“Alleged statements that costs were ‘reasonable,’ ‘actual,’ or based on adequate analysis constitute false claims under the FCA due to KBR’s alleged reckless failure to verify the truth of First Kuwaiti’s claims in light of information suggesting that First Kuwaiti’s claims were inflated, information of which KBR was or should have been aware at the time it made each claim for payment,” Darrow said.

In its motion to dismiss, KBR claimed that whether costs are reasonable is an “inherently subjective determination,” and that allowing the FCA claims to continue would grant the government license to “freely transform disputed issues in cost reimbursement contracts into fraud claims.”

The company also claimed that the federal court did not have jurisdiction over portions of the suit alleging it violated the Contract Disputes Act and breached its contract, which Darrow rejected.

KBR is the U.S. Army’s primary contractor for logistical support in Iraq under the Logistics Civil Augmentation Program, and the government says it has paid the company tens of billions of dollars for logistical support services since awarding the contract. KBR is paid a 1 percent base fee and a discretionary award fee of up to 2 percent on top of project costs, according to the government’s original complaint.

The U.S. Department of Justice filed the $150 million set of claims against the company in 2012, claiming First Kuwaiti’s bid for the subcontract proposed a cost-per-trailer that nearly doubled what the manufacturer of the buildings suggested, which KBR explained to the government was intended to reflect First Kuwaiti’s commitment to assume the risk of increased cost related to war-zone delays. Despite its agreement to bear those costs, First Kuwaiti allegedly asked KBR twice to up the contract price because of government-caused problems that delayed the trailers.

But KBR and First Kuwaiti allegedly knew early on they would not meet a December 2003 deadline to install the trailers, in part because the supplier was not able to ship enough trailers, then blamed delays on the government, the complaint says. The suit says many of the delays KBR experienced in installing the trailers are attributable to weather or acts of God, and were not the government’s fault.

An attorney for KBR did not resond Tuesday to a request for comment. A DOJ representative could also not be reached.

KBR is represented by Jan Paul Miller of Thompson Coburn LLP.

The DOJ is represented by in-house attorneys Michael D. Granston, Russell B. Kinner, John A. Kolar and Judith Rabinowitz.

The case is United States of America v. Kellogg Brown & Root Services Inc. et al., case number 4:12-cv-04110, in the United States District Court for the Central District of Illinois, Rock Island Division.

They filed a complaint with the Justice Department and the Securities and Exchange Commission, requesting an investigation and demanding that the confidentiality statements be turned over to federal authorities so allegations of fraud can be identified.

“The apparent purpose and intent of the confidentiality agreements was to vacuum up any potential adverse factual information, conceal it in locked file cabinets and gag those with first-hand knowledge from going outside the company,” Stephen M. Kohn, an attorney for the whistleblower, wrote in the complaint.

Mark E. Lowes, KBR’s vice president of litigation, said the confidentially statements are designed to protect the integrity of the internal review process, not to conceal information. He said that the company often receives unfounded complaints and that the process is designed to ensure those complaints are not publicly circulated. He also said KBR employees are encouraged to report allegations of wrongdoing. If those allegations are supported by the facts, he said, they are forwarded to the proper authorities.

Lowes said attorneys for the whistleblower in the fraud case are raising a false issue. “This is a desperate act to try to deflect people from the merits of the case,” he said. He said that KBR has filed court motions to dismiss the case and that he expected the motions to succeed.

A spokeswoman for Halliburton said that “the litigation involves alleged activity of KBR, which is now a completely separate company from Halliburton. Accordingly, we have no further comment on the matter.”

Halliburton, which owned KBR at the time of the alleged violations, remains a defendant in the lawsuit, court records show.

For years, Halliburton has been one of the biggest players in U.S. government and U.S. military contracting, and the company was headed by Richard B. Cheney before he became vice president. In 2006, Halliburton separated from Kellogg Brown & Root, which is now a stand-alone company known as KBR.

Between 2002 and 2011, KBR was the largest U.S. contractor operating in Iraq and Afghanistan, winning nearly $40 billion worth of federal work, according to the U.S. Commission on Wartime Contracting in Iraq and Afghanistan. KBR has been the subject of numerous lawsuits and allegations of fraud relating to contracts with the U.S. government, according to the war commission and the Justice Department.

Tim McCormack, a lawyer who specializes in whistleblower cases, said that he has seen numerous confidentiality agreements but that the one used by KBR is particularly stark because it threatens employees with termination and possible legal action if they speak out.

“This is mostly about trying to scare someone into not talking,” McCormack said. “It’s very effective to say you will be fired or sued. This is a very big company with lots of resources.”

The existence of the previously undisclosed statements surfaced two weeks ago during a sworn deposition provided by KBR’s vice president of legal affairs. The deposition was taken as part of a whistleblower lawsuit that accuses Halliburton and KBR of inflating the cost of laundry and other services on U.S. military bases in Iraq. The companies have denied the allegations.

The statements prohibit employees who want to report fraud from discussing the “subject matter” of their allegations without “specific authorization” from the company’s general counsel. Employees are warned that “unauthorized disclosure of information” could cause “irreparable harm” to the company.

Employees are told that if they violate the terms of the statements, they could face “disciplinary action up to and including termination of employment,” according to a copy of the three-paragraph statement.

The statements have been used “for years,” KBR attorney Christopher Heinrich said during the Feb. 5 deposition. He said he thought the statements had been drawn up by an attorney for Halliburton.

Heinrich also said under questioning that KBR had fielded nearly 1,000 tips concerning one federal contract alone, LOGCAP III, a multibillion-dollar military service and supply contract in Iraq.

Heinrich said the intent of the statement is clear.

“It does instruct the individual that if they want to discuss it they have to get KBR general counsel approval,” he said, according to a transcript of the deposition. “They are prohibited from discussing any particulars regarding this interview and the – and the subject matter discussed in the interview.”

Attorneys for Harry Barko, the whistleblower suing Halliburton and KBR, came across the statements during the discovery phase of the lawsuit. The suit alleges that Halliburton and KBR inflated the costs of services provided to military bases under the LOGCAP contract. The suit was filed in 2005, when Halliburton was the parent company of Kellogg Brown & Root.

Barko’s attorneys allege in the complaint to the Justice Department and the SEC that the statements were intended to intimidate employees with knowledge of fraud. They said the statements send a message that employees will be fired and sued if they publicly blow the whistle on wrongdoing.

Kohn said the statements violate the federal False Claims Act, which directs federal contractors to ensure that employees are free to report fraud, waste and abuse. Under the act, employers are prohibited from threatening workers who try to reveal fraud in government contracts.

Kohn also said the statements appear to be a violation of the Securities and Exchange Act, which makes it illegal for corporations to prevent employees from telling the SEC about possible violations of securities laws. Halliburton and KBR are publicly traded corporations and subject to SEC regulations.

“The confidentiality statement unquestionably impedes such communications,” Kohn said in the complaint. “It has a chilling effect on any employee disclosures, and contains explicit threats targeting any employee who may step outside of the corporate secrecy shield reflected in the confidentiality statement.”

A Justice Department spokeswoman declined to comment. A spokeswoman for the SEC cited agency regulations that forbid corporations from preventing “an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement.”