“There is a serious problem in Afghanistan related to disputes regarding the payment of Afghan subcontractors by prime contractors,” John F. Sopko, the inspector general, wrote in a letter accompanying the report, which was sent to numerous senior officials this week, including Secretary of State John F. Kerry and Defense Secretary Chuck Hagel. “SIGAR has received testimonial and documentary evidence from credible sources alleging death threats, work stoppages, and strikes.”

With tens of billions of U.S. tax dollars flowing into Afghanistan since the war began in 2001, government contracting has proved highly lucrative for thousands of U.S. and foreign companies. But many projects also rely heavily on subcontractors, about 90 percent of whom are based in Afghanistan.

In recent years, SIGAR and other government agencies have received a flood of complaints about prime contractors — about 40 percent of whom are U.S.-based — not living up to contractual agreements. According to the report, SIGAR’s hotline received 183 complaints about nonpayment from 2009 through October. Fifty-two investigations are underway into complaints involving a total $69 million.

“While a subcontractor may always face the risk of nonpayment,” the report says, “Afghan subcontractors may be particularly at risk due to a lack of adequate legal protections and limitations placed on the U.S. government’s ability to intervene on their behalf.”

Meanwhile, a growing number of Afghan subcontractors are threatening street justice.

IGAR has documented threats to “blow up a compound of U.S. contractors and government agencies,” detonate suicide bombs, pull weapons on employers or damage property to try to collect money.

“Investigators have found that the prime contractor’s failure to pay is often viewed by the Afghan subcontractor as a failure on the part of the U.S. government,” the report says.

In February, a subcontractor told SIGAR representatives he planned to ignite himself in front of the U.S. Embassy, saying he had not been paid for work on an Army Corps of Engineers project in Helmand province. There is no evidence he followed through on his threat.

The report notes that failure to pay subcontractors also can lead to serious hardship for Afghan workers, many of whom earn only a few hundred dollars a month.

In addition, some Afghan employees have walked off the job amid allegations of nonpayment, threatening the pace of multimillion-dollar U.S.-financed reconstruction projects.

But the inspector general also notes that prime contractors have faced “extortion” following false claims of nonpayment made to Afghan police and courts.

In some cases, the prime contractors or their employees have had their passports seized by Afghan authorities or have been put on the no-fly list at Kabul’s airport so they cannot leave the country until a payment dispute is resolved. Afghan police have also issued arrest warrants for prime contractors accused by Afghan employees of nonpayment.

U.S. authorities are often powerless to intervene, even when it appears the allegation of nonpayment is unfounded.

“We have identified a range of potential risks associated with subcontractor nonpayment,” the report states.

David Snepp, a spokesman for the U.S. Embassy, said State Department officials would review the report.

Sopko recommends that U.S. agencies, including the Defense Department, more aggressively monitor payments to contractors and step in to suspend or revoke contractors’ licenses when payments are not made.

He also recommends more aggressive enforcement through the False Claims Act when it is proved that prime contractors have not made justifiable payments to subcontractors. www.washington post

While the Army has pushed to change the LOGCAP III pricing structure to a firm, fixed-price basis, KBR has sued to keep the closeout work under the existing cost-reimbursable arrangement.

The company says the cost-reimbursable model is better because neither the company nor the Army can estimate the scope or duration of closeout work.

“Legal, administrative, compliance, audit response, vendor issues, subcontract close-out and dispute resolution, to name a few, are all unknowns,” the company told the Army in a letter last summer.

In a statement to Federal Times, KBR spokesman John Elolf added, “We have explained the issue in detail to the Army and have asked that we continue with the cost reimbursement style contract that has been historically used by the Army for this type of work.”

Fixed-price contracts and task orders are seen as less risky and less expensive than cost-reimbursable contracts. The Obama administration made it a reform priority to use more firm, fixed-price contracts and fewer cost-reimbursable contracts.

Awarded to KBR in 2001, LOGCAP III — the Logistics Civil Augmentation Program III — has resulted in 160 task orders for everything from dining services for U.S. troops to in-theater delivery of housing.

In a redacted pleading made public last week, the Justice Department, which represents the Army in the contract dispute, said contracting officials hadn’t decided whether to change to a fixed-fee arrangement but rather were only exploring the possibility.

Government lawyers also argued the closeout itself was part of the contract, not a new solicitation, as KBR argues.

They said closeout isn’t a new service the government must procure, nor does the work need to take place during the performance of the contract.

If KBR gets its way in court, the impact would be felt in contracting offices across government, the Justice Department said.

“KBR does not deign to address the implication of its position: if the Court accepts KBR’s novel theory, literally tens of thousands of government contracts will be affected, creating enormous uncertainty for the government and contractors alike,” Justice Department lawyers wrote.

In explaining the potential impact, lawyers speculated that if closeout activities had to be performed during the performance period of a contract, then the government could be forced to end deliveries to accommodate the closeout.

“For example, if an existing contract was about five years of performance, and closeout is estimated at one year, the government would need to direct the contractor to cease deliveries by year four to ensure that sufficient time exists to perform closeout,” the Justice Department filing stated.

Government lawyers also said KBR already invoiced the Army for LOGCAP III closeout work totaling nearly $25 million from 2012 through April 4, 2013, which was the same day the company filed its complaint.

The company’s invoicing raised separate concerns for government lawyers.

“If KBR truly believes that it lacked a contract, then its submission of tens of millions of dollars in invoices may require consideration of the False Claims Act because KBR may have submitted claims for reimbursement … for which it knew it was not entitled,” Justice Department lawyers wrote.

But KBR lawyers argue that LOGCAP III ended in December 2011 without any provisions to close out the contract.

When the Army requested a proposal in 2013 for closeout activities under a firm fixed-price basis, the request was “unquestionably a solicitation for a new contract,” KBR argued.

The pleadings from both sides come as government lawyers ask Judge Victor Wolski to toss the case. He was expected to issue a ruling after hearing from KBR and Army attorneys in arguments scheduled by telephone for May 30.