KF&S Corp.
Docket: ASBCA 62223, ASBCA 62292
Decision date: 2020-12-09

ARMED SERVICES BOARD OF CONTRACT APPEALS 
 
Appeals of -- ) 
 ) 
KF&S Corp. ) 
 ) 
) 
 
APPEARANCE FOR THE APPELLANT: Song Yong Eui, Esq. 
  Central IP & Law 
  Seoul, Korea 
  
APPEARANCES FOR THE GOVERNMENT: Scott N. Flesch, Esq. 
  Chief Trial Attorney 
MAJ Abraham Young, JA 
  Trial Attorney 
 
OPINION BY ADMINISTRATIVE JUDGE OSTERHOUT 
ON THE GOVERNMENT’S MOTION FOR SUMMARY JUDGMENT 
 
 The dispute concerns a firm-fixed-price contract, Contract No. W91QVN-15-D-0027 
(the contract), between the United States Army (the government or the Army) and KF&S 
Corp. (KF&S or appellant), to provide security guard services at access control points in the 
Republic of Korea (Korea or ROK).  During performance of the contract, the Korean 
minimum wage increased.  KF&S requested an adjustment for the increased minimum 
wages.  The contracting officer denied the claim.  Appellant appealed.  The government 
filed a motion for summary judgment, arguing that appellant could not obtain the relief it 
sought because the contract did not contain a clause permitting price adjustments due to 
labor changes.  Appellant responded1 that the applicable clauses were not included due to 
the government’s discriminatory practice of including the clauses in domestic contracts but 
not in foreign contracts and should now be included in the contract as a matter of law.  We 
grant the government’s motion. 
 
STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTION 
 
 1.  The Army awarded the contract on June 25, 2015 (R4, tab 1 at 1). 
 
                                              
1 Appellant titled its submission as “Motion to Deny Government’s Motion for Summary 
Judgment” but we are treating it as appellant’s response to the motion.     
ASBCA Nos.   62223, 62292 
Under Contract No.  W91QVN-15-D-0027 

2 
 2.  The contract included a requirement to ensure compliance with “Article 65, 
ROK Labor law” (R4, tab 1 at 69 ¶ 6.3.2).2 
 
 3.  The contract incorporated, by reference, Federal Acquisition Regulation (FAR) 
52.212-4, CONTRACT TERMS AND CONDITIONS— COMMERCIAL ITEMS 
(DEC 2014) (R4, tab 1 at 93). 
 
 4.  FAR 252.222-7002, COMPLIANCE WITH LOCAL LABOR LAWS 
(OVERSEAS) (JUN 1997) was incorporated into the contract and stated: 
 
(a) The Contractor shall comply with all—  
 
(1) Local laws, regulations, and labor union agreements 
governing work hours; and 
 
(2) Labor regulations including collective bargaining 
agreements, workers’ compensation, working conditions, 
fringe benefits, and labor standards or labor contract matters. 
 
(b) The Contractor indemnifies and holds harmless the United 
States Government from all claims arising out of the 
requirements of this clause.  This indemnity includes the 
Contractor’s obligation to handle and settle, without cost to 
the United States Government, any claims or litigation 
concerning allegations that the Contractor or the United 
States Government, or both, have not fully complied with 
local labor laws or regulations relating to the performance of 
work required by this contract. 
 
(c) Notwithstanding paragraph (b) of this clause, consistent 
with paragraphs 31.205-15(a) and 31.205-47(d) of the Federal 
Acquisition Regulation, the Contractor will be reimbursed for 
the costs of all fines, penalties, and reasonable litigation 
expenses incurred as a result of compliance with specific 
contract terms and conditions or written instructions from the 
Contracting officer. 
 
(R4, tab 1 at 104) 
 
                                              
2 This clause was essentially incorporated by reference and appears to pertain to Korean 
labor laws, such as minimum wage requirements. 

3 
 5.  The contract included Army Federal Acquisition Regulation Supplement 
(AFARS) 5152.222-4034, KOREAN LABOR LAW which stated: 
 
Contractors and subcontractors at all tiers, shall honor 
employees’ rights in full compliance with Korean Labor Law, 
including the rights of succession of employment.  Failure to 
comply may be deemed breach or default of the contract and 
evidence of nonresponsibility.  Such violation of Korean 
Labor Law may be evidenced by a Republic of Korea 
Ministry of Labor determination, a court decision, or a Labor 
Relations Commission adjudication.  If a contractor is found 
to be in serious violation and fails to take adequate corrective 
action promptly, [United States Forces Korea] may consider 
this grounds for determining the contractor to be 
non-responsible for future Government contracts. 
 
(R4, tab 1 at 113) 
 
 6.  FAR 52.222-43, FAIR LABOR STANDARDS ACT AND SERVICE 
CONTRACT LABOR STANDARDS-PRICE ADJUSTMENT (MULTIPLE YEAR 
AND OPTION CONTRACTS) (MAY 2014) was not contained in the contract.  Due to 
the fact that the contract was to be performed outside the United States, we find that this 
clause was properly excluded from the contract. 
 
 7.  Similarly, DFARS 252.216-7003, ECONOMIC PRICE ADJUSTMENT—
WAGE RATES OR MATERIAL PRICES CONTROLLED BY A FOREIGN 
GOVERNMENT (MAR 2012) was not included in the contract.  We find that the 
applicable provision promulgating usage of this clause allows for its discretionary use in 
contracts performed in a foreign country and, as such, was not mandated for inclusion 
into the subject contract.  
 
 8.  On August 7, 2017, KF&S submitted a request to the contracting officer (CO) 
to increase the price of the contract based on an increase in the Korean minimum wage 
laws (R4, tab 11 at 3, 33). 
 
 9.  On August 8, 2019, KF&S filed a certified claim with the CO, requesting 
additional funds to cover the increases in the Korean minimum wage laws (R4, tab 11).  
Appellant stated that FAR 52.222-43 should have been included in the contract and 
needed to be applied even though it was not (R4, tab 11 at 3).  Appellant classified the 
government’s prior denials of its request for equitable adjustment for the same issue as a 
misunderstanding or confusion of the claim (R4, tab 11 at 3-4).  Appellant stated that the 
government was mistaken when it denied the requests because none of the rates were 

4 
below the minimum wage (R4, tab 11 at 3-4).  Appellant provided a breakdown of the 
claim (R4, tab 11 at 4-5).   
 
 10.  On October 4, 2019, the CO issued a Final Decision (COFD), denying the 
claim in full (R4, tab 14).  The CO asserted that appellant incorrectly asserted that 
FAR 52.222-43 should be applied to the contract (R4, tab 14 at 2).  The CO also stated 
that DFARS 252.216-7003 “was intentionally excluded” from the contract (R4, tab 14 
at 2).  The CO also opined that appellant misinterpreted the Minimum Wage Act because 
none of appellant’s employees were paid less than the minimum wage (R4, tab 14 at 2). 
 
 11.  On October 18, 2019, appellant filed an appeal at the Board.  The appeal was 
docketed as ASBCA No. 62223.   
 
 12.  In its complaint, appellant alleged that the government should have included 
an escalation clause to allow for ROK minimum wage increases (compl. at 1-2).  
Appellant stated that the CO’s act of denying KF&S’s claim for increased costs was 
arbitrary and capricious because the CO focused on “basic pay” instead of comparing the 
proposed hourly wage with the ROK minimum wage requirement (compl. at 5).  Further, 
appellant stated that KF&S was unfairly required to accept the full risk of the ROK 
hourly wage increase (compl. at 5).  Appellant also discussed how a proposed hourly 
wage should be calculated (compl. at 7-12).  Appellant argued that because the contract 
required it to comply with Korean law, FAR 52.222-43 required the government pay for 
any increases in the ROK labor laws (compl. at 12-14). 
 
 13.  On December 4, 2019, appellant filed an appeal to update the amount claimed 
to include performance of the contract for a later timeframe.  The Board docketed this 
appeal as ASBCA No. 62292 and consolidated it with ASBCA No. 62223. 
 
 14.  On December 26, 2019, the Board granted the government’s request to apply 
the motion for summary judgment to both appeals because both complaints arose from 
increases in the minimum wage in Korea but applied to different timeframes and 
permitted appellant to respond again. 
 
CONTENTIONS OF THE PARTIES 
 
The government filed a motion for summary judgment, arguing that the contract 
contained two clauses requiring KF&S to comply with Korean labor laws but that the 
contract did not contain any price escalation clauses (gov’t MSJ at 4-8).  The government 
agreed that appellant was required to follow Korean law (gov’t MSJ at 4).  The 
government also agreed that FAR 52.222-43 was not contained in the contract; however, 
the government argued that the clause would not be proper in a foreign contract (gov’t 
MSJ at 7-8).  The government also argued that DFARS 252.216-7003 was a discretionary 

5 
clause that the CO decided not to include, even though appellant did not raise any 
arguments concerning the clause (gov’t MSJ at 8-9). 
 
In its response to the government’s motion for summary judgment, appellant 
argued that the CO should have paid for costs that it incurred due to ROK laws that 
increased minimum wages, relying on a theory of breach of the covenant of good faith 
and fair dealing (app. resp. at 1).3  Specifically, appellant argued that:  1) the terms of the 
contract were unfair because the government included a clause requiring contractors to 
comply with Korean labor law but did not include a clause to cover escalations in 
minimum wage laws (app. resp. at 3); 2) FAR 52.222-43 was or should have been 
applicable to the contract (app. resp. at 3); 3) the decision by the CO to exclude 
DFARS 252.216-7003 was arbitrary and capricious (app. resp. at 4); and 4) including 
AFARS 5152.222-4034 meant the government should have included a price escalation 
clause (app. resp. at 7).  Appellant did not assert that the CO promised to pay additional 
funds or shift the risk on the firm, fixed-price contract (app. resp.). 
 
In the government’s reply, the Army stated that most of the arguments appellant 
raised were new claims and theories (gov’t reply at 1).  The government also individually 
addressed appellant’s arguments (gov’t reply). 
 
Appellant responded and essentially raised the same issues as in its original 
response but argued that DFARS 252.216-7003 was a proper clause to consider and 
should have been included in the contract (app. second resp. at 3-4).  Thus, the 
government’s failure to include the clause was an abuse of the CO’s discretion and was 
arbitrary and capricious (app. second resp. at 4).  Appellant also admitted that it raised 
new claims in its response (app. second resp. 1-2) (“Now that the matters contained in the 
Motion to Deny are before the Board, the Appellant respectfully requests that the Board 
go ahead and consider matters raised in the Motion to Deny.”). 
 
DECISION 
 
I. GOVERNMENT’S MOTION FOR SUMMARY JUDGMENT 
 
 Summary judgment is proper if the record and pleadings demonstrate that there are 
no genuine issues of material fact and that the moving party is entitled to judgment as a 
matter of law.  Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).  “The moving party 
bears the burden of establishing the absence of any genuine issue of material fact, and all 
significant doubt over factual issues must be resolved in favor of the party opposing 
summary judgment.”  Chugach Federal Solutions, Inc., ASBCA No. 61320, 20-1 BCA 
¶ 37,617 at 182,594 (citing Mingus Constructors, Inc. v. United States, 812 F.2d 1387, 
                                              
3 Appellant calls this “an implied duty of fair dealing and cooperation” and cites Malone 
v. United States, 849 F.2d 1441, 1445 (Fed. Cir. 1988) (app. resp. at 1). 

6 
1390-91 (Fed. Cir. 1987)).  To defeat a motion for summary judgment, a non-moving 
party must set forth sufficient facts to demonstrate that a genuine issue of material fact 
exists.  AXXON International, LLC, ASBCA No. 61224 et al., 20-1 BCA ¶ 37,489 
at 182,144 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).  “A 
genuine issue of material fact arises when the nonmovant presents sufficient evidence 
upon which a reasonable fact finder, drawing the requisite inferences and applying the 
evidentiary standard, could decide the issue in favor of the nonmovant.”  C. Sanchez and 
Son, Inc. v. United States, 6 F.3d 1539, 1541 (Fed. Cir. 1993).  When considering 
motions for summary judgment, the evidence produced by the non-moving party is to be 
believed and all justifiable inferences are drawn in its favor.  Europe Asia Constr. 
Logistic, ASBCA No. 61553, 19-1 BCA ¶ 37,267 at 181,351 (citing American Boys 
Constr. Co., ASBCA No. 61163, 18-1 BCA ¶ 36,949 at 180,051). 
 
 Here, the government moved for summary judgment, arguing that appellant asked 
for price escalations due to changes in Korean labor law when the contract did not 
contain any clauses requiring or allowing price escalation.  The Board has made findings 
as to which clauses were contained in the contract and those clauses that were properly 
excluded from the contract.  (SOF ¶¶ 2-7)  Accordingly, we hold that the government has 
met its initial burden of establishing that no material facts exists with regard to the 
contract clauses. 
 
 In response, appellant, as the non-moving party, was required to set forth 
sufficient facts to demonstrate that a genuine issue of material fact exists.  Unfortunately, 
appellant failed to meet this burden.  In fact, appellant did not dispute any of the material 
facts the government proposed and agreed with which clauses were and were not 
included in the contract (app. resp. at 3).  Appellant also did not assert that the CO 
promised to pay for increases in Korean labor laws or to pay additional money.  Instead, 
appellant primarily provided legal arguments, specifically that FAR 52.222-43 should 
have been included in the contract as a matter of law under a legal theory of breach of the 
covenant of good faith and fair dealing (app. resp. at 1).  In its second response, appellant 
added DFARS 252.216-7003 to its legal argument as a required clause and argued that 
failure to include it was arbitrary and capricious (app. second resp. at 3-4).  Appellant 
asserted that failing to include the clauses was unfair because the government placed all 
of the risk of price escalation on the contractor.  However, appellant did not dispute that 
escalation clauses were not included in the contract and did not allege that the CO ever 
promised to make them part of the contract.   
 
 We cannot decide in favor of appellant even if we consider appellant’s position that 
escalation clauses were required in this contract to be factual, review the argument in the 
light most favorable to appellant as the non-moving party, and draw all justifiable 
inferences in its favor.  First, appellant’s main argument was that the government should 
have included the escalation clause in the contract because it was unfair for the contractor to 
accept all of the risk in this foreign contract.  However, it is well-settled that the contractor 

7 
assumes the risk of cost increases in firm, fixed-price contracts, except as specifically 
provided for in the contract.  All Star/SAB Pacific, J.V., ASBCA No. 50856, 98-2 BCA 
¶ 29,958 at 148,234, recon. denied, 99-1 BCA ¶ 30,214.  In this firm, fixed-price contract, 
appellant assumed the risk of the cost increases and the government did not include 
risk-shifting clauses in the contract.  Accordingly, appellant’s arguments must fail. 
 
 Next, as to the escalation clauses appellant presented as being required, 
FAR 52.222-43 and DFARS 252.216-7003, we have found that they are not actually 
required clauses.  FAR 52.222-43 is not applicable to foreign contracts (SOF ¶ 6).  
DFARS 252.216-7003 is discretionary (SOF ¶ 7).  None of the applicable provisions in 
the FAR required the government to include either of these price escalation clauses.  For 
example, with regard to FAR 52.222-43, the applicable provision for use of the clause 
states the clause is subject to geographical limits and “does not apply to contracts 
performed outside the United States.”  FAR 22.1003-2, GEOGRAPHICAL COVERAGE 
OF THE SERVICE CONTRACT LABOR STANDARDS STATUTE (APR 2014).  
Moreover, with regard to DFARS 252.216-7003, the applicable provision reads as 
follows: 
 
[M]ay be used in fixed-price supply and service solicitations 
and contracts when— (A) The contract is to be performed 
wholly or in part in a foreign country; and (B) A foreign 
government controls wage rates or material prices and may, 
during contract performance, impose a mandatory change in 
wages or prices of material 
 
DFARS 216.203-4-70, ADDITIONAL PROVISIONS AND CLAUSES (JUL 2013).  
(Emphasis added) 
 
 Finally, the government’s decision to not include any escalation clauses occurred 
during the formation of the contract, not during administration of the contract.  “[I]t is 
well established that the duty of good faith and fair dealing applies to government 
conduct during the performance of the contract, and does not apply to government actions 
during the formation of the contract.”  Chugach Federal Solutions, Inc., ASBCA 
No. 61320, 20-1 BCA ¶ 37,617 at 182,596 (citing Scott Timber Co. v. United States, 692 
F.3d 1365, 1372 (Fed. Cir. 2012)).  The failure to include any price escalation clauses 
occurred prior to award, not during the formation of the contract, so we are unable to 
decide the issue in favor of appellant.   
 

8 
CONCLUSION 
 
 The government’s motion for summary judgment is granted.  The appeals are 
denied. 
 
 Dated:  December 9, 2020
 
 
 
 
 
 
 
 
 
HEIDI L. OSTERHOUT 
Administrative Judge 
Armed Services Board 
of Contract Appeals 
 
I concur 
 
 
 
RICHARD SHACKLEFORD 
Administrative Judge 
Acting Chairman 
Armed Services Board 
of Contract Appeals 
 I concur 
 
 
 
 OWEN C. WILSON 
Administrative Judge 
Vice Chairman 
Armed Services Board 
of Contract Appeals 


9 
 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. 62223, 62292, Appeals of 
KF&S Corp., rendered in conformance with the Board’s Charter. 
 
 Dated:  December 10, 2020 
 
 
 
PAULLA K. GATES-LEWIS 
Recorder, Armed Services 
Board of Contract Appeals