Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca13-15-01053/USCOURTS-ca13-15-01053-0/pdf.json

Parties Involved:
Kellogg Brown & Root Services, Inc.
Appellee
John M. McHugh
Appellant

Document Text:

NOTE: This disposition is nonprecedential.

United States Court of Appeals 

for the Federal Circuit ______________________ 

JOHN M. MCHUGH, SECRETARY OF THE ARMY,

Appellant

v.

KELLOGG BROWN & ROOT SERVICES, INC.,

Appellee

_____________________ 

2015-1053

______________________ 

Appeal from the Armed Services Board of Contract 

Appeals in Nos. 56358, 57151, 57327, 58559, Administrative Judge Mark N. Stempler, Administrative Judge 

Monroe E. Freeman, Jr., Administrative Judge Richard 

Shackleford.

______________________ 

Decided: September 15, 2015

______________________ 

JONATHAN REID PROUTY, Commercial Litigation 

Branch, Civil Division, United States Department of 

Justice, Washington, DC, argued for appellant. Also 

represented by BENJAMIN C. MIZER, ROBERT E.

KIRSCHMAN, JR. 

JASON NICHOLAS WORKMASTER, Covington & Burling 

LLP, Washington, DC, argued for appellee. Also repreCase: 15-1053 Document: 55-2 Page: 1 Filed: 09/15/2015
2 ARMY v. KELLOGG BROWN & ROOT SERVICES

sented by RAYMOND B. BIAGINI, HERBERT L. FENSTER,

DANIEL L. RUSSELL, JR., ALEJANDRO LUIS SARRIA, JOHN W.

SORRENTI. 

______________________ 

Before PROST, Chief Judge, LOURIE and BRYSON, Circuit 

Judges.

PROST, Chief Judge. 

The Secretary of the Army (“Army”) appeals from a 

final decision of the Armed Services Board of Contract 

Appeals (“Board”) in favor of Kellogg, Brown & Root 

Services, Inc. (“KBR”). The Board ruled in favor of KBR, 

finding that the contract between the Army and KBR did 

not preclude the use of armed subcontractors and that the 

Army contracting officer’s additional claim against KBR 

in 2013 was barred by the statute of limitations. Kellogg 

Brown & Root Servs., Inc., Contract No. DAAA09-02-D0007, ASBCA Nos. 56358, 57151, 57327, and 58559, 14-1 

BCA ¶ 35,639, 2014 WL 2931488 (June 17, 2014) (“Board 

Decision”). We affirm the Board’s conclusion on the 

statute of limitations. On the contract interpretation

issue, however, KBR focuses on its contention that the 

Army breached its force protection obligations under the 

contract, which the Board did not rule on and is the 

subject of a separate case pending before the Board. 

Limited to the narrow contract interpretation issue now 

before us, we agree with the Army. We therefore affirm 

in part, reverse in part, vacate in part, and remand. 

BACKGROUND

The Army contracted with KBR on December 4, 2001 

to provide dining facilities services in the Iraq war under 

Contract 0007 in the U.S. Army’s Logistics Civil Augmentation Program or the LOGCAP III contract. Some of 

KBR’s subcontractors hired armed escorts by Private 

Security Contractors (“PSCs”) in response to deteriorating 

security conditions and an alleged inability to obtain force 

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ARMY v. KELLOGG BROWN & ROOT SERVICES 3

protection from the Army. The use of these PSCs under 

the LOGCAP III contract was not authorized by the 

Army. Some of KBR’s subcontractors charged their PSC 

costs incurred from 2003 to 2006 to KBR, which in turn 

passed on the costs to the Army. The Army paid those 

PSC costs. 

In late 2006, however, the Army started to question 

KBR about the use of PSCs. Between 2007 and 2010, the 

Army withheld three payments to KBR for PSC costs 

previously paid by the Army. The three withheld payments totaled over $44 million. KBR submitted a certified claim to the Army’s contracting officer for each of the 

withheld payments under the Contract Disputes Act of 

1978 (“CDA”). The contracting officer failed to respond 

within sixty days of receiving the respective claims for 

withheld payments and the claims were deemed denied; 

the associated appeals to the Board were docketed as 

ASBCA Nos. 56358, 57151, and 57327. On January 30, 

2013, the Army’s contracting officer issued a final decision 

demanding from KBR an additional amount of nearly $12 

million for disallowed PSC costs. KBR appealed this 

decision and it was docketed as ASBCA No. 58559. 

The Board consolidated the four cases for hearing. 

Shortly before trial for the four consolidated cases, KBR 

moved to consolidate an additional case, ASBCA No. 

58583, in which it alleged that the Army breached its 

contractual obligation to provide adequate force protection. The Board denied KBR’s motion. It agreed with the 

Army’s argument that the Army would be prejudiced if 

KBR were allowed to raise its new breach theory at the 

trial of the four consolidated cases. The Board proceeded 

with the hearings on the four consolidated cases and 

issued a decision on June 17, 2014 in favor of KBR. The 

Board dismissed the Army’s affirmative claim for nearly 

$12 million in ASBCA No. 58559 because the Army’s 

contracting officer asserted the claim on January 30, 

2013, beyond the six-year statute of limitations under the 

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4 ARMY v. KELLOGG BROWN & ROOT SERVICES

CDA. The Board then rejected the Army’s contention that 

the terms of the contract did not allow for the use of PSCs 

and ordered the Army to pay the withheld $44 million at 

issue in ASBCA Nos. 56358, 57151, and 57327. 

The Army timely appealed to this court. We have jurisdiction under 28 U.S.C. § 1295(a)(10) and 41 U.S.C. 

§ 7107(a)(1).

DISCUSSION

Under the CDA, 41 U.S.C. §§ 7101–7109, we review 

the Board’s decisions on questions of law de novo. Sharp 

Elecs. Corp. v. McHugh, 707 F.3d 1367, 1371 (Fed. Cir. 

2013). Contract interpretation is a question of law. TegParadigm Envtl., Inc. v. United States, 465 F.3d 1329, 

1336 (Fed. Cir. 2006). Factual findings shall be set aside 

if “the decision is (A) fraudulent, (B) arbitrary, or capricious, or so grossly erroneous as to necessarily imply bad 

faith, or (C) not supported by substantial evidence.” 41 

U.S.C. § 7107(b)(2); Ingalls Shipbuilding, Inc. v. O’Keefe, 

986 F.2d 486, 488-89 (Fed. Cir. 1993).

The Army raises two issues on appeal. First, the Army argues that the contract prohibited the use of PSCs 

and therefore KBR was not entitled to payment for the 

use of PSCs. Second, the Army argues that the Army’s 

affirmative demand against KBR on January 30, 2013 

was not barred by the CDA’s six-year statute of limitation. We address each issue in turn.

I. Contract Interpretation

The Army’s theory is that the contract prohibited the 

use of PSCs because “PSCs, by definition, consist of armed 

subcontractor employees,” and the contract prohibited the 

arming of such employees. Reply Br. 3. The Army cites 

Clause H-21 of the contract for prohibiting the use of 

personally owned firearms by contractor personnel. The 

Army also cites Clause H-13 of the contract for requiring 

that all personnel hired by or for the contractor shall 

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ARMY v. KELLOGG BROWN & ROOT SERVICES 5

comply with all applicable guidance, instructions, and 

general orders, thus further incorporating Army regulations that prohibited the use of armed civilian personnel. 

The regulations relied upon by the Army include 

CENTCOM General Order No. 1A, Army Regulation 715-

9, entitled “Contractors Accompanying the Force,” and the 

Army’s “Contractors on the Battlefield” field manual. 

Based on the Army Regulation and the field manual, the 

Army further explains that arming contractor personnel 

could jeopardize their status as civilians. 

KBR does not dispute that the contract prohibited the 

arming of employees of KBR and its food services subcontractors. Rather, KBR implies that the contract’s weapons prohibition did not apply to the PSCs, arguing that 

“[n]ot a single one of the provisions upon which the Government relies, however, even remotely alludes to the 

hiring or use of PSCs” and that there was a “material 

difference between arming individual contractor employees and retaining a professional private armed security 

company having its own employees, arms and ammunition.” Appellee’s Br. 34–35 (internal quotation marks

omitted). 

KBR’s arguments simply mirror the Board’s reasoning. The Board’s opinion rested on the central premise 

that the contract and applicable regulations lacked explicit and specific prohibition against the use of PSCs. The 

Board reasoned that the relevant contract provision 

addressed only individual employee’s access to firearms 

for self-defense, but did not address the use of armed 

private security companies. The Board similarly interpreted the weapons prohibition in CENTCOM General 

Order No. 1A as a code of personal conduct not relevant to 

the question of using armed private security contractors. 

The Board did not address Army Regulation 715-9 and 

the Army’s “Contractors on the Battlefield” field manual 

that the Army cites on appeal.

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6 ARMY v. KELLOGG BROWN & ROOT SERVICES

KBR and the Board are correct that the contract and 

the applicable Army regulations did not specifically 

mention Private Security Contractors or PSCs. But a lack 

of specific reference to PSCs does not mean that KBR and 

its subcontractors were free to hire PSCs with civilian 

personnel carrying privately-owned weapons. Under 

KBR’s theory, the contract and Army regulations prohibited, for example, truck drivers and other food services

subcontractor employees from carrying their own rifles in 

the delivery trucks. But according to KBR, the contract 

and Army regulations permitted KBR’s food services

subcontractors to subcontract further for the services of 

PSCs, employing civilians carrying privately-owned 

weapons to protect the delivery trucks. KBR contends 

without explanation that there was a “material difference” in the weapons prohibition as applied to employees’ 

self-protection and the hiring of other civilians for protection. Appellee’s Br. 35. 

We are not persuaded that KBR’s alleged “material 

difference” existed. We discern no support in the contract 

or the applicable Army regulations to place KBR and its 

direct (food services) subcontractors on one side of the 

weapons prohibition and secondary (security) subcontractors on the other. There is no question that the PSCs’ 

personnel were civilians carrying nongovernment-issued

weapons. Army regulations such as CENTCOM General 

Order No. 1A prohibited such civilian personnel from the 

possession or use of privately owned firearms, ammunition and explosives. E.g., J.A. 550. This longstanding 

Army policy was incorporated into the LOGCAP III 

contract by clauses H-13 and H-19. 

We therefore interpret the contract’s weapons prohibition to apply equally to the employees of KBR and its food 

services subcontractors, as well as to the personnel of the 

security subcontractors engaged for the LOGCAP III 

contract. Because the contract prohibited contractors’ and 

subcontractors’ employees from carrying nongovernmentCase: 15-1053 Document: 55-2 Page: 6 Filed: 09/15/2015
ARMY v. KELLOGG BROWN & ROOT SERVICES 7

issued weapons, we conclude that the use of armed PSCs 

fell outside the scope of the LOGCAP III contract. We 

therefore reverse the Board’s conclusion that the 

LOGCAP III contract allowed the use of PSCs. 

This narrow contract interpretation based on the 

weapons prohibition, however, may not fully resolve the 

dispute between the parties. KBR argues that we could 

alternatively affirm the Board based on its “holding that 

the use of PSCs was an allowable ‘remedy’ for the Government’s breach of its contractual obligation to provide 

adequate force protection.” Appellee’s Br. 21. A threshold 

question for us is whether these breach and remedy issues 

are properly before us on appeal. We note that the 

Board’s opinion made several findings of fact that appear 

favorable to KBR concerning its allegations of the Army’s 

prior breach of contract and of using PSCs as an allowable 

remedy. But we do not read the Board’s opinion as reaching any ultimate legal conclusion on these issues. 

Indeed, even KBR conceded during oral argument 

that there is some vagueness in the Board’s opinion on 

whether the Board ruled on the breach and remedy issues. Oral Arg. at 19:35–23:10, available at

http://www.cafc.uscourts.gov/oral-argument-recordings/

15-1053/all. We therefore remand ASBCA Nos. 56358, 

57151, and 57327 to the Board to decide in the first instance whether KBR properly raised its breach and remedy allegations, and if so, to rule on those contentions.1

II. Statute of Limitations

The Board also dismissed the Army’s affirmative 

claim for nearly $12 million in ASBCA No. 58559 because 

1 We have also considered KBR’s contentions that 

we could affirm the Board’s conclusions in favor of KBR

on additional alternative grounds. We do not find any of 

those purported alternative grounds persuasive.

 

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8 ARMY v. KELLOGG BROWN & ROOT SERVICES

the Army’s contracting officer asserted the claim on 

January 30, 2013, more than six years after the claim 

accrued on June 10, 2005. See 41 U.S.C. § 7103(a)(4)(A). 

The Board found that on June 10, 2005, an Army contracting officer consented to a food services subcontract 

document submitted by KBR in which the pricing justification expressly included the statement that the subcontractor was “using the services of a professional security 

company to transport” the food services personnel to their 

respective sites. Board Decision at ¶ 60 (quoting J.A. 

5550). 

The Army argues that the Board erred because the 

statute of limitations did not start when the Army knew 

or should have known of the use of PSCs. The operative 

marker, according to the Army, should be when it knew or 

should have known that KBR would be seeking reimbursement from the Army for the use of PSCs. 

Even if we accept the Army’s contention on the proper 

event to start the statute of limitations period, the Army 

still loses on this issue. The June 10, 2005 KBR document cited by the Board was entitled “REQUEST FOR 

CREDIT” that was submitted to and approved by the 

Army. J.A. 5544. This June 10, 2005 credit request 

included correspondence from a KBR subcontractor to 

KBR that explicitly justified a price increase for: “Security: Private companies are contracted to escort personnel 

to and from sites. In addition, when military convoys are 

not available, we use private security companies.” J.A. 

5550.

The Army’s only challenges to the June 10, 2005 credit request are that the document did not explicitly state 

KBR’s intent to seek payment for the PSC costs and that 

there was no witness testimony about this credit request. 

But the Army offers no explanation why a credit request 

attaching a subcontractor’s justification for a price increase based on the use of PSCs should not have put the 

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ARMY v. KELLOGG BROWN & ROOT SERVICES 9

Army on notice that it would be paying for the use of 

PSCs. Because of the specificity of the information in the 

June 10, 2005 credit request, we are not persuaded by the 

Army’s arguments. We therefore conclude that KBR’s 

June 10, 2005 credit request provided substantial evidence to support the Board’s finding that the statute of 

limitations period began by June 10, 2005. We therefore 

affirm the Board’s dismissal of ASBCA No. 58559 because 

the Army asserted the claim more than six years after it 

accrued. 

AFFIRMED-IN-PART, REVERSED-IN-PART, 

VACATED-IN-PART and REMANDED

COSTS

Each party shall bear its own costs. 

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