through October 2004, testified
that:

              Yes, I knew that there was a private security guard contract to
              use for the senior managers that were in Iraq to move around.
              And it was done because they felt that they needed to have
              that flexibility to move. And that time and time again we
              talked about that. It was that that was not an allowable cost
              under the LOGCAP contract and that that would have to be
              something that LOGCAP would pay for. I'm sorry. That
              would be something that KBR would have to pay for, but that
              LOGCAP would not pay for that.

                     And I had discussions with Mary Beth Watkins the
              PCO, about that. And the people who worked for me also we
              had several discussions about that that was not an allowable
              cost of the LOGCAP contract. And I did relay that to
              Mary Wade, Reno Butler and to Paul Cerjan [ofKBRS].

(Tr. 11/88, 131)

       48. In its post-hearing brief, the government states that "Had Ms. Watkins been
advised of KBRS' noncompliance, there is no question that she would have stopped it"
(gov't br. at 128). COL Mills' testimony is that she was so advised (see finding 47).


                                            24
The parties have not pointed to anything in the record and we have found none indicating
that Ms. Watkins did anything to stop the alleged noncompliance when so advised by
COL Mills.

                    Subcontractor Use of PSCs on Contract 0007-ESS

        49. Although the KBRS manager Mr. Peterson testified that he did not use private
security for himself while he was in Iraq, he knew that KBRS subcontractors on Contract
0007 were using PSCs and he did not object to their use. His testimony on this point was
as follows:

                    Q.... [D]id you know that KBR's subcontractors were
             using private security contractors under LOGCAP at the time
             you were there?

                   A. Well, I'd say yes. I meant, they had to. I mean,
             they were dying off like flies. We had a hard time keeping
             subcontractors.

                   Q. I mean, any specific knowledge ofKBR's
             subcontractors using PSCs, or is it just an inference?

                    A .... We were given some very untenable missions and
             untenable timing ... .If they were not using PSCs, I have no
             idea how they did their job. None whatsoever. Because they
             couldn't have gone anywhere.



                    So I can't point to me talking to a sub and say "Tell me
             about your subcontract with a PSC." That didn't
             happen .... But I knew in my own mind that they had to be
             using them, or they couldn't have performed.

(Tr. 6/193-94)

       50. As to the availability of military convoys for subcontractor travel between
sites within Iraq, Mr. Peterson testified:

             I myself, as the head [of LOGCAP] and a retired general
             officer, would be on an installation and ask the young
             lieutenant or captain who has got a convoy going to Arifjan or
             somewhere if I could pile in. They said, "I don't do


                                            25
              contractors." I said, "I'm Craig Peterson. I'm in charge of
              LOGCAP." They said, "I don't do contractors."

                     Q. They didn't say, "Who?"

                    A. No .... So, I mean, it -- if I got kicked out of
              convoys, then there is no doubt in my mind that subs did.

(Tr. 6/194-95)

       51. The principal KBRS subcontractor on Contract 0007 involved in these
appeals was ESS Support Services Worldwide (ESS). The ESS subcontracts under
Contract 0007 were for the installation and operation of troop dining facilities (DF A Cs)
at specified sites in Iraq (app. supp. R4, tab 2). ESS had the largest PSC costs
($19,234,932) of the 21 subcontractors whose estimated PSC billings for the period 2003
through 2006 are in evidence (R4, tab 58 at 5-6, 8-9). ESS concluded its subcontract
operations in Iraq on 30 June 2006 (tr. 8/159).

        52. The ESS operations manager in Iraq from June 2003 through June 2006 was
Mr. Steven Murray (tr. 8/94, 159). Mr. Murray testified that ESS used PSCs for the
entire period of its engagement in Iraq because the government force protection did not
cover all of its security requirements. This testimony in pertinent part was as follows:

             [W]e pretty consistently used, from early '03 and all the way
             through our departure in '06, PSD [private security
             detachment] teams to move people and money and equipment
             in and out of the country, because again, even in '05 and '06,
             the [government] convoy system would not let our NTVs
             [non-tactical vehicles] in the convoy. If you disclosed you're
             carrying cash, you're not getting in the convoy with cash, and
             it was a total cash economy the whole time we were there .



                    .. .It became extremely difficult to move things
             between sites. We'd approach- we tried to use some military
             force protection on the site, and I personally talked to two or
             three commanders about this. We were told pretty
             consistently that the military is not there to babysit
             contractors.




                                            26
       I had some people ... stuck on a southern site, and I
needed to move them to a northern site. [They were included
in a government convoy but] halfway through Baghdad, they
stopped our vehicle ... [S]aid they got a call to go on a mission
and they took off in another direction .... [W]e dispatched,
enormous cost, ... a PSD team to go and pick them up .



       . ..Another occasion happened whereby we were
moving equipment ... we had two or three large 500 kV
generators ... at one site; we had to move them across Baghdad
to another site. They [the government] agreed to move us .

       ...Halfway there, they told our truck to pull over and
wait. They had to leave, and they left. Never saw my truck
again. It was just gone. The driver, .. .! don't know what
happened to him. The truck was gone.

       We learned our lesson very quick. We did ask, from
time to time, and most times it was "We're not doing that.
We can't do that. We're warfighters. Take care of
yourselves." It's extremely difficult to move between sites,
and it was a pretty regular need of ours to do that. ...

       Money, people, sometimes food .... [We] only carried
two or three days' worth of food [at each dining facility site].
So if you don't have a delivery coming in every third day,
you're in trouble. You can't feed soldiers. That was
unacceptable to us, as a caterer, and to our client, KBR. We
could not fail.

       So we had to move food, and the military would not
touch it from intra-theater. They had bigger things to do than
to move contractors.

       Q: Did there ever come a time when you simply gave
up on seeking force protection?

       A. Honestly, no. It was in our interest. I mean this is
a business, and if I didn't have to pay a PSD team, which
were not cheap, and I could get it in a convoy, I'd rather use a
convoy. It didn't always fit with our business unfortunately.


                               27
                     Either you didn't have the time to do it, or they
             wouldn't do it. But always, even up until middle of June of
             2006, when we were leaving, we tried to use convoys as
             much as we could. It's a cost saver for us. So but the answer
             1s yes. We never gave up trying to do that.

(Tr. 81152, 154-58)

       53. In January 2006, ESS began demobilization activities for the conclusion of its
Iraq contracts in June 2006. The extent of the government force protection and ESS' use
of PSCs during this period was described by Mr. Murray as follows:

             We started demobilizing contracts in January of 2006. We
             dropped a few of the Charlie sites in January, and all of the
             rest of our sites, seven or eight of them that were left, came to
             full term in June 2006.

                    A couple of things happened in '06 when we ended
             our contracts. In some instances, the FOB [Forward
             Operating Base] was closing, going away, and we'd have to
             relocate. KBR would tell us move all of this stuff from this
             FOB to th[i]s FOB. There was no force protection for that.
             The military was leaving. They were either gone or on their
             way, and that brings up a point about static security as well.

                     In those situations, two or three instances where the
             static security went away. The gates were gone. There's now
             an open installation, and we had people and assets on the
             ground. So we would put PSD teams on the ground, to keep
             us safe, and to move whatever it is that we had to move from
             A to B, either excess food or reefers.



                  Q. Did you get any force protection for any of that
             demob operation?

                    A. Unfortunately, we asked several times. On the
             demobing again, these military units were now departing.
             They were leaving, either going to another FOB or
             retrograding back to Kuwait or back to the U.S. We had no



                                            28
              force protection. There were times when the perimeter came
              down, the gates were open.

                         All the military were leaving, and we had to put, at our
              cost again, these PSD teams on site, one to protect our little
              compound. Of course, we shrunk the perimeter down to
              protecting our tent, and then as we took things down, loaded
              them up and transported them across the country to other
              sites, ... there was no security for us there at all.

                    No force protection, no kind of war structure. We used
              our own, our own guns to move those things across country.

(Tr. 81158-60)

       54. For reasons of expediency in meeting the logistical requirements of the troops,
most if not all of the KBRS subcontracts at issue in these appeals, including the ESS
subcontract, were awarded on a negotiated fixed-price basis (tr. 15/83-84). Asked at
hearing if ESS "made or lost money on your use of PSCs," Mr. Murray testified:

              Our use of private security, unequivocably [sic] was a losing
              proposition for us. We incurred more costs than we charged
              ... KBR for .... [W]e had to estimate our usage when we're
              putting in a firm fixed price contract. We estimate what
              we're going to use.

                     You know, the world changed on us, and we didn't
              have the ability to go back and change our price. Aside from
              the escalation of use, the escalation of the cost increased as
              well. The PSD team, instead of 750 now was $4,000 [per
              mission].

(Tr. 81168-69)

         55. The government states in its post-hearing reply brief that "Mr. Murray is not a
credible witness .... Mr. Murray's sworn testimony is that the military did not move
food ... (Tr. 8/111). Yet the right-hand columns of the NAVISTAR convoy matrices
prove that the military moved food every day, proving Mr. Murray to be a liar."(Gov't
reply br. at 18-19) We have carefully examined government counsel's accusation of
perjury regarding the movement of food, and find it entirely without merit. There is no
testimony by the witness on the cited transcript page that "the military did not move
food." To the contrary, the witness's testimony on the two preceding pages regarding the
military's daily priorities for NAVISTAR convoys from Kuwait into Iraq was that "Some


                                              29
days we could move construction materials, or Class 1, which is food. We could move
food most times. That was what we did." (Tr. 8/109-10) Mr. Murray's testimony
regarding the military not moving food was in the context of movements of food by ESS
between the dining facilities within Iraq when a dining facility had a shortage of food
(tr. 8/157). The "NAVISTAR convoy matrices" cited by the government show only the
movement of food on convoys from NAVISTAR on the Iraq/Kuwait border into Iraq.
They do not show and do not purport to show the movement of food originating at one
base in Iraq and delivered to another base in Iraq. (Exs. A-85, -115)

        56. The overall performance of the task order food service requirement by KBRS
and its food service subcontractors was succinctly summarized by the testimony of two
government witnesses. MG Speakes, the Deputy Commanding General of CFLCC from
June 2003 to July 2004 testified that he made unannounced visits and ate at the KBRS
subcontractor DFACs "all the time" and found the meals "extraordinary .... Great.
Fantastic" (tr. 8/8, 86). LTC O'Day, the DCMA Northern Iraq Commander from June
through November 2004 testified that he ate "Every day, three times a day" at an ESS
DFAC and the food was: "Outstanding. Over the board." (Tr. 12/8, 115-16)

        57. The KBRS coordinator for all subcontractor movements of materials and
equipment by truck from Kuwait into Iraq from mid-July 2003 until "sometime" in 2005
at the U.S. Army NAVISTAR facility was Ms. Leslie Smith (tr. 7110-11). Ms. Smith
testified that throughout that period all movements across the border had to be submitted
to and approved by the U.S. Army Movement Control Battalion (MCB). The primary
method of movement was in a military escorted convoy. However, if a place in a military
escorted convoy was not available, or if the subcontractor otherwise requested to move
with its own security, the MCB routinely granted the request. When a subcontractor was
planning to move trucks with its own security, it was expressly so stated on the KBRS
MP Escort Allocation Request submitted daily to the MCB. (Tr. 7111, 34-40, 42-53;
ex. A-85 at 2, exs. A-86, -115)

        58. On 24 March 2004, Ms. Smith sent a memorandum on border crossings into
Iraq to MAJ Grady Sessoms, her designated point of contact at the MCB. The
memorandum stated among other things that "Private Security is allowed. Iraqi security
escorts wait in Iraq to hook up with their convoy." (Ex. A-86) At hearing Ms. Smith
testified that she received no response from MAJ Sessoms then or at any other time
telling her that use of private security for convoys into Iraq was not allowed (tr. 7/46-49).

        59. LTG Jack Stultz was deployed in Kuwait and Iraq as Commander of the 143rd
Transportation Command from October 2002 to August 2004 (tr. 14/8). He was at the
third command level above the Movement Control Team (MCT) that was stationed at the
NAVISTAR border crossing into Iraq (tr. 14/44). At hearing he testified that he had no
knowledge of the use of PSCs at the border crossing described by Ms. Smith
(tr. 14/48-49). However, we find the testimony of Ms. Smith and the contemporaneous


                                             30
documentation in exhibits A-85, A-86 and A-115 persuasive as to the actual practice at
the NAVISTAR border crossing. Moreover, we find that her 24 March 2004
memorandum sent to MAJ Sessoms (ex. A-86) was sufficient to put the government on
notice that KBRS subcontractors were using PSCs for convoy protection after crossing
the border into Iraq when government military escorts were not available.

       60. The government was also on notice of the use of PSCs by KBRS
subcontractors under Contract 0007 when on 10 June 2005, an ACO consented to the
award of a food services subcontract with an express pricing justification in the consent
documents stating that maintenance personnel would be moved by "Air transportation
instead of land transportation ... [and] then using the services of a professional security
company to transport them to their respective sites" (app. supp. R4, tab 7 at 13307,
13312).

                               Contract Modification No. P00012

       61. Effective 27 November 2005, the parties entered into bilateral Modification
No. POOO 12 to Contract 0007 (R4, tab 1 at 131 ). Among other things, this modification
added the DF ARS 252.225-7040, CONTRACTOR PERSONNEL SUPPORTING A FORCE
DEPLOYED OUTSIDE THE UNITED STATES (JUN 2005) clause (hereinafter "the DFARS
7040 (JUN 2005) clause") to the contract (id. at 134 ). Section G)( 1) of the clause stated:

                        G)   Weapons.

                     ( 1) If the Contractor requests that its personnel
              performing in the theater of operations be authorized to carry
              weapons, the request shall be made through the Contracting
              Officer to the Combatant Commander. The Combatant
              Commander will determine whether to authorize in-theater
              contractor personnel to carry weapons and what weapons will
              be allowed.

(R4, tab 1 at 137-39)

       62. The government contends that section G)(l) of the DFARS 7040 clause
required KBRS to obtain Theater Commander authorization for use of PSCs in
performing Contract 0007 (gov't br. at 110-11). We find no reference to PSCs or
contracts for security services in the DFARS 7040 (JUN 2005) clause that was added to
Contract 0007 by Modification No. P00012. The DFARS 252.225-7040, CONTRACTOR
PERSONNEL AUTHORIZED TO ACCOMPANY U.S. ARMED FORCES DEPLOYED OUTSIDE THE
UNITED STATES (JUN 2006) clause at section G)( 1) does distinguish between arming
contractor personnel and arming personnel under a contract or subcontract for security
from a professional PSC and expressly applies the authorization requirement to both.


                                             31
There is no evidence, however, that the 2006 version of the DF ARS 7040 clause was
incorporated by modification into Contract 0007 or the task orders thereunder at any time
relevant to these appeals.

                               CENTCOM General Orders

       63. Special Provision H-13 of Contract 0007 required among other things that "all
personnel hired by or for the contractor will comply with all guidance, instructions and
general orders ... issued by the Theater Commander or his/her representative" (see finding
8). CENTCOM General Order No. IA (GO-IA) dated I 9 December 2000 was entitled:
"Prohibited Activities for U.S. Department of Defense Personnel Present Within the
United States Central Command (USCENTCOM) AOR." The stated purpose of the
order was: "To identify conduct that is prejudicial to the maintenance of good order and
discipline of all forces in the USCENTCOM AOR." Among the prohibitions in the order
was paragraph 2.a. which stated: "Purchase, possession, use or sale of privately owned
firearms, ammunition, explosives, or the introduction of these items into the
USCENTCOM AOR." The order concluded with a waiver provision stating: "Authority
to waive or modify the prohibitions of Paragraph 2 of this General Order is delegated to
the Deputy Commander in Chief, USCENTCOM." (Bd. ex. 3)

       64. From July 2003 to July 2007, Commander (CDR) Brian O'Donnell, USN,
was the legal staff officer at CENTCOM responsible for reviewing applications for
waiver of paragraph 2.a. in GO-IA. At hearing, CDR O'Donnell testified that there was
nothing in GO-IA about contracted security (tr. 9/I I5). He further testified that, in
August 2003, there were no theater written policies or procedures regarding contractors
carrying arms and that: "In other words, there is no rule and therefore people are doing
what they want" (tr. 9/53-55).

       65. On 23 December 2005, CENTCOM issued for the first time a statement of
policy, expressly stated to be considered a lawful general order, mandating CENTCOM
authorization, on a case-by-case basis, for contractor use of PS Cs in Iraq and
Afghanistan. This policy/general order was addressed to about 60 Department of
Defense and other government agencies, including the DCMA, but not to KBRS. The
policy/general order stated in pertinent part:

             2.c CONTRACT SECURITY ARMING AND USE OF
             PRIVATE SECURITY COMPANIES (PSC) IN IRAQ AND
             AFGHANISTAN.

             2.c. I. THE DECISION TO ARM DOD CIVILIAN
             PERSONNEL, DOD CONTRACTOR EMPLOYEES OR
             AUTHORIZE THE USE OF CONTRACT SECURITY/PSC
             WITHIN IRAQ OR AFGHANISTAN TO PERFORM


                                           32
               SECURITY SERVICES SHALL BE DECIDED ON A
               CASE-BY-CASE BASIS PER THE POLICY PROVIDED
               HEREIN. ALL REQUESTS SHALL BE SUBMITTED TO
               THE COGNIZANT US COMMANDER PER PARA 2.D.,
               AND SHALL COMPLY WITH PARAGRAPH 3.F.
               BELOW. A REQUIREMENT TO COMPLY WITH THIS
               PROCEDURE SHALL BE INCLUDED IN ALL EXISTING
               CONTRACTS (WITHIN 90 DAYS OF THE EFFECTIVE
               DATE OF THIS POLICY OR AS SOON AS
               PRACTICABLE) ....



               11. THIS POLICY IS EFFECTIVE IMMEDIATELY AND
               SHALL BE CONSIDERED A LAWFUL GENERAL ORDER.
               VIOLATION OF THIS GENERAL ORDER MAY SUBJECT
               AN OFFENDER TO ADMINISTRATIVE OR DISCIPLINARY
               ACTION UNDER THE UCMJ, CIVILIAN PERSONNEL
               REGULATIONS, CONTRACT TERMS OR CRIMINAL
               PROSECUTION UNDER US OR HOST-NATION LAW.

(Ex. G-328 at 1, 2, 6, 7; tr. 22/22)

       66. KBRS had no notice of the 23 December 2005 CENTCOM Policy
Statement/General Order until it received a Rock Island PCO letter dated 28 December
2006 attaching a modification of that order. The government did not initiate a
modification to incorporate the policy/general order into Contract 0007 within 90 days as
required by the order, and the contract was never so modified. (Ex. A-159; tr. 9/143-44,
22/20-25)

        67. On 13 March 2006, CENTCOM issued General Order No. IB (GO-IB)
entitled "Prohibited Activities for U.S. Department of Defense Personnel Present within
the United States Central Command (USCENTCOM) Area of Responsibility (AOR)."
GO- I B expressly superseded GO- I A and further stated that "all waivers granted pursuant
to GO-IA, are hereby rescinded and superseded." However, GO-IB retained the same
paragraph 2.a. as in GO-IA, and did not in any manner address the use of PSCs to
supplement government force protection. (Ex. G-5 at 13-I 8)

       68. From September through December 2006, the Special Inspector General for
Iraq Reconstruction conducted a survey of the security costs being incurred at that time
by the contractors performing the reconstruction work. The total Iraq Relief and
Reconstruction Funds (IRRF) spent on security costs as a percentage of total contract
costs for each of the nine contractors responding to the survey ranged from a low of 7.6%


                                           33
to a high of 16.7%. The average for all responding contractors was 12.5%. (Ex. A-161 at
2-3)

              The Government's Withholdings and the Contractor's Claims

        69. Ms. Kristan Mendoza was the Rock Island lead PCO for Contract 0007 for the
period February-June 2006 and from October 2006 to the present (Testimonial
Deposition, 18 Oct. 2012 at 14, 18). In response to Congressional inquiries about the use
of PSCs by KBRS and its subcontractors on Contract 0007, Ms. Mendoza on 31 January
2007 obtained documentation from ESS that in March 2005, "Security" was 12.55% of
"our labor pricing in our subcontracts" (R4, tab 50 at 1, 14 ). From this data a Rock
Island price analyst estimated that "Security" was eight (8)% of the total ESS subcontract
billings. 6 With KBRS mark-ups, Rock Island alleged total cost billed to the
government for ESS private security was $19,652,815.28. (R4, tab 60 at 16)

      70. By letter dated 6 February 2007 and DCAA Form 1, No. 127 of the same date,
the PCO and DCAA notified KBRS that they were respectively "adjusting payments"
(PCO) and "suspending" costs (DCAA) in the amount of$19,652,815 associated with
ESS' use of PSCs in performing its subcontracts under Contact 0007 (R4, tab 60 at 1-4).

        71. On 29 August 2007, DCAA issued a "Report on Evaluation of [KBRS]
Disclosure of Costs of Armed Private Force Protection Services Associated with
[Contract 0007]." The report stated that subcontractor billings to KBRS for private
security on Contract 0007 for the years 2003 to 2006 were $79,306,895. 7 The report also
stated that the KBRS billings to the government under Contract 0007 in those years also
included $20,3 71, 798 of indirect allocations of private security costs incurred by the
KBRS Middle East Regional Office (MERO). The total amount of the allegedly
unallowable private security costs in the 29 August 2007 DCAA report was $99,678,695.
(R4, tab 58 at 1, 5, 7-11)




6
  The "Estimated amount of security labor within [ESS] subcontracts" at Attachment 4 to
       the DCAA Form 1, No. 127, dated 6 February 2007 shows total payments for
       PSCs of $18,551,279.04 and total subcontract prices of$231,444,266.18 (R4,
       tab 60 at 16).
7
  The DCAA calculation of the subcontractor PSC costs was based on the estimated PSC
       costs provided by 21 subcontractors which amounted to 1. 7 8 percent of their total
       subcontract billings to KBRS. However, this estimated percentage of the PSC
       costs of 21 subcontractors was also applied by DCAA to the total billings of
       another 44 subcontractors who had not provided any estimates of their PSC costs.
       The result of this added calculation raised the government claim for the
       subcontractor PSC costs by $35,317,266. (R4, tab 58 at 7-10)

                                           34
       72. On 22 October 2007, KBRS submitted a certified claim to the Rock Island
PCO under the Contract Disputes Act of 1978 (CDA), 4I U.S.C. §§ 7I01-7109, for
payment of the $I9,652,8I5 withheld by the government in the PCO's letter of
6 February 2007 and the DCAA's Form I, No. I27, of the same date (R4, tab 59). The
PCO did not respond as required by the CDA with either a decision within 60 days of
receipt of the claim or with a date by which a decision would be issued. On 24 March
2008, KBRS appealed the deemed denial. The appeal was docketed as ASBCA
No. 56358.

       73. On 3 August 2009, the DCAA issued a Form I, No. I27 Revision-I, replacing
the 6 February 2007 Form I, No. I27, in its entirety and disapproving $I03,397,086 for
alleged costs of PSCs charged to Contract 0007. The amount in the Form I, No. I27
Revision- I, was the total estimated direct and indirect private armed security costs in the
29 August 2007 DCAA Report ($99,678,695) for the years 2003 through 2006 plus
$3,7I8,39I in KBRS mark-ups on those costs for that period. (ASBCA Nos. 57I5I,
57327, R4, tab 72 at 3-9)

        74. The total PSC security cost alleged in the DCAA Form I, No. I27 Revision-I,
($I03,397,086) was 2.32% of the related subcontractor total billings ($4,449,I52,680).
As a percentage of total billings, the PSC security costs of KBRS and its subcontractors
as alleged in the DCAA Form I, No. 127 Revision-I, (2.32%) were substantially lower
than the PSC security costs of the Iraq Reconstruction contractors (I2.5%) that were
performing in substantially the same security situation at the same period of time (see
finding 68). On this evidence, we find that the alleged PSC security costs of KBRS and
its subcontractors at issue were reasonable as to amount.

       75. On 24 August 2009, KBRS submitted an invoice under Contract 0007 for
payment of $22,279,678.49. On or about I September 2009, the government withheld
the entire amount of that invoice consistent with a recommendation in the DCAA Form 1,
No. 127 Revision-I, that the ACO "take immediate action to recoup the disapproved
costs." (ASBCA No. 57I5I, compl. and answer iii! 23-24; 57151, R4, tab 72 at 3) On
20 October 2009, KBRS submitted a certified claim under the CDA for $2I,I31,743 of
the withheld amount. When the PCO did not issue a decision on the claim, KBRS
appealed the deemed denial on I 9 March 2010. The appeal was docketed as ASBCA
No. 5715 I. (Compl. and answer iii! 4-6)

       76. In March 20IO, the government withheld an additional $2,I26,53 I from
payments due under Contract 0007 for further recoupment of the disapproved costs in the
DCAA Form 1, No. I27 Revision-I. On 16 June 20IO, KBRS submitted a certified CDA
claim for the remainder of the September 2009 withholding ($1,147,935.49) and the full
amount of the March 20IO withholding ($2,126,53 I) for a total claimed amount of
$3,274,466.49. (ASBCA No. 57327, compl. and answer iii! 26-27) When the PCO failed



                                            35
to issue a decision on this claim as required by the CDA, KBRS appealed the deemed
denial on 20 August 2010. The appeal was docketed as ASBCA No. 57327. (Id. 'i!'il 4-6)

       77. On 30 January 2013, the Rock Island PCO issued a "Contracting Officer's
Final Decision for Form 1 #127 and Claims, Costs Relating to the Use of Private Armed
Security on LOGCAP III Contract DAAA09-02-D-0007." The final decision found
unallowable $55,620,591.55 of the $103,397,086 suspended/disallowed costs in the
DCAA Form 1, No. 127 Revision-I, and the remaining $47,776,494.45 allowable. After
deducting the amounts withheld by the government ($19,652,815.00 on 22 October 2007,
$21,131,743.00 on 20 October 2009, and $3,274,466.49 on 16 June 2010) the final
decision claimed an amount of $11,561,567.55 8 as owed to the government. (Ex. A-210
at 15) KBRS appealed this decision on 15 February 2013. The appeal was docketed as
ASBCA No. 58559 and was consolidated for hearing and decision with ASBCA
Nos. 56358, 57151and57327.

                                        DECISION

        KBRS contends in its main brief that it is entitled to judgment on all of the appeals
because the contracting officer's final decision of 30 January 2013 asserting a
government claim of $55,620,591.55 (finding 77) was untimely (app. br. at 106-08). The
government did not address this contention in its reply brief. The CDA requires that
"Each claim by the Federal Government against a contractor relating to a contract shall
be the subject of a written decision by the contracting officer." 41 U.S.C. § 7103(a)(3).
The Act also requires that "each claim by the Federal Government against a contractor
relating to a contract shall be submitted within 6 years after the accrual of the claim."
41 U.S.C. § 7103(a)(4)(A). "Accrual of a claim" is defined in FAR 33.201 in pertinent
part 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."

        A government claim for recovery of payments made for allegedly unallowable
costs of KBRS and its subcontractors using PSCs in connection with their performance of
Contract 0007 accrued no later than 10 June 2005. Raytheon Missile Systems, ASBCA
No. 58011, 13 BCA 'i! 35,241at173,017-018. Prior to that date, on 29 August 2004,
LTC O'Day knew that PSCs were being used instead of military escorts (finding 41).
Prior to 10 June 2005, between April and August 2004, the DCMA Commander Iraq and
Rock Island PCO Watkins knew that PSCs were being used for movement by KBRS
personnel within Iraq (findings 47-48). Prior to 10 June 2005, on 24 March 2004, the
KBRS contact at MCB, MAJ Sessoms, was told that PSCs were being used for convoys
from Kuwait into Iraq (findings 58-59). Finally, on 10 June 2005, the government was



8
    The correct amount after the stated deductions is $11,561,567.06.

                                             36
expressly advised that PSCs were being used to transport personnel to their respect sites
in Iraq (finding 60).

       On these findings, the contracting officer's final decision of 30 January 2013 was
untimely and thus invalid and a nullity. We give it no further consideration and dismiss
the appeal in ASBCA No. 58559 for lack of jurisdiction. See The Boeing Co., ASBCA
No. 57490, I2-I BCA ii 34,916 at 171,680.

       The grounds for the withholdings at issue in ASBCA Nos. 56358, 5715I and
57327 were that the government had previously paid the withheld amounts to KBRS for
the costs of PSCs that it now believed were unallowable under the terms of the contract.
The government cites CENTCOM GO-IA made applicable to the contract by Special
Provision H-13, the promise of government force protection in Special Provision H-I 6,
and the "Weapons and Training" provisions in Special Provision H-21, as prohibiting the
use of PSCs to supplement the government force protection without the authorization of
the Theater (CENTCOM) commander for support that these costs were unallowable.

       In our 2 April 2012 decision denying appellant's motion for judgment on the
pleadings, we specifically addressed Special Provisions H-13, H-16, H-2I and
CENTCOM GO-IA. We held that none of these provisions categorically prohibited the
use of PSCs or mandated Theater Commander authorization for their use. Kellogg Brown
& Root Services, I 2-1 BCA ii 35,00 I at 172,0 I 6. After hearing and consideration of the
record as a whole, we reaffirm those holdings as to the Special H clauses and CENTCOM
GO-IA. Those clauses and GO-IA are clear. The extrinsic evidence offered by the
government may not be used "to create an ambiguity where [the contract] language is
clear." HRE, Inc. v. United States, I42 F.3d I274, I276 (Fed. Cir. I998) (citing City of
Tacoma v. United States, 3 I F.3d I I30, I I34 (Fed. Cir. I 994)). 9

        Subsequent to the award of the contract, CENTCOM recognized the use of PSCs
in its 4 July 2004 WARNORD that required MNF-1 to coordinate with other government
agencies to protect U.S. government contractors through "A COMBINATION OF
COALITION MILITARY FORCES, IRAQ SECURITY FORCES AND PRIVATE
SECURITY COMPANIES." The CENTCOM WARNO RD further stated that:
"CONTRACTORS CONTINUE TO HAVE THEIR RIGHT OF SELF DEFENSE AND
MAY, IN SOME CIRCUMSTANCES ARRANGE FOR CONTRACTOR SECURITY

9
    The government now contends that the KBRS proposal of26 January 2004 to
        subcontract for armed convoy security was an admission that the contract
        prohibited the use of PSCs without Theater Commander approval (gov't hr.
        at I22). We do not agree. The KBRS proposal was in response to a government
        request for a proposal to relieve the government from its contractual responsibility
        for protection of contractor convoys pursuant to the force protection clauses of the
        contract and task orders issued thereunder (findings 26-28).

                                              37
WITH A PRIVATE SECURITY COMPANY." (See finding 39) Neither the DFARS
7040 (June 2005) clause that was added to Contract 0007 by Modification No. P00012
effective 27 November 2005, nor CENTCOM GO-lB issued on 13 March 2006,
superseding GO-IA addressed the use of PSCs (see findings 6I-62, 67).

       The CENTCOM policy/general order dated 23 December 2005, requiring
CENTCOM authorization on a case-by-case basis for use of PSCs was clear, but under its
express terms, it was not applicable to existing contracts until it was contractually
incorporated into those contracts. KBRS had no notice of the existence of the order until
28 December 2006, and there is no evidence that Contract 0007 was ever modified to
include the 23 December 2005 policy/general order. (See finding 65)

       The government has the burden of proof in establishing that a cost is unallowable
by operation of a specific contract provision or regulation. Space Gateway Support, LLC,
ASBCA No. 56592, 12-1BCAir34,94I at 171,792; Lockheed Martin Western
Development Laboratories, ASBCA No. 51452, 02-1BCAir31,803 at I57,102. On this
record, we find that the government has not carried its burden of proving that during the
relevant period of performance (2003-2006) the terms of Contract 0007, the terms of the
task orders issued thereunder, or the terms of any regulation prohibited the use of PSCs to
supplement government force protection without the case-by-case authorization of the
CENTCOM Commander. Moreover, under Special Provision H-13, only the guidance,
instructions and general orders issued by the CENTCOM theater commander or
designated representative were contractually binding on Contract 0007. The guidance,
instructions, and general orders of military headquarters subordinate to CENTCOM (such
as MNF-1 and MNC-1), were not contractually binding under Special Provision H-13.

       A preponderance of the evidence shows that during the years 2003-2006 the force
protection provided by the government for Contract 0007 was not commensurate with the
threat or with the protection provided to DoD civilians. A preponderance of the evidence
also shows that the use of PSCs by KBRS and its subcontractors to supplement the
government force protection during those years was reasonably necessary for
accomplishment of the logistical support mission of Contract 0007 and the task orders
thereunder. (See findings 13-60) A preponderance of the evidence further shows that the
cost of PSC services used by KBRS and its subcontractors as alleged in the DCAA
Form I, No. I27 Revision-I, were reasonable as to amount (see findings 68, 74). On this
record we conclude that, in the security conditions prevailing in Iraq in 2003-2006, the
use of PSCs by KBRS and its subcontractors was reasonable as that term is defined in
FAR 31.201-3(a) (see finding 8).

       The government argues in its opening brief that: "If the government ever failed to
provide adequate force protection ... KBRS' remedy was delay" (gov't hr. at 13I). It
repeats this argument in the conclusion of its reply brief where it states "absent
permission to privately arm, the Contract solely permitted delay, which could be incurred


                                            38
without cost to KBRS" (gov't reply br. at 75). Fortunately for the troops that depended
on KBRS and its subcontractors for their life-support and other logistical support
services, KBRS and its subcontractors did not adopt the attitude now suggested by the
government as their only remedy for the government's failures to provide force
protection. As Mr. Murray, the ESS DFAC subcontractor manager expressed it: "if you
don't have a delivery coming in every third day, you're in trouble. You can't feed
soldiers. That was unacceptable to us, as a caterer, and to our client KBR. We could not
fail." (See finding 52) In this regard, we note that Contract 0007 was a "rated" order
under which a failure to deliver within the required time, could be subject to criminal
penalties (id.). See Martin v. Halliburton, 618 F.3d 476, 480 (5th Cir. 2010). Moreover,
the government's argument presupposes that PSCs were prohibited under the terms of the
contract. We have found otherwise.

        We have carefully considered the government's arguments as to estoppel, an
alleged CAS violation, and "political question." We find them without merit.
The government's estoppel argument is that (i) KBRS misrepresented to the government
that it was not using PSCs; (ii) that the government relied upon that misrepresentation;
and (iii) the government was materially prejudiced by that misrepresentation. Whatever
damages the government may have suffered as a result of any misrepresentation by
KBRS as to its use of PSCs, they are not represented by the costs of the PSCs that we
have found allowable and which the government is contractually bound to reimburse.
We also find no ')udicial estoppel" arising from the tort litigation cited by the
government (gov't br. at 114, 132). There is no conflict between the KBRS position in
the tort litigation that the government had the primary responsibility for force protection,
and its position in the present litigation that the government had primary responsibility
for force protection, but if it failed to carry out that responsibility, there was nothing in
Contract 0007 that prohibited KBRS from hiring PSCs to the extent necessary to
accomplish the logistical support mission.

        The government allegation of a CAS violation is that PSC costs benefitting only
Contract 0007 were charged to a KBRS Middle East Regional Office (MERO) overhead
rather than as a direct cost to Contract 0007 (gov't br. at 128). The KBRS MERO was a
"forward" home office for a number of KBRS contracts in the Middle East. The KBRS
PSC services for all of its Middle East contracts were procured by MERO and those
services were not confined to Contract 0007 (tr. 23/17-20). The government bears the
burden of proving CAS violations. Raytheon v. United States, No. 2013-5004, -5006,
slip. op. at 18 (Fed. Cir. April 4, 2014). On this evidence, the government has failed to
prove any CAS violation.

       As to the "political question" argument, the government states: "For KBRS to
prevail, the Board must adjudge that the military force was inadequate and thus the PSCs
were necessary. Such a task falls squarely within the political question doctrine and is
thus non-justiciable." (Gov't br. at 146) We disagree. The "political question" doctrine


                                             39
does not apply to the adjudication under the CDA of whether or not the government has
met a contractual obligation to provide adequate force protection to the contractor. See
Burnside-Ott Aviation Training Ctr. v. Dalton, 107 F.3d 854, 858 (Fed. Cir. 1997) ("In
government contract disputes ... the initial determination in each dispute is made by one of
the parties, i.e., the CO. Congress commanded [in the CDA] that the CO's decision on
any matter cannot be denied Board review."). In any event, there is no real question that
the government did not provide force protection on a consistent basis. Our findings
reveal this lack of force protection was a constant problem and the commanding generals
testified they did not have the resources to provide it.

       We have also considered the government's numerous objections to the presiding
judge's rulings limiting discovery, the number of documents, testimony of witnesses, the
pages of brief, and excluding entirely classified documents pertaining to operations in
Iraq that were still classified seven to ten years after the operations took place, and could
not be disclosed to appellant's lead counsel who did not have a security clearance. 10
With the first of the appeals having been filed in March 2008, and after five years of
discovery and motion practice, hearing on these appeals was finally held on 24 hearing
days between 11 April and 25 July 2013. At hearing, 24 witnesses testified and 37,000
plus documents were received in evidence. These proceedings had to end at some point
and the limitations on discovery, witnesses, documents and pages of briefs did not violate
this Board's rules or the discretion inherently granted to tribunals to control their
proceedings.

       We sustain the appeals in ASBCA Nos. 56358, 57151and57327. In ASBCA
No. 56358, KBRS is entitled to recover from the government $19,652,815 with interest
under the CDA (41 U.S.C. § 7109(a)(l)) from 22 October 2007 until paid. In ASBCA
No. 57151, KBRS is entitled to recover from the government $21,131,743 with interest
from 20 October 2007 until paid. In ASBCA No. 57327, KBRS is entitled to




10
     The administrative burden of handling at hearing classified documents on tactical
         operations in Iraq occurring seven years to ten years ago (see gov't br., ex. 13)
         outweighed any perceived evidentiary benefit particularly since none of the
         documents were alleged by the government to be outcome determinative and
         involve the very question that the government alleges is a "political question," the
         amount of military force that was necessary.

                                               40
$3,274,466.49 with interest from 16 June 2010 until paid. As previously stated above,
ASBCA No. 58559 is dismissed for lack of jurisdiction.

      Dated: 17 June 2014


                                                ~AQµu~
                                                MONROE E. FREEMAN, JR.
                                                Administrative Judge
                                                Armed Services Board
                                                of Contract Appeals


I concur                                        I concur




                                                RICHARD SHACKLEFORD
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. 56358, 57151, 57327,
58559, Appeals of Kellogg Brown & Root Services, Inc., rendered in conformance with
the Board's Charter.

      Dated:



                                                JEFFREYD. GARDIN
                                                Recorder, Armed Services
                                                Board of Contract Appeals




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