United States Court of Appeals 

for the Federal Circuit ______________________

BECHTEL NATIONAL, INC.,

Plaintiff-Appellant

v.

UNITED STATES,

Defendant-Appellee

______________________

2018-2055

______________________

Appeal from the United States Court of Federal Claims 

in No. 1:17-cv-00657-EDK, Judge Elaine Kaplan.

______________________

Decided: July 16, 2019

______________________

STEPHEN KNIGHT, Smith, Pachter, McWhorter, PLC, 

Tysons Corner, VA, argued for plaintiff-appellant. Also 

represented by EDMUND MICHAEL AMOROSI. 

 GEOFFREY MARTIN LONG, Commercial Litigation 

Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also 

represented by JOSEPH H. HUNT, ROBERT EDWARD 

KIRSCHMAN, JR., PATRICIA M. MCCARTHY. 

 ______________________

Before NEWMAN, SCHALL, and DYK, Circuit Judges.
2 BECHTEL NATIONAL, INC. v. UNITED STATES

DYK, Circuit Judge.

Bechtel National, Inc. (“Bechtel”) appeals from a decision of the United States Court of Federal Claims (“Claims 

Court”) granting summary judgment in favor of the government. The Claims Court held that our decision in Geren v. 

Tecom, Inc., 566 F.3d 1037 (Fed. Cir. 2009), precluded reimbursement of costs that Bechtel incurred in defending 

two sexual and racial discrimination and retaliation suits 

brought by former employees.

We hold that Tecom governs the allowability of 

Bechtel’s defense costs and affirm the Claims Court’s decision.

BACKGROUND

Between 1943 and 1990, the government produced plutonium for nuclear weapons at the Hanford Site in the state 

of Washington, leaving behind “approximately 56 million 

gallons of nuclear waste” stored in underground tanks. 

Bechtel Nat’l, Inc. v. United States, 137 Fed. Cl. 423, 425

(2018). On December 11, 2000, Bechtel was awarded a

cost-plus-incentive fee contract by the Department of Energy (“DOE”) “for the design, construction, and operation”

of a nuclear waste treatment plant at the Hanford Site in

Washington. Id. The contract incorporated by reference 

provisions of the Federal Acquisition Regulation (“FAR”) 

and the Department of Energy Acquisition Regulation 

(“DEAR”). 

During performance of the contract, two former Bechtel 

employees at the Hanford Site separately sued Bechtel under 42 U.S.C. § 1981 and state law, alleging sexual and racial discrimination and subsequent retaliation for raising 

their complaints. Bechtel settled these lawsuits and then

sought $500,000 in reimbursement from the DOE for the 

costs it incurred in defending the two suits. Bechtel did not 

seek reimbursement for the settlement payments related 
BECHTEL NATIONAL, INC. v. UNITED STATES 3

to the litigation, likely because the settlement amounts 

were covered by insurance. The DOE provisionally approved Bechtel’s request and reimbursed Bechtel for the 

full amount requested. 

On May 11, 2016, the contracting officer issued a notice 

of intent to disallow the costs. The contracting officer informed Bechtel that “[he had] determined that the costs incurred by [Bechtel] in defending these matters [were]

unallowable under the standards set forth in Tecom.” 

Bechtel, 137 Fed. Cl. at 427 (alterations in original).

Bechtel responded on July 13, 2016, arguing that 

Tecom did not govern the allowability of the costs. Rather, 

it contended that a provision of the contract, DEAR 

970.5204-31 (1997), “alone dictates the treatment and reimbursability of legal costs.” J.A. 691. The DEAR provision, entitled “Insurance—litigation and claims,” provides:

(e) Except as provided in subparagraphs (g) and (h) 

of this clause, or specifically disallowed elsewhere 

in this contract, the contractor shall be reimbursed . . .

(2) For liabilities (and reasonable expenses 

incidental to such liabilities, including litigation costs) to third persons not compensated by insurance or otherwise . . . .

(g) Notwithstanding any other provision of this 

contract, the contractor shall not be reimbursed for 

liabilities (and expenses incidental to such liabilities, including litigation costs, counsel fees, judgment and settlements)—

(1) Which are otherwise unallowable by law 

or the provisions of this contract . . . .

(h) In addition to the cost reimbursement limitations contained in DEAR 970.3101-3, and notwithstanding any other provision of this contract, the 
4 BECHTEL NATIONAL, INC. v. UNITED STATES

contractor’s liabilities to third persons, including 

employees but excluding costs incidental to workers’ compensation actions, (and any expenses incidental to such liabilities, including litigation costs, 

counsel fees, judgments and settlements) shall not 

be reimbursed if such liabilities were caused by 

contractor managerial personnel’s

(1) Willful misconduct,

(2) Lack of good faith, or

(3) Failure to exercise prudent business 

judgment . . . .

DEAR 970.5204-31 (emphases added).

On September 13, 2016, the contracting officer issued 

a final decision disallowing the costs. Because the government had already reimbursed Bechtel, the decision stated 

that “the government would offset the amount it had provisionally reimbursed Bechtel from future amounts the 

government owed to it as a result.” Bechtel, 137 Fed. Cl. at 

427. 

On May 18, 2017, Bechtel brought suit in the Claims 

Court challenging the contracting officer’s final decision

and seeking reimbursement of the defense costs. See 41 

U.S.C. § 7104(b)(1); 28 U.S.C. § 1491(a)(2). The parties 

filed cross-motions for summary judgment. The Claims 

Court granted the government’s motion for summary judgment, concluding that Tecom provided the proper standard 

for determining whether the defense costs were allowable

under the contract and holding that the costs were not allowable.

Bechtel timely appealed to this court. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3). We review a 

grant of summary judgment by the Claims Court de novo. 

Northrop Grumman Computing Sys., Inc. v. United States, 

823 F.3d 1364, 1367 (Fed. Cir. 2016). 
BECHTEL NATIONAL, INC. v. UNITED STATES 5

DISCUSSION

I

Tecom involved a dispute over whether costs associated 

with settling an employment discrimination lawsuit were

allowable costs under a government contract that incorporated provisions of the FAR. 566 F.3d at 1040. “[A] former 

employee [had] sued Tecom under Title VII, alleging sexual 

harassment and firing in retaliation for filing a sexual harassment charge.” Id. at 1039. The alleged conduct, if 

proven, would have violated Title VII. Id. After settling 

the suit, the contractor sought reimbursement from the 

government for defense costs and settlement payments associated with the lawsuit. Id.

The contract incorporated FAR 31.201-2, which states 

that costs incurred by the contractor are “allowable only 

when the cost complies with . . . [t]erms of the contract.” 

Id. at 1040 (quoting FAR 31.201-2). One of the terms of the 

contract at issue was FAR 52.222-26 (1984), which provided that “[t]he Contractor shall not discriminate against 

any employee or applicant for employment because of race, 

color, religion, sex, or national origin.” Id. at 1039 (quoting 

FAR 52.222-26).

We articulated a standard for determining when costs 

incurred by a contractor in defending and settling third 

party claims are allowable under a government contract: 

“(1) we ask whether, if an adverse judgment [had been]

reached, the damages, costs, and attorney’s fees would be 

allowable; (2) if not, we ask whether the costs of settlement 

would be allowable.” Id. at 1041 (citing Boeing N. Am., Inc. 

v. Roche, 298 F.3d 1274, 1285–89 (Fed. Cir. 2002)). 

As to the first step, we concluded that “the damages, 

costs, and attorney’s fees associated with a violation of Title VII would not be allowable under this contract.” Id. Because “[s]exual harassment is a form of sex 
6 BECHTEL NATIONAL, INC. v. UNITED STATES

discrimination,” we determined that “the alleged discrimination would [have] clearly violate[d] the contract.” Id. at 

1043–44. Thus, we held that “costs associated with an adverse judgment on the merits would not be allowable” under FAR 31.201-2. Id. at 1044. Our conclusion was 

“underscored by the clear public policy of Title VII,” which 

“prevent[s] the government from being complicit in paying 

for discriminatory employment practices.” Id. at 1044.

As to the second step—i.e., whether the costs are nonetheless allowable when the contractor settles before an adverse judgment—we determined that our decision in 

Boeing “squarely addressed” that issue. Id. at 1045. We

held that, under Boeing, “[w]here the damages or penalties

paid in the event of an adverse judgment are disallowed,” 

settlement costs are also unallowable unless the contractor 

can establish that the plaintiff in the discrimination suit

“had very little likelihood of success on the merits.” Id. at 

1046.

II

The contract at issue here incorporated FAR 31.201-2 

(2000) and FAR 52.222-26 (1999)—the very same provisions of the FAR that we held barred reimbursement in 

Tecom.1 Further, although the former employees brought 

 

1 Both the Tecom contract and the contract here incorporated the pre-2004 version of FAR 31.201-2, and in 

Tecom, we treated the pre-2004 version as equivalent to the 

post-2004 version. See 566 F.3d at 1039–40. The prefatory 

language of that section was revised in 2004 from “[t]he 

factors to be considered in determining whether a cost is 

allowable include the following” to “[a] cost is allowable 

only when the cost complies with all of the following requirements,” compare FAR 31.201-2 (2000) with 

FAR 31.201-2 (2004), but the amendment was not a substantive change. In both instances “Terms of the contract” 
BECHTEL NATIONAL, INC. v. UNITED STATES 7

their discrimination claims against Bechtel under § 1981 

and state law, rather than under Title VII (as was the case 

in Tecom), sexual and racial discrimination in violation of 

§ 1981 and state anti-discrimination law would be a textbook breach of FAR 52.222-26. Bechtel makes no argument 

to the contrary.

Tecom recognized that the analysis for determining 

whether the costs are allowable could change if there was

a contract provision “dictat[ing] the treatment of specific 

costs.” 566 F.3d at 1041. Bechtel argues that Tecom does 

not govern allowability of the costs here because the contract incorporated such a provision dictating the treatment 

of specific costs, namely DEAR 970.5204-31. That provision was not incorporated in the Tecom contract. According 

to Bechtel, that provision “makes costs incurred in defense 

of third party claims, including employment discrimination 

claims, presumptively allowable.” Bechtel Op. Br. 21. We 

conclude that DEAR 970.5204-31 is not a specific provision 

making allowable the defense costs.

The DEAR provision generally provides for reimbursement of contractor liabilities to third parties and “litigation 

costs.” DEAR 970.5204-31(e). This allowability provision 

is subject to certain exceptions. The provision makes clear 

in two separate places that costs disallowed by other 

 

was listed. In promulgating the final rule, the agency made 

clear that the revision did not “constitute[] a major change 

in determining allowability” and merely made the language of the provision “consistent with established case 

law, i.e., a cost must meet all five factors to be allowable.” 

Federal Acquisition Regulation; General Provisions of the 

Cost Principles, 69 Fed. Reg. 17,764, 17,765 (Apr. 5, 2004). 

Bechtel does not argue there is a substantive difference between the pre-2004 and post-2004 versions.
8 BECHTEL NATIONAL, INC. v. UNITED STATES

provisions of the contract are not allowable. First, the 

DEAR provision states that

[e]xcept as provided in subparagraphs (g) and (h) of 

the clause, or specifically disallowed elsewhere in 

this contract, the contractor shall be reimbursed . . . [f]or liabilities (and reasonable expenses 

incidental to such liabilities, including litigation 

costs) to third persons not compensated by insurance or otherwise.

Id. (emphasis added). Subparagraph (g), in turn, specifies 

that costs “[w]hich are otherwise unallowable by . . . the 

provisions of this contract” “shall not be reimbursed.” Id.

970.5204-31(g). Subparagraph (h) provides additional exceptions to reimbursement, further specifying that costs 

otherwise allowable under the contract are not allowable if 

“caused by contractor managerial personnel’s (1) [w]illful 

misconduct, (2) [l]lack of good faith, or (3) [f]ailure to exercise prudent business judgment.” Id. 970.5204-31(h). 

To be sure, subparagraph (h) imposes narrower restrictions on allowability of costs incurred in defending 

third party claims than the FAR, but DEAR 970.5204-31

does not override the FAR provisions that we interpreted 

in Tecom as disallowing those costs. Although DEAR 

970.5204-31 specifically identifies a number of exceptions 

to reimbursement of costs arising from third party claims, 

it does not follow that all other defense costs are allowable. 

Rather, the DEAR provision merely imposes cumulative requirements on allowability and expressly makes the allowability of defense costs subject to both subparagraphs (g) 

and (h) and to other provisions of the contract.

Indeed, Bechtel admits that under its interpretation of 

the contract, the DEAR provision makes the amount of an 

adverse judgment and costs spent in unsuccessfully defending a discrimination suit allowable. But as we have 

explained, “pass[ing] such costs on to the government in a 
BECHTEL NATIONAL, INC. v. UNITED STATES 9

contract context” would be contrary to public policy under 

the Supreme Court’s decision in NAACP v. Fed. Power 

Comm’n, 425 U.S. 662 (1976). Tecom, 566 F.3d at 1044. 

Bechtel relies on Abraham v. Rockwell International 

Corp., 326 F.3d 1242 (Fed. Cir. 2003), to suggest that the 

DEAR provision should control over the FAR provisions. In 

Abraham, we held that a contract clause “particularly directed toward providing for the allowability of the very category of costs at issue” controlled over “a more general 

exclusionary clause.” Id. at 1254. Thus, we concluded that

the contractor’s legal fees and other costs incurred in successfully defending against environmental criminal 

charges were recoverable under the contract. Id. But we 

recognized in that case that “there [wa]s a clear conflict [in 

the contract] between a clause that expressly provide[d] for 

the reimbursement of specific costs . . . and another 

clause . . . that purportedly require[d] the opposite result,” 

and we had to “determine which of the conflicting terms 

control[led].” Id. at 1253–54. There is no such conflict between the DEAR and FAR provisions at issue here. Significantly, Abraham specifically recognized that the existence 

of carve outs in a general allowability provision that make

the provision “subject to the express disallowance provisions of the contract” prevents there from being a conflict. 

Id. at 1250–51. 

Bechtel also points to the regulatory history of the 

DEAR provision in support of its interpretation. See Acquisition Regulations; Department of Energy Management 

and Operating Contracts, 62 Fed. Reg. 34,842, 34,844–45

(June 27, 1997). In promulgating the final rule, the DOE 

“illustrate[d] how [the ‘prudent business judgment’ standard of DEAR 970.5204-31(h)] will operate in a typical thirdparty action” using “[a] sexual harassment suit . . . brought 

by an employee against the contractor” as an example in 

response to commenters who expressed concern over how 

the standard would be interpreted in practice. Id. at 
10 BECHTEL NATIONAL, INC. v. UNITED STATES

34,844. However, this regulatory history does not suggest

that defense costs associated with such a harassment suit 

would be allowed, nor does it state that other provisions of 

the FAR should be disregarded in determining whether the 

costs under the DEAR provision should be allowed.2 Failure by the contractor to exercise “prudent business judgment” in incurring costs associated with third party claims 

is just one way that the costs may be disallowed. 

We conclude that the standard articulated in Tecom 

applies to the costs at issue here. Thus, Bechtel’s defense

costs related to the discrimination suits are only allowable 

if Bechtel can show that the former employees “had very 

little likelihood of success.” Tecom, 566 F.3d at 1039. Before the contracting officer, Bechtel argued that the former 

employees’ claims had little likelihood of success on the 

merits. However, Bechtel abandoned that argument on appeal to the Claims Court. Therefore, we hold that the costs 

are not allowable under the contract.

Bechtel’s remaining arguments do not require a contrary result. First, Bechtel contends that the DOE had reimbursed Bechtel for costs incurred in discrimination cases 

before Tecom and that the DOE’s prior conduct supports 

interpreting the contract to allow such costs. But the 

DEAR provision is clear on its face. The parties’ prior conduct is only relevant if the contract language is ambiguous. 

 

2 Bechtel relies on a statement of the DOE in the 

Federal Register, which states: “The Department acknowledges that third-party actions, including employee discrimination complaints, are normal business risks, and is not 

seeking to shift all such risk to the contractor.” Acquisition 

Regulations; Department of Energy Management and Operating Contracts, 62 Fed. Reg. at 34,845. But this regulatory history does not suggest that the costs here would 

necessarily be allowable. 
BECHTEL NATIONAL, INC. v. UNITED STATES 11

Topliff v. Topliff, 122 U.S. 121, 131 (1887); see also Agility 

Logistics Servs. Co. KSC v. Mattis, 887 F.3d 1143, 1149 

(Fed. Cir. 2018); Banknote Corp. of Am., Inc. v. United 

States, 365 F.3d 1345, 1353 n.4, 1354–55 (Fed. Cir. 2004). 

Here, there is no ambiguity in the contract.

Second, Bechtel argues that if Tecom governs the costs 

here, then Tecom’s standard could be applied more broadly 

to disallow costs associated with “any and all alleged contract breaches,” and that such a reading would be contrary 

to the contract. Bechtel Op. Br. 31. However, that issue is

not presented, and we need not address it. 

Third, Bechtel further contends that it is unfair to impose these burdens and risks on a contractor in Bechtel’s 

position because “the long-standing foundation of DOE 

cost-type contracting is that [the] DOE assumes virtually 

all operational and financial risk, given the nature of the 

work being performed,” and “contractors . . . might otherwise decline the work given the extreme risks associated 

with attempting to immobilize 56 million gallons of highly 

radioactive liquid waste.” Id. at 29–30. But that is an argument for amending the contract requirements or the 

FAR provisions. It does not justify our reading the contract 

contrary to its express terms.

Finally, Bechtel argues that Tecom should be overruled. As a panel, we are bound by Tecom, and, in any 

event, Bechtel has not demonstrated that Tecom is in any 

way unsound such that the panel should recommend en 

banc review pursuant to Federal Circuit Rule 35. 

CONCLUSION

The Claims Court correctly applied the standard in 

Tecom in determining whether Bechtel’s defense costs were 

allowable under the contract. Because Bechtel did not 

challenge the contracting officer’s determination that the 
12 BECHTEL NATIONAL, INC. v. UNITED STATES

former employees’ claims had more than a very little likelihood of success, we affirm. 

AFFIRMED