                ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeals of --                                )
                                             )
Kellogg Brown & Root Services, Inc.          )      ASBCA Nos. 57530, 58161
                                             )
Under Contract No. DAAA09-02-D-0007          )

APPEARANCES FOR THE APPELLANT:                      Craig D. Margolis, Esq.
                                                    Christian D. Sheehan, Esq.
                                                     Arnold & Porter Kaye Scholer LLP
                                                     Washington, DC

                                                    Amy L. Riella, Esq.
                                                    Carla Jordan-Detamore, Esq.
                                                    Christina J. Ferma, Esq.
                                                     Vinson & Elkins LLP
                                                     Washington, DC

APPEARANCES FOR THE GOVERNMENT:                     Arthur M. Taylor, Esq.
                                                     DCMA Chief Trial Attorney
                                                    Carol Matsunaga, Esq.
                                                     Senior Trial Attorney
                                                    Kara M. Klaas, Esq.
                                                     Trial Attorney
                                                     Defense Contract Management Agency
                                                     Carson, CA

                                                    Russell B. Kinner, Esq.
                                                    Patrick M. Klein, Esq.
                                                    David W. Tyler, Esq.
                                                     Trial Attorneys
                                                     U.S. Department of Justice
                                                     Washington, DC

                 OPINION BY ADMINISTRATIVE JUDGE MELNICK

        This appeal involves the government's LOGCAP III contract with Kellogg
Brown & Root Services, Inc. (KBR). Through this contract, the government acquired
support services during United States military operations in Iraq. KBR seeks the costs
it incurred settling two requests for equitable adjustment submitted by a subcontractor
providing accommodations to house military personnel. Because KBR has failed to
demonstrate that the costs were reasonable, it is not entitled to recover.
                                  FINDINGS OF FACT

        1. In 2001, the United States Army awarded Contract No. DAAA09-02-D-0007,
commonly called LOGCAP III, to KBR (originally Brown & Root Services, Division of
Kellogg Brown & Root, Inc.) (app. supp. R4, tab 47). LOGCAP III required KBR to perform
various support services for the government through individual task orders (app. supp. R4.
tab 4 7 at 4668, 4 718-19). See Kellogg Brown & Root Servs., Inc. v. United States, 728 F .3d
1348, 1353 (Fed. Cir. 2013). Among the clauses incorporated into LOGCAP III were Federal
Acquisition Regulation (FAR) 52.216-7, ALLOW ABLE COST AND PAYMENT (MAR 2000 ); and
FAR 52.244-6, SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL COMPONENTS
(OCT 1998) (app. supp. R4, tab 47 at 4699, 4708). 1 Section H-16 ofthe contract's special
provisions for contingency operations provided that, while performing contract duties, the
Service Theater Commander would "provide force protection to contractor employees
commensurate with that given to Service/Agency ... civilians in the operations area" unless
otherwise stated in a task order (id. at 4759).

       2. In early August 2003, after United States forces entered Iraq, the government
executed LOGCAP III Task Order (TO) 59 (R4, tab 201). TO 59 was a
cost-plus-fixed-fee order for services from KBR in support of operations in Iraq (id.
at 200009). On October 10, 2003, the government executed Statement of Work
Change 5 (incorporated into Modification No. 06 to TO 59) (R4, tab 225). Among
many things, Change 5 required KBR to provide living accommodations to CJTF-7
and other coalition forces in various locations in Iraq (id. at 200293). CJTF-7 was the
combined joint task force designated as the command and control headquarters for the
Iraq theater of war (tr. 2/71).

        3. Change 5 stated that it was "the Commander's intent to rapidly bed down the
remainder of CJTF[-]7 soldiers .. .in accordance with established and provided priorities''
(R4, tab 225 at 200293 ). Prior to this effort, soldiers slept wherever they could in
temperatures that could exceed 100 degrees. The locations included abandoned schools,
public buildings, homes, tents, vehicles, the ground, or any other place soldiers could put a
sleeping bag. (Tr. 2/110-11) The military sought to provide facilities to escape harsh
conditions so soldiers could recharge for future missions (tr. 2/112). The accommodations
constituted over 18,000 containers or trailers containing specified furnishings,
environmental units, lighting, and meeting other requirements, to be delivered to multiple
sites in Iraq (R4, tab 225 at 200297-329; tr. 3/70). 2 The Commander established an
aggressive goal to "bed down" all the soldiers by Christmas of 2003 (tr. 2/112).
Accordingly, with exceptions not relevant here, Change 5 required the trailers to be

1   The contract states the clause is dated "OCT/2001" (app. supp. R4, tab 47 at 4708).
         No such clause was discovered. The version of the clause dated "OCT 1998,"
         which was in existence at the time of contract award and bears the same title as
         the referenced clause in the contract, is deemed applicable.
2   All of the accommodations are referred to as trailers.
                                             2
provided "[n]o later than" December 15, 2003 (R4, tab 225 at 200296-97). Change 5
stated that "[t]he government [would] 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" (id. at 200294).

       4. One of the numerous sites described in Change 5 was "Site A'", known as
Camp Anaconda (R4, tab 225 at 200296, -298; app. prop. finding 17). Camp Anaconda
(also called Balad) was the main supply and logistics base for Iraq (tr. 2/89). KBR was to
provide, set-up, operate, and maintain 2,252 trailers at Camp Anaconda. It was also
required to perform site preparation and produce a site layout (with the assistance of
appropriate government engineers). (R4, tab 225 at 200304-05)

        5. KBR defined a minimum standard for its trailers based upon a design from a
Saudi Arabian contractor named Red Sea. However, Red Sea would not deliver the
trailers to sites in Iraq, and KBR did not have the resources to perform that function
itself. So it decided to subcontract out the complex logistical issues associated with
purchasing the units, transporting them under extremely hazardous conditions that
threatened life and equipment, installing them, and assuming the associated risks. (R4,
tab 625; tr. 8/39-40)

        6. On October 17, 2003, one week after Change 5 was issued by the
government, KBR and First Kuwaiti Co. of Kuwait (FKTC) executed a firm-fixed-price
subcontract (Subcontract 11) in the amount of $80,978,562 for the procurement and
delivery to Camp Anaconda of 2,252 prefabricated trailers (app. supp. R4, tab 62). The
subcontract was to be construed and governed by the laws of Texas (id. at 4937).
FKTC was to manufacture the trailers and then transport them to a staging yard
bordering Iraq. From there, FKTC would transport them and their contents in convoys
to Camp Anaconda. "Security of Subcontractor personnel in convoys and on site,
[would] be provided commensurate with the threat, and [in accordance with] the
applicable Theater Anti-Terrorism/Force Protection guidelines." FKTC would provide
all equipment and labor to set-up and install the trailers. (Id. at 4923-30) FKTC
represented that Red Sea would be its main trailer manufacturer (app. supp. R4, tab 56
at 4905; tr. 5/124). KBR considered the transportation component of the subcontract
price to cover all movement costs, including any "prolonged delays at border crossing
sites" (app. supp. R4, tab 270 at 8330).

       7. Section 4.0 of the subcontract was titled "TIME OF PERFORMANCE."
Section 4.1 required FKTC to begin work the next day, October 18. In accordance
with Change 5 it was to complete all work by December 15. However, the section
recognized that allowances would be made "for delays in KBR convoy coordination
and support." Section 4.2 required FKTC to "make whatever adjustments in working
hours, manpower, equipment, etc., deemed necessary by" KBR. The costs of those
adjustments would be to FKTC's account. (App. supp. R4, tab 62 at 4924)


                                           3
       8. The subcontract contained General Conditions, supplemented by Special
Conditions. In the event of conflict, the Special Conditions took precedence (app.
supp. R4, tab 62 at 4943). General Condition 3.2.5 stated that ifFKTC was delayed
by the government's or KBR's failure to perform, or by order of KBR, FKTC would
be entitled to an equitable adjustment in compensation and/or time of performance if
the delay substantially increased FKTC's costs or the time its equipment and forces
were on site (id. at 4933).

        9. General Condition 8.1 and Special Condition 4.0 provided separate Changes
clauses. However, Special Condition 4.3 stated that, except as provided in that clause.
no order, statement or conduct would entitle FKTC to an equitable adjustment. Special
Condition 4.4 required an equitable adjustment for changes increasing or decreasing
FKTC's costs or time for performance. Special Condition 4.5 required FKTC to assert
its right to such an adjustment by timely furnishing KBR a written statement of the
amount of its proposal and a detailed cost breakdown. The costs were to conform to
Part 31 of the FAR and the Department of Defense (DoD) FAR Supplement. (App.
supp. R4, tab 62 at 4936, 4947-48)

        10. General Condition 9.4 of the subcontract required FKTC to maintain books
and records reflecting its performance and to preserve them for three years after
completion. It granted KBR the right to inspect and audit those parts of the records
relating to cost reimbursement or performance of labor provisions. It required copies
of those records supporting requests for payment or compliance with labor related
subcontract provisions to be furnished to KBR. (App. supp. R4, tab 62 at 4937)

        11. FKTC was a Kuwaiti contracting and construction firm with multi-million
dollar projects. It had a number of contracts with the government, including embassy
construction. FKTC had approximately 70 subcontracts with KBR in 2003-04. One
of its founders was an expert in finance and it also maintained a finance department
led by a manager with 19 years of experience. FKTC had continual growth, making it
one of Kuwait's largest companies. All of these factors demonstrate that it functioned
at a sophisticated level. (Tr. 5/120-21, 7/237-39, 9/238-49)

        12. On October 16, 2003, KBR awarded another subcontract (Subcontract 10)
to American General Trading and Contracting W.L.L. (AGT) for the delivery of
trailers to other locations (R4, tab 233).

        13. Main Supply Route (MSR) Tampa was the critical road for transporting
supplies into Iraq from Kuwait (tr. 2/82-83, 3/31). The convoy staging area at the
Kuwait border was called Navistar (tr. 2/84, 210-11 ). Because there was a war on,
MSR Tampa was extremely dangerous. Insurgent attacks began in the spring of 2003
and people were shot and killed. (Tr. 2/86, 102-03) Among those who frequently lost
their lives were KBR affiliated personnel. Its vehicles were attacked at least as early
as July 2003. (App. supp. R4, tab 214 at 5699; R4, tab 218; tr. 2/86, 137) KBR was

                                           4
 aware of and concerned about convoy force protection prior to the issuance of TO 59
 (tr. 3/157). In June 2003, the military imposed movement restrictions, requiring
 military control and escorts into Iraq of all assets, including contractors (tr. 2/86-87,
 96, 102-03 ). The military required the escorts to reduce disruptions that would
 otherwise arise from attacks upon unescorted elements (tr. 2/87-88).

         14. The resources available to escort convoys into Iraq were not unlimited.
 However, the volume of materials that had to be transported was massive. Providing force
 protection to all the material moving into Iraq required prioritization of resources. It was
 impossible for everything to move immediately. Indeed, even in a fantasy world
 containing unlimited force protection assets, security threats and other constraints, such as
 the status of communication lines, could delay the delivery of materials. The dangers
 posed on the road delayed the movement of armed convoys. (Tr. 2/103-06, 3/40, 250) In
 a perfect world, people would not be shooting at the convoys. However, insurgents
 aggressively disrupted convoys, stranding vehicles and drawing escorts to other
 assignments using direct fire and explosives. (Tr. 2/184, 3/29-30) Sometimes,
 intelligence would conclude that the roads were too dangerous for travel at all and they
 would "go black" for days, meaning personnel were to stay off them (tr. 3/254 ). Not
 surprisingly, the military initially gave key war-fighting needs priority, such as food, fuel,
 ammunition, barrier material, repair parts, and medical supplies (tr. 2/104, 106). The
 CJTF-7 commander established those priorities (tr. 2/106). Significantly though, not even
 food was a priority in times of major fighting (tr. 2/106, 145). And, though living trailers
 were important to troop morale, they were not a relative priority either (tr. 2/108, 144-46;
 app. supp. R4, tab 146). KBR understood when issuing its subcontract to FKTC that the
 military determined the priority of convoy shipments (app. supp. R4, tab 492 at 27). The
 military used military police, augmented with all types of other units, to provide convoy
 escorts (tr. 2/114-15). Despite limited escort resources and security threats, hundreds of
 trucks usually crossed the border everyday, and everything that moved received force
 protection (tr. 2/102-03, 215).

         15. As the summer of 2003 turned to fall, the insurgency in Iraq intensified
  along with corresponding attacks on KBR convoys (app. supp. R4, tab 140; tr. 2/120,
  152-53). At the same time, the military was rotating forces into and out of the theater.
  Delays in transporting supplies followed for various reasons, including coordination
· problems in Kuwait, arrival of resources, vehicle breakdowns, efforts to militarily
  secure the country, discovery of explosives on the roads, and other reasons that
  inevitably occur while performing such operations over the extended distances at
  issue. (Tr. 2/128, 138, 156, 3/255) In essence, the effects of war on the roads limited
  the progress of convoys (tr. 4/196-97). Every day the military kept KBR aware of the
  security situation to maximize its coordination of assets (tr. 2/139-43). Both the
  military and KBR worked as hard as they could to support the troops and get convoys
  out of Kuwait (tr. 4/199).



                                              5
       16. Because of the dangerous conditions in Iraq, and the limitations upon the
military's resources to escort convoys, trailers backed up at the Kuwait/Iraq border
waiting for escorts (tr. 2/213-14, 3/40, 5/65). As of November 20, 2003, FKTC
reported to KBR that it had "250 trucks ready to go and more than 200 units ready in
our yard" (R4, tab 591 at 202741). At that time, food and fuel for Iraq was the
military's convoy priority (id. at 202742). By November 29, trailers were also delayed
due to hazardous road conditions (id. at 202758). By December 2, 150 trucks were
waiting (app. supp. R4, tab 121). When the administrative contracting officer (ACO)
discussed extending the period for delivering trailers, Army leadership initially
objected (tr. 3/89-90). Nevertheless, on December 10, 2003, KBR and FKTC
executed a subcontract change order extending the period for completion of all works
at Camp Anaconda to February 1, 2004, to account for convoy delays (app. supp. R4,
tab 130). There is no evidence that the government objected to this extension.

       17. On December 13, 2003, KBR issued another change order to the
subcontract with FKTC, adding a requirement for the delivery and installation of an
additional 1,760 trailers at Camp Victory (also known as BIAP), a command center
adjacent to Baghdad International Airport. The change was implemented because
KBR decided that AGT was unable to perform that portion of its subcontract. The
order established January 1, 2004, for the completion of performance at that location
and increased the subcontract's total firm-fixed price to $144,748,862. The deadline
was approved by the ACO. (App. supp. R4, tabs 133, 492 at 35-36; tr. 2/88)

        18. On December 23, 2003, Kuwaiti officials ordered FKTC to remove
overflow trailers from state property near the Iraq border (app. supp. R4, tab 145).
FKTC had entered two land leases with Al-Nour International Holding Co., at 90,000
Kuwaiti dinars per month for eight months (app. supp. R4, tab 76). FKTC removed all
of the trailers waiting at the border from their trucks and stored them on the land
(called a laydown yard) until they could be placed back on other trucks and into
convoys for transportation to Iraq (app. supp. R4, tab 223 at 6643, tab 320 at 9389-90:
tr. 4/113-14, 5/125). The number of backed-up trailers eventually exceeded over 1,000
(app. supp. R4, tab 213 at 5655, tab 503 at 256).

        19. Once at Camps Anaconda and Victory, the military designated trailer
locations, and stated it would reconfigure and grade the land, cover it with gravel, and
provide links to power generators (app. supp. R4, tab 65; tr. 3/66, 182, 185, 240-44).
KBR was to install trailers, trench for utilities, and plum the units (tr. 3/185-86). KBR
proposed initial trailer layouts, but the military adjusted those plans to increase trailer
dispersion (tr. 3/199-200). Accordingly, the number of areas and their layouts changed
and an extensive effort was required to prepare the land (tr. 3/67, 200-02, 240-44. 251 ).
These changes, along with reprioritization of resources to address threats from
explosives, delayed site preparation (tr. 3/66, 196; tr. 5/64). When a trailer arrived at a
camp and a permanent site was not ready for it, it had to be double handled. That meant
it was removed from the delivery truck and placed in a laydown yard to wait. When its

                                            6
permanent location was ready, the trailer was reloaded onto a truck, moved across the
camp, and placed into its final location. (App. supp. R4, tab 320; tr. 3/225, 251) For the
first two or three months that trailers arrived at Camp Victory, the same crane offloaded
trailers at laydown yards and installed them in their final positions (tr. 3/252-53, 257-58).
The term "double handling" was used in this appeal to refer to both the transfer on and
off trucks at the camps, as well as onto and off the land at the Kuwait border.

        20. Through a series of additional change orders, KBR and FKTC extended the
subcontract's period of performance for both camps to August 1, 2004, to address
trailer backups (app. supp. R4, tabs 162, 174,191,204). The government did not
object.

       21. FKTC submitted a proposal to KBR that KBR characterizes as a request for
equitable adjustment (the double handling REA) (app. supp. R4, tab 212). The
document roughly broke into three cryptic sections. The first section referred to the
leasing of land for temporary storage of trailers intended for Iraq, along with other
services. Its line items provided monthly rates (not costs) for the lease of land at the
border, site preparation, security, temporary office space, power, lights, cranes,
flatbeds, a loader, forklifts, "protect[ion] ... from Natural Calamity," "Skilled
worker[s]," a supervisor, food for drivers, and transportation. These items added up to
$1,611,966 per month. FKTC stated that this was "a monthly rate for storage and
double handling of 4083 units for both Anaconda and Victory." It multiplied that
amount over eight months to total $12,895,728.

       22. The second section of the REA stated that it contained costs arising from
double handling for Camp Victory. It again provided monthly rates (not costs) for
items like those in the first section. These added up to a monthly rate of $535,000.
FKTC multiplied this figure by five months to total $2,675,000. (App. supp. R4, tab 212
at 5644)

        23. The third section of the REA referred to repairs consequent to double
handling. It did not describe any repairs, or what might have happened to require any,
but charged $300,000 for skilled workers, along with additional amounts for a
supervisor, engineers, food, buses, trucks, and other vehicles. These added up to a
monthly rate (not costs) of $508,150. FKTC multiplied that figure by five months to
reach $2,540,750. FKTC then added $550,000 for tools, equipment, and materials to
total $3,090,750. Finally, FKTC sought $15,106,500 in overhead. All together, the
double handling REA initially sought $33,767,978. (App. supp. R4, tab 212 at 5645-46)

        24. KBR's subcontract administrator determined that KBR had ordered FKTC
to perform double handling and had "guaranteed" FKTC reimbursement of costs. He
requested FKTC to submit an itemized breakdown. He inspected some trailers
identified as having been repaired. He also sought information from other KBR


                                            7
personnel about contract and cost information it incurred to lease equipment in Kuwait
for the purpose of comparing prices. (App. supp. R4, tabs 227, 229, 472-73; tr. 4/32)

       25. On June 21, 2004, FKTC revised its payment demands, adding double
handling and repair costs for Camp Anaconda. The total sought was $30.6 million.
(R4, tabs 219-21, 224-25) Like the initial submittal, the revised version and associated
documents stated rates and prices for the listed equipment and services. FKTC did not
disclose its costs, despite the fact that it did maintain records of some equipment costs.
(App. supp. R4, tabs 232,314 at 9340-53; tr. 4/116-19, 129,131, 191-92, 8/68-69)
Indeed, KBR lost interest in ascertaining FKTC 's costs of performing the work at
issue. Instead, it focused on FKTC' s stated prices and its own opinions of appropriate
prices. (App. supp. R4, tab 227; tr. 4/32-38, 115-16, 129-36, 144-45) A price is
typically cost plus profit (tr. 9/231 ). So, prices are normally higher than costs.
Furthermore, KBR never verified what additional equipment FKTC used to complete
its work (app. supp. R4, tab 304).

        26. On August 1, 2004, KBR and FKTC executed a change order adding
$23,831,147.25 to the subcontract price. The order provided that it encompassed all
double handling charges, repairs caused by double handling, repairs arising from poor
site preparation, and repairs arising from government use. The parties derived the total
from specified prices they established for each category of charges, including
$3,600,000 for the lease of land in Kuwait. (App. supp. R4, tab 236) KBR executed
the change order after deciding that FKTC's prices were fair and reasonable (tr. 4/38).

       27. On July 15, 2004, FKTC submitted another proposal to KBR for an
equitable adjustment. This one was in the amount of $41,971,166 associated with
83,942 claimed days of idle truck time FKTC alleged occurred at the Kuwait/Iraq
border (the delay REA). (R4, tab 591) As was the case with its double
handling/repairs request, FKTC did not base its delay REA upon actual costs. For
example, the truck leases FKTC submitted redacted the prices FKTC paid for trucks,
thereby refusing to disclose its costs (app. supp. R4, tab 314; tr. 4/120, 227-30, 241,
6/150-51). FKTC simply proposed a $500 daily price for an idle truck and driver (app.
supp. R4, tab 242; R4, tab 591 at 202705, 202915; tr. 4/120). Nor did FKTC present
records of the number of days individual trucks actually waited to cross the border,
though it had recorded when trucks crossed the border (tr. 4/199-200, 7/271-76).

       28. FKTC did not calculate its actual number of delay days (tr. 7/257). It
proffered a model that (with some adjustments and assuming specific total numbers of
trucks were available) presumed, without substantiating data or records, that each day
the number of trucks necessary to ultimately complete final delivery within the
subcontract's period of performance actually arrived at the border. It also assumed
that each truck took a specified amount of time (five or seven days) to deliver trailers
and was not delayed in Iraq. In fact, the trip into Iraq and back could take weeks.
FKTC then simply subtracted from the total of all assumed daily arrivals at the border

                                            8
the number of trucks that proceeded across the border on a particular day, deriving a
total number of truck delays for that day. It aggregated each day's number of delays
over the total period it said delays occurred. (R4, tab 591; tr. 4/194-203, 7/257-91,
9/33-35) The model assumed 600 trucks were available to serve both Victory and
Anaconda. It assumed every truck arriving at the border would be placed into a
convoy for Iraq the very next day, and therefore all idleness at the border was
compensable. It also assumed a perfect world where everything worked flawlessly.
(Tr. 7/263, 267,269, 280-81, 9/33, 58-59)

        29. This plan was not realistic (tr. 8/82-83). In fact, it was not known where all
the trucks were at any given time (tr. 4/198, 202). Furthermore, the model failed to
account for trailers offloaded onto the leased land, relieving trucks from having to
wait. According to the model, on multiple occasions FKTC experienced over 400
truck delay days on a single day, though FKTC had said it only needed between 100
and 150 trucks available for convoys per day (R4, tab 591 at 202915-926; tr. 5/125).
FKTC did not always have the number of trucks available at the border dictated by the
model or have access to the model's required number of trucks. Sometimes, FKTC
calculated more delay days than possible for either the assumed or actual number of
trucks available. (Tr. 9/37-38, 51-78) As one example, FKTC reported on
December 2, 2003, that it had 150 trucks waiting, but the model charged for 403 (app.
supp. R4, tab 121; R4, tab 591 at 202922). FKTC and KBR also maintained status
reports showing the number of trailers waiting at the border on specific days, and a
Delivery Report for particular days showing the number of trailers waiting on trucks.
These reports generally showed lower numbers than the Delay REA. (R4, tabs 266,
276,280,303,440,482,487,495; app. supp. R4, tab 213) FKTC also attached to its
REA numerous communications with FKTC discussing significantly different
numbers of trucks and trailers available at the border than shown in the model (see
gov't br. at 142 (citing various materials contained in R4, tab 591)).

         30. On August 4, 2004, FKTC amended its request to slightly lower the
number of delay days to 83,078 and reduced the daily rate to $300 "based
upon ... competitive market rates," (not costs), lowering the total sought to $24,923,400
(app. supp. R4, tab 239; tr. 4/42, 233, 237-38).

        31. Upon reviewing FKTC's delay proposal, on August 2, 2004, KBR's
subcontract administrator informed its procurement and supply manager for LOGCAP
III that the subcop.tract did not entitle FKTC to payment for convoy delays. He also
stated that FKTC's $500 daily rate was a market rate, and suggested that any request
had to be supported by actual costs incurred. The KBR manager agreed that FKTC
could only seek its actual costs, not some standardized rate. (App. supp. R4, tab 242:
tr. 4/15). Two days later, on August 4, and after KBR's manager met with FKTC,
another KBR subcontract administrator declared in an internal memorandum that the
burden of idle time delay costs was upon the government. He also noted that KBR's
prior practice had been to pay no more than a $300 price per day for idle truck and

                                            9
driver time. (App. supp. R4, tab 9) Contrary to his written statement that FKTC could
only seek costs, the KBR manager accepted $300 as a reasonable, competitive,
compensable market price without consideration of its costs (tr. 4/44-56). Indeed,
KBR never received any records or data showing FKTC's actual costs (tr. 4/237-39).
The KBR manager executed a subcontract change order declaring the government
responsible for 83,078 days of delay and adding $24,923,400 to the subcontract price
(app. supp. R4, tab 240).

        32. KBR paid both REA settlements to FKTC (tr. 5/26-28). It then sought and
received reimbursement of the settlements from the government, which were later
audited by the Defense Contract Audit Agency (DCAA) (app. supp. R4, tab 275).
DCAA requested cost data to support the settlement amounts. KBR never obtained
cost information from FKTC, except for data related to the land lease at the Kuwaiti
border. (Tr. 4/91, 107, 145,239, 5/22) DCAA first suspended the settlement amounts,
issued an audit report, and then ultimately disapproved them, finding that KBR had
failed to obtain cost and accounting data from FKTC to support the payments. The
final amount disapproved totaled $51,273,482, which constituted the settlement
amounts plus indirect costs and the award fee. (App. supp. R4, tabs 275, 291-92) The
government recovered what it had paid (tr. 5/135).

       33. The ACO reviewed KBR's settlement with FKTC and sought information
to consider a possible settlement of KBR' s reimbursement request. After the
settlement amounts were disapproved by DCAA, KBR suggested to the ACO that its
subcontract with FKTC was a commercial contract. (App. supp. R4, tab 309; tr. 5/53,
114, 133, 146-47)

        34. On December 29, 2006, the ACO issued an interim determination allowing
$25,564,516 of the total sought by KBR, but leaving the remaining $25,708,966
pending decision while he awaited additional information. The sum allowed by the
ACO applied to government-caused delays he recognized requiring the preparation
and rental of storage areas, as well as repairs arising from double handling. The
ACO's reason for deferring the balance was to await more information related to the
quantification of convoy delay days, duplication of equipment, and repairs arising
from vandalism. The ACO concluded at the time that the portion allowed was
justified because KBR's subcontract with FKTC sought "commercial-type trailers and
was awarded utilizing commercial procedures." Thus, "cost or pricing data" was "not
required." He concluded that "[a]dequate price analysis was provided." (App. supp.
R4, tab 316; tr. 5/145) The ACO stated that the $300 per day convoy delay rate was
reasonable and that hundreds of trailers did await convoys at the border for months.
But, that fact did not inform how many days individual trucks were delayed. He
rejected KB R's use of FKTC's "contrived" delay model for quantifying truck delays.
noting that it failed to justify the assumption that trucks became unavailable for
alternative work after they deposited their trailers on FKTC's leased land to await


                                         10
convoys. (App. supp. R4, tab 317) The ACO admitted that some of the amounts he
allowed were arbitrary (tr. 5/251-52).

       35. On November 4, 2010, KBR submitted a certified claim to the ACO for
$51,273,482 (app. supp. R4, tab 3). KBR then appealed from the deemed denial to
this Board on February 11, 2011, and the appeal was docketed as ASBCA No. 57530.
On July 29, 2011, the original ACO issued a final decision. Among other things, he
concluded that FKTC's delay model failed to show how long trucks were delayed at
the border between Kuwait and Iraq. KBR also failed to obtain adequate information
about FKTC's costs for additional equipment to perform double handling. He stressed
KBR's failure to field verify any additional equipment, manpower, protection, land
preparation, repairs, and double installations. However, the ACO agreed that KBR
had sufficiently supported FKTC's land lease cost of $3,600,000. With indirect cost
rates and fee, the total recognized was $3,783,005. (App. supp. R4, tab 449)
Essentially, the ACO reversed his interim determination that FKTC's cost information
was not necessary to allow reimbursement (tr. 5/198, 200,264). Though the ACO
received advice about the matter, his final decision was neither coerced nor mandated
by either DCAA or any other government entity (tr. 6/93-94 ). The final decision was
timely appealed to the Board and was docketed as ASBCA No. 58161.

                                      DECISION

       KBR seeks reimbursement of the costs of its REA payments. LOGCAP Ill's
Allowable Cost and Payment clause, which applies to this cost-reimbursement task
order, restricts KBR's payments to those permitted under FAR Subpart 31.2. Among
other things, FAR 31.201-2 limits allowable costs to those that are "reasonable."
Kellogg Brown & Root, 728 F.3d at 1358 (KBR may only receive its reasonable costs
under LOGCAP III). FAR 31.201-3 establishes standards for the assessment of cost
reasonableness. It states:

                      (a) A cost is reasonable if, in its nature and amount,
             it does not exceed that which would be incurred by a
             prudent person in the conduct of competitive business.
             Reasonableness of specific costs must be examined with
             particular care in connection with firms or their separate
             divisions that may not be subject to effective competitive
             restraints. No presumption of reasonableness shall be
             attached to the incurrence of costs by a contractor. If an
             initial review of the facts results in a challenge of a specific
             cost by the contracting officer or the contracting officer's
             representative, the burden of proof shall be upon the
             contractor to establish that such cost is reasonable.



                                           11
Cost reasonableness is a question of fact for the Board to decide. Kellogg Brown & Root,
728 F.3d at 1360. KBR bears the burden to prove the costs it seeks are reasonable. Id.
at 1363. Reasonableness is ascertained based upon the circumstances existing at the time
the costs were incurred. Kellogg Brown & Root Servs., Inc. v. United States, 742 F.3d
967,972 (Fed. Cir. 2014); Kellogg Brown & Root Servs., Inc., ASBCA No. 58081, 17-1
BCA ,i 36,595 at 178,263 (citing Boeing Aerospace Operations, Inc., ASBCA
Nos. 46274, 46275, 94-2 BCA ,i 26,802 at 133,282). FAR 31.20I-3(b) provides a
non-exhaustive set of considerations that can inform what is reasonable. They include:

                    ( 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,
             arms-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.

I.    The Delay REA

             A. No Government Failure to Perform the Prime Contract

        KBR incurred the cost of FKTC's delay REA upon the premise that the
government had delayed FKTC's transport of trailers into Iraq by 83,078 days
(findings 27-31). FKTC's delay model assumed the government was obligated to
commence escorting into Iraq any trailers that reached Navistar the day after arrival
(finding 28). Without ascertaining the government's position, KBR agreed to the
validity of the REA after concluding that the burden of idle time delay costs was upon
the government (finding 31). General Condition 3.2.5 of the subcontract entitled
FKTC to an equitable adjustment by KBR in the event of delay due to a government
failure to perform its prime contract responsibilities (finding 8). Thus, the first
question presented is whether it was reasonable for KBR to conclude that the
government failed to perform the prime contract.

       Change 5 to TO 59 stated that "[t]he government [would] 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" (finding 3). KBR inserted similar language into its subcontract with FKTC

                                          12
(finding 6). KBR does not contend that the military failed to provide security for
FKTC's trailer convoys in accordance with applicable guidelines. Nor does it suggest
the military made anything less than its best efforts to place trailers into convoys as
soon as possible given the existing conditions. In fact, it concedes the military made
its best efforts. (Tr. 11/95) Indeed, along with KBR, the military worked as hard as it
could to support the troops and get convoys out of Kuwait and into Iraq (finding 15).
KBR suggests the government failed its TO 59 obligations by not providing convoys
within sufficient time to prevent FKTC's trailers and trucks from having to wait at the
border (tr. 11/44-46). Alternatively, it contends that, in lieu of providing immediate
access to secured convoys, the government was obligated to alter KBR' s period of
performance.

        Contrary to KBR's assertions, a prudent person in the conduct of a competitive
business would not have concluded that it owed FKTC monetary compensation
because of the timing of the government's convoy assignments. 3 Nothing in Change 5.
or for that matter KBR's fixed-price subcontract with FKTC, identified a specific time
table that the military and KBR were obligated to follow to place trailers into secured
convoys. Thus, neither KBR nor FKTC had any contractual right to expect the
military to place any and all trailers arriving at Navistar into convoys the very next
day, as is assumed by FKTC's delay model (finding 28). 4


3   KBR relies upon a single judge order, limiting the government's discovery, that says
       the merits ofFKTC's REAs are not before the Board, and the Board will make
       no findings of fact as to how much money FKTC was entitled to recover under
       the REAs (Bd. corr. file, order dtd. Dec. 19, 2012). It is true that this is not an
       appeal by FKTC regarding its entitlement. FKTC was not in privity of contract
       with the government. However, the Board must address the extent of KB R's
       contractual obligations to FKTC to determine whether the costs it incurred
       paying the REAs were those that would be incurred by a prudent person in the
       conduct of competitive business. This is especially the case here, where no
       competitive restraints otherwise constrain payment, and the arm's-length
       bargaining between KBR and FKTC informs what costs are reasonable.
4
    KBR suggests that it was reasonable for it to incur the costs ofFKTC's delay REA
       based upon statements by CDR Kent Caldwell of DCMA in Kuwait.
       CDR Caldwell's internal email addressing the capacity of Navistar vaguely
       observed that he would "hate to think what we are paying to have these trucks
       sitting there with containers on them not moving." During his testimony he
       also cryptically agreed that "[i]t was understood that Army was going to pay for
       the inefficiencies associated with the way things were working." (App. supp.
       R4, tab 152 at 5371; tr. 3/154) Separately, KBR cites an August 2004
       after-action report issued by the commander of the Army's LOGCAP Support
       Unit generally observing that contractor force protection delayed performance.
       It declared that "[t]he government cannot hold the contractor responsible for
                                             13
        The absence of an express promise by the government was especially
meaningful under these circumstances. Months before TO 59 or Change 5 were
issued, KBR knew of the extraordinary hazards on MSR Tampa and convoy force
protection challenges. Its vehicles were attacked and. unfortunately, its affiliated
personnel were killed there. In June of 2003, the military had imposed movement
restrictions requiring escorts of all assets into Iraq. It was impossible for everything to
move across the border immediately. Insurgents disrupted convoys. Not surprisingly.
the CJTF-7 commander prioritized food, fuel, ammunition, and medical supplies ahead
of trailers. Change 5 required its mission to proceed "in accordance with established
and provided priorities." KBR understood the military established the priority of
shipments. (Findings 3, 13-14) It was not reasonable to expect a different order of
priority without express contract language to that effect. KBR made a conscious
decision to pass on the risks associated with these challenges to subcontractors like
FKTC through a fixed-price subcontract. It understood the fixed price covered any
"prolonged delays at the border." (Findings 5-6)

       KBR maintains that the Board's previous decision in Kellogg Brown & Root
Services, Inc., ASBCA No. 56358 et al., 17-1 BCA ,i 36,779, dictates a ruling in its
favor under the collateral estoppel doctrine. Collateral estoppel, otherwise known as
issue preclusion, "protects the finality of judgments by 'preclud[ing] re litigation in a
second suit of claims actually litigated and determined in the first suit.,,. Laguna
Hermosa Corp. v. United States, 671 F.3d 1284, 1288 (Fed. Cir. 2012) (citing In re

       these delays because force protection is a government obligation." (App. supp.
       R4, tab 241 at 8027)
               As this Board has held, "[ d]etermining the meaning of a contract starts
       with its language" and "[w]hen the contract's language is unambiguous it must
       be given its 'plain and ordinary' meaning and the [Board] may not look to
       extrinsic evidence to interpret its provisions ... Furthermore. "[ c ]onstruction of
       the language of the contract to determine whether there is an ambiguity is [also J
       a question of law." Therefore, ··[ e]xtrinsic evidence cannot be used to create an
       ambiguity where none otherwise exists." Auto. Mgmt. Servs. FZE, ASBCA
       No. 58352. 15-1 BCA ,i 36,119 at 176,329 (citations omitted). KBR has not
       identified any relevant ambiguity in Change 5 that requires resort to extrinsic
       evidence. Thus, the opinions it relies upon are irrelevant. Additionally, KBR
       does not suggest that it knew about these statements, or relied upon them, when
       deciding it was reasonable to consent to FKTC's REAs. Furthermore,
       CDR Caldwell had no contracting authority over TO 59, he did not purport to
       interpret its specific terms, and he was unfamiliar with KBR's obligations under
       its subcontracts (tr. 3/143-45, 154-57). Similarly, there is no evidence that the
       commander of the LOGCAP Support Unit had any contracting responsibility
       for TO 59 or purported to authoritatively interpret its specific tenns.

                                            14
Freeman, 30 F.3d 1459, 1465 (Fed. Cir. 1994)). Two of the elements to its application
are that the issue is identical to one decided in the first action, and the issue was
actually litigated in the first action. Id.

        In ASBCA No. 56358, the Board found that the military did not provide the
level of force protection promised for other materials and services delivered by KBR
under TO 59, and therefore the government was in breach. KBR and the
subcontractors identified in that appeal ultimately had to use private security to
perform their work. In contrast, here KBR does not accuse the military of providing a
contractually inadequate level of protection for its trailers. Everything that moved did
receive force protection (finding 14 ). KBR merely claims the military did not act fast
enough under its Change 5 obligations to place FKTC trailers into secured convoys.
backing trailers up at the border. ASBCA No. 56358 did not address, much less hold.
that Change 5 dictated time limits upon the government's provision of convoy security
for the trailers required by it. This appeal is not relitigating that question.

        KBR also suggests that Change 5 's requirement upon KBR that it complete
delivery of the trailers by December 15, 2003, constituted a guarantee by the
government that its convoy security would enable KBR to comply. Change 5 does not
expressly make that promise and to infer it is unreasonable given the circumstances.
KBR also contends that if the government was not going to provide enough convoys to
enable FKTC's trailers to avoid waiting at the border, then KBR was entitled to an
extension to the period to perform Change 5. Absent such an extension, it was
reasonable to conclude that FKTC was entitled to monetary compensation under the
subcontract. (Tr. 11/48) Indeed, the subcontract allowed for more time in the event of
convoy delays and required FKTC to bear the expense of adjustments to its working
hours, manpower, equipment, etc., as deemed necessary by KBR (finding 7). Notably,
in a series of its own subcontract change orders, KBR granted FKTC extensions of the
period of performance until August 1, 2004 (findings 16, 20). There is no evidence that
the government objected to these extensions or took any adverse actions in response to
them. The record simply does not support a conclusion that, despite convoy delays,
KBR and FKTC were still required to comply with the December 15 deadline.

        At bottom, FKTC executed a fixed-price subcontract with KBR for the delivery of
trailers to the government. Though FKTC was entitled to an equitable adjustment in the
event of delays stemming from a government failure to perform the prime contract.
nothing in Change 5 required the government to place FKTC's trailers into convoys
without delay. KBR concedes the government made its best efforts. The government
worked as hard as it could to get convoys out of Kuwait. Furthermore, it was clear from
events occurring at the border prior to the issuance of Change 5 that there could be no
expectation that trailers would receive priority. When convoy limitations slowed FKTC' s
delivery of trailers past the December 15, 2003, deadline, KBR granted FKTC appropriate
extensions, without government objection. Given the absence of a government failure to


                                           15
perform its promises, a prudent person in the conduct of competitive business would not
have incurred the cost of any extra compensation to FKTC.

               B. KBR's Indifference to FKTC's Actual Costs and Acceptance of
                  Proposed Prices to Settle the REA was Not Reasonable

        Even if the government's convoy scheduling in some way failed its prime
contract responsibilities and delayed FKTC, KBR has not shown that a prudent person
in the conduct of competitive business would have incurred the cost of the delay REA
payments it made to FKTC. Multiple reasons lead to this conclusion.

        Under the subcontract, KBR was responsible for paying an "equitable
adjustment" to FKTC in the event of a government performance failure causing delay
(finding 8). 5 "Equitable adjustment" is a term of art. United Launch Services, LLC
ASBCA No. 56850 et al., 16-1 BCA ii 36,483 at 177,764; Gen. Builders Supply Co. v.
United States, 409 F.2d 246,250 (Ct. Cl. 1969). "Equitable adjustments ... are simply
corrective measures utilized to keep a contractor whole." Bruce Constr. Corp. v.
United States, 324 F.2d 516,518 (Ct. Cl. 1963). They are "closely related to and
contingent upon the altered position in which the contractor finds himself." Id.; see
Sauer Inc. v. Danzig, 224 F .3d 1340, 1348-49 (Fed. Cir. 2000) (observing an equitable
adjustment covers increased costs resulting from a change, or changed conditions,
leading to extra work); VHC Inc. v. Peters, 179 F.3d 1363, 1366-67 (Fed. Cir. 1999)
(stating "[a]n equitable adjustment makes a contractor whole after the Government
modifies a contract," and "depends on actual costs incurred"). An equitable
adjustment reflects '"a particular contractor's costs,' and not the universal, objective
determination of what the cost would have been to other contractors at large." Bruce
Constr., 324 F.2d at 518-19. Thus, an equitable adjustment is not based upon market
prices, but reasonable incurred costs. Software Design, Inc., ASBCA Nos. 23616,
24897, 82-2 BCA ,i 16,073 at 79,740. "This consideration of the particular
contractor's actual and probable costs is tied to the overall function meant to be served
by equitable adjustments," which is to keep a contractor whole. Nager Electric Co. v.
United States, 442 F.2d 936,946 (Ct. Cl. 1971). An equitable adjustment's use of
actual cost data ensures that it does not produce a windfall. See Propellex Corp. v.
Brownlee, 342 F.3d 1335, 1338 (Fed. Cir. 2003).

        Though KBR's managers recognized that FKTC's delay REA could only seek
its actual costs, and did not entitle FKTC to payment for convoy delays, KBR did not
ultimately require evidence of costs before agreeing to pay $24,923,400 to FKTC
(finding 31). Instead, KBR adopted $300 per night as a reasonable market price for
idle trucks based upon a review of other business KBR conducted (id.). However,

5
    The subcontract was governed by Texas law (finding 6). Neither party cites any
        authority explaining how Texas defines the term "equitable adjustment," but
        neither do they suggest that it differs from the law of this jurisdiction.
                                           16
general market prices do not demonstrate FKTC's actual idle truck costs. They would
largely be driven by what FKTC actually paid to lease the trucks (which FKTC knew
but did not disclose) and how much it actually paid its drivers. Additionally, instead of
requiring actual evidence of the number of days trucks were delayed, KBR accepted an
unrealistic FKTC model of delay days developed from a series of perfect assumptions,
such as that each day the necessary number of trucks to complete performance on time
actually arrived at the border (though in fact that did not always happen), that travel
time was always the same (not true), and that everything worked flawlessly.
Significantly, the model also ignored the fact that, once FKTC procured land for a
laydown yard at the border, it removed trailers from trucks and placed them in the
yard, relieving at least some trucks and drivers from having to remain idle the entire
time trailers were delayed. The model is also inconsistent with contemporaneous
records FKTC did maintain showing the number of trucks at the border on specific
dates, and with communications attached to the REA between FKTC and KBR about
truck and or trailer status on specific days. (Findings 27-29) KBR has not
demonstrated that the FKTC model approximates the actual events that occurred.

        KBR suggests that it was unlikely FKTC possessed cost information because its
expert believed that many international contractors lack records of their costs
(tr. 7/203-04). That opinion says nothing about FKTC in particular. FKTC was one of
Kuwait's largest companies, with over 70 subcontracts with KBR alone, contracts with
the government including embassy construction, and other multimillion-dollar
projects. Its founder was an expert in finance and it maintained a separate finance
department. It was a sophisticated company. (Finding 11) Despite its numerous other
subcontracts with FKTC, KBR failed to present any direct evidence that it knew FKTC
did not maintain cost records. Added to these factors is that FKTC was required by its
subcontract with KBR to support equitable adjustments with detailed cost breakdowns
in conformance with FAR Part 31 and the DoD FAR Supplement. It was also required
to maintain books and records reflecting its subcontract performance and make them
available to KBR for cost-reimbursement purposes. (Findings 9-10) Indeed, FKTC
knew its truck lease costs but declined to disclose them. FKTC also maintained
records of when trucks carrying trailers crossed the border, and records of the number
of trucks waiting at the border on specific dates. (Finding 27) It simply strains
credulity that it did not record how much it actually paid its drivers while they waited
at the border or how long trucks actually waited, especially given that it would
ultimately seek millions of dollars in additional compensation for these events. It is
highly unlikely that a company could grow to the size and sophistication of FKTC
without tracking its costs. Significantly, KBR has not contended that it asked for such
records at the time the REAs were submitted, or knew that they did not exist. It was
not reasonable for KBR to simply assume they did not exist. It was not reasonable for
FKTC to consider their absence acceptable, especially in light of FKTC's
record-keeping responsibilities contained in the subcontract.



                                           17
        KBR also spent much of the hearing and its briefing contending that its
subcontract with FKTC was for commercial items. It implies for that reason it was
legally barred by the FAR from basing a subcontract REA with FKTC upon actual
costs. 6 That is not true.

        The FAR's definition of a commercial item is lengthy. A non-exhaustive
summary is that it encompasses items that are customarily used for nongovernmental
purposes that have been offered or sold to the general public, including items with
minor modifications that are not commercially available. Support services for the item
are commercial too if the source offers them contemporaneously to the general public
under similar terms and conditions using the same work force. Services offered and
sold competitively in substantial quantities in the commercial market based on
established catalog or market prices under standard commercial terms and conditions
are also commercial items. FAR 2.101 (2001 ).

        KBR focuses upon FAR Subpart 15 .4 which relates to contract pricing. It
claims FAR 15.402 through 15.404 and 43.204(b)(4) prohibit a contracting officer
from seeking information about a contractor's costs arising from delayed or changed
work on a commercial items prime contract, limiting review of an REA to a
comparison of previously proposed and actual government contract prices. KBR says
that is what it did here when it settled the delay REA for its subcontract. It concluded
that a $300 per night price to be paid to FKTC for idle trucks was reasonable upon a
review of other purchases it made for such services.

       There is no evidence FKTC ever relied upon the FAR interpretation proffered
now by KBR to justify settling its REAs on the basis of prices instead of costs. Nor
has KBR shown that it previously employed this interpretation when settling any other
subcontract REAs (and it had 70 other subcontracts with just FKTC) and then received
reimbursement from the government. It also cites no legal precedent supporting its
contention. 7 Indeed, KBR concedes the opposite is true. It admits that a prime


6
    KBR focuses upon FAR provisions dating to LOGCAP Ill's award in 2001.
7
    The best case relied upon by KBR is United Launch Services, LLC, ASBCA
        No. 56850 et al., 14-1 BCA ,i 35,511. There, the Board recognized that the
        limitation of prime contract equitable adjustments to costs when they arise from
        unilateral changes does not necessarily apply to the FAR's commercial items
        changes clause, which requires bilaterally negotiated changes and equitable
        adjustments to prime contracts. In that context, the equitable adjustment could
        account for changed market conditions. Id. at 174,067. KBR's subcontract
        with FKTC does not contain the FAR's commercial items changes clause. Its
        changes clause permits unilateral changes and requires REAs to be supported
        with costs conforming to FAR Part 31 (app. supp. R4, tab 62 at 4947-48).
        Nothing in United Launch Services dictates that the equitable adjustment of an
                                            18
contractor such as itself is not legally required to adhere to the FAR in administering
its subcontracts. It says that at some unstated time it simply volunteered to follow that
approach anyway. KBR acknowledges that, at most, the FAR "provides a useful
framework for analyzing the issues in these appeals." 8 (App. br. at 4 7 n.20)
Typically, prudent people engaged in a competitive business are incentivized to limit
their financial liability, not conjure reasons to enlarge it they admit are not legally
binding upon them and were not advanced by the party seeking payment. See Kellogg
Brown & Root, 728 F.3d at 1360-61 (acknowledging the lower court's conclusion that
prudent business people seize advantages and may not manufacture higher costs for the
government). KBR has simply not shown that its commercial items theory provides a
reasonable basis for it to have ignored FKTC's costs and resolve the REAs based upon
a price comparison. 9

       allegedly commercial subcontract must ignore costs and rely only upon a price
       analysis.
8
    KBR also overstates the FAR provisions upon which it relies. Within FAR Subpart
       15.4's framework for negotiating contract pricing is FAR 15.403-l(b)(3)'s
       prohibition upon the contracting officer requiring cost or pricing data when
       acquiring a commercial item. Cost or pricing data is a term of art
      encompassing all facts prudent buyers and sellers would reasonably expect to
       affect price negotiations significantly. The data must be certified. FAR 15 .40 I
      (200 I), see also FAR 2.101 (2017). As part of the negotiation of an equitable
       adjustment resulting from change orders, FAR 43 .204(b )( 4) requires a cost
       analysis (as described in FAR 15 .404-1 ( c)) "if appropriate." Neither provision
       purports to announce a new definition of the term "equitable adjustment" when
       applied to commercial items contracts, or outlaw consideration of a contractor's
       costs of work already performed to the determination. Nor does the Contract
      Pricing Reference Guide relied upon by KBR support its argument. That
       non-binding reference's section discussing equitable adjustments is consistent
      with the historical definition, stating that "[t]he cost for added work already
      performed should be the reasonable actual cost of the work required" (app.
       supp. R4, tab 454 at 11062). Its advice that cost and pricing data as defined by
      FAR 15.401 should not be required to evaluate proposed modifications of
       commercial items contracts does not purport to change the standard for
       determining an adjustment for work performed.
9   KBR suggests its commercial item theory deserves some heightened consideration
      because the ACO's interim determination regarding the REA settlements
      indicated that price analysis was sufficient and allowed some of the costs KBR
      seeks here. The ACO also admitted that some of the amounts he allowed were
      arbitrary. (Finding 34) Notably, the ACO then changed his mind about the
      matter in his final decision and denied all recovery except for the lease at the
       border (finding 35). Most significantly, the reasonableness ofKBR's costs are
       ultimately a question of fact for the Board to decide. Kellogg Brown & Root,
       728 F.3d at 1360; see also Wilner v. United States, 24 F.3d 1397, 1491 (Fed.
                                           19
       KBR' s commercial items theory is precluded for other reasons too.
Significantly, LOGCAP III incorporated FAR 52.244-6 (finding 1). That clause,
which among other things strictly limited the FAR's applicability to pricing
commercial items subcontracts to specific clauses inapplicable to this appeal, required
KBR to include its terms in any subcontracts for commercial items. KBR' s
subcontract with FKTC does not do so. Indeed, nothing in the subcontract states that
the parties considered it to be for commercial items.

       KBR also contends that its settlement with FKTC comports with the "jury
verdict" method of approximating damages discussed in Hi-Shear Tech. Corp. v.
United States, 356 F.3d 1372, 1376 (Fed. Cir. 2004). The jury verdict has been
recognized by the court of appeals "when damages cannot be ascertained by any
reasonable computation from actual figures." Id. However, it is not appropriate when
other, more exact methods would apply. Grumman Aerospace Corp. v. Wynne, 497
F.3d 1350, 1358 (Fed. Cir. 2007). One of the conditions necessary for applying the
approach is "that there is no more reliable method for computing damages." Id. KBR
maintains that requirement is met here because it "did not have actual cost data from
FKTC" (app. br. at 69-70). That is because KBR unreasonably declined to require
FKTC's cost data or FKTC unreasonably failed to maintain it in accordance with the
subcontract's terms. The jury verdict method does not relieve KBR from FAR
Part 31 's limitation of its recovery to costs that are reasonable.

       In sum, KBR has not shown that a prudent person conducting a competitive
business would have resolved FKTC's delay REA based upon the model submitted by
FKTC. That model was not realistic and did not approximate FKTC's actual costs
arising from a delay. KBR has not shown that FKTC lacked such information, why it
would lack such information, or why it would be reasonable not to have such
information given the subcontract's record-keeping mandate and requirement to
support REAs with actual costs. KBR has not shown that its settlement of the delay
REA with FKTC for $24,923,400 was reasonable.

II.   KB R's Settlement of the Double Handling REA on the Basis of Prices and Not
      Costs was Also Unreasonable

       KBR's request for reimbursement of the double handling REA suffers from
similar flaws as the delay REA. The $23,831,147.25 double handling REA
encompassed double handling at both the Kuwait border due to convoy backups, and at
the camps due to site availability; repairs arising from double handling, poor site
preparation, and government use; and $3,600,000 for the lease of land for the laydown
yard in Kuwait (finding 26). Given that Change 5 did not contemplate double

      Cir. 1994) (en bane) ( contracting officer's findings are not entitled to
      deference).
                                           20
handling arising from late site preparation, there is some merit to the conclusion that
the camp double handling work and resulting trailer repairs constituted changed work.
However, with one exception FKTC failed to support the double handling REA
elements with its costs. 10

        Like the delay REA, FKTC based its request upon rates and prices for its
equipment and services, not costs. This was despite the fact that it maintained records
of its equipment costs. Like the delay REA, KBR was indifferent to FKTC's costs,
focusing solely on FKTC's price demands for its services and its own opinions about
price reasonableness. Furthermore, KBR never verified what additional equipment
was used by FKTC to perform the changed work. (Findings 21-23, 25) KBR has
failed to show that it received or reviewed any invoices or other records of costs before
paying the REA. However, FKTC was required by its subcontract to support an REA
arising from changed work with costs conforming to Part 3 1, not proposed prices
(finding 9). Like the delay REA, KBR also advances its commercial items and jury
verdict theories to support its recovery. For the reasons previously given, they are
rejected. A prudent person conducting a competitive business would not have ignored
the subcontract's requirement that an REA based upon changed work was to be
supported with costs, as KBR did. KBR has not shown that its settlement of the
double handling REA, for $23,831,147.25, based upon proposed prices for the various
services, was reasonable.

                                    CONCLUSION

        KBR is not entitled to any recovery. The appeals are denied.

        Dated: November 19, 2018


                                                2--r(d:ld
                                                  MARK A. MELNICK
                                                  Administrative Judge
                                                  Armed Services Board
                                                  of Contract Appeals

(Signatures continued)


10
     The lease amount for the laydown yard plausibly flows from FKTC's costs.
        However, as explained above, KBR has not shown that FKTC was entitled to an
        equitable adjustment of its fixed-price subcontract because of backups at the
        border. Thus, it has not demonstrated that it was reasonable for KBR to incur
        the cost of double handling at the border or for laydown yard.

                                           21
I concur                                        I concur




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




       I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA Nos. 57530, 58161, Appeals of
Kellogg Brown & Root Services, Inc., rendered in conformance with the Board's
Charter.

      Dated:



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




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