New Lawsuit Against KBR, Inc. Claim they Overcharged for Soldier Housing in Iraq

An Illinois federal judge this week declined to dismiss a suit by the federal government claiming KBR Inc. overcharged for soldier housing in Iraq, saying the allegations were credible enough to allow it to proceed.

U.S. District Judge Sara Darrow rejected KBR’s argument that the government had failed to establish adequate standing to pursue claims that KBR and its Kuwait-based contractor, First Kuwaiti Trading Company, knowingly inflated the cost of trucks and cranes, causing its $80.9 million contract to build the housing to balloon to $129.5 million in 2003. The government alleges that the hikes constituted seven violations of the False Claims Act.

“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.