ARMED SERVICES BOARD OF CONTRACT APPEALS Appeal of

-- Laguna Construction Company, Inc.
Under ContractNo. FA8903-04-D-8690
APPEARANCE FORTHEAPPELLANT: ) ) ) ) )

APPEARANCES FORTHE GOVERNMENT: ASBCA No. 58324

Carolyn Callaway, Esq.

Carolyn Callaway, P.C. Albuquerque, NM
E. Michael Chiaparas, Esq.

DCMA ChiefTrial Attorney Gregory T. Allen, Esq.

Trial Attorney Defense ContractManagementAgency Chantilly, VA
OPINIONBYADMINISTRATIVE JUDGE DELMAN ON CROSS-MOTIONS FOR SUMMARYJUDGMENT Laguna Construction Company, Inc. (Laguna, LCC or appellant) has filed a motion for summaryjudgmentin ASBCANos. 57977 and 58324. The government has filed in opposition to this motion, and has also filed a cross-motion for summary judgmentlimitedto ASBCANo. 58324. We address the motions underASBCA No. 58324 herein. Appellant's motion under ASBCANo. 57977 will be addressed separately. We havejurisdiction underthe ContractDisputes Act of 1978 (CDA), 41 

# u.s.c. §§ 7101-7109.
STATEMENT OF FACTS (SOF) FORPURPOSES OF THE MOTIONS
1. The AirForce Center for Environmental Excellence (AFCEE or government) awarded to appellant ContractNo. FA8903-04-D-8690, one oftwenty-seven contracts for Worldwide Environmental Remediation and Construction (WERC) in November 2003 (R4, tab 1 at 1-34).
2. Underthis contract, LCC received 16 cost-reimbursable task orders (TOs) from the government to perform work in Iraq (compl. 

### i! 14). Concurrent with the issuance of these TOs, the United States was engaged in contingency operations in Iraq as defined by FAR2.101.3. The contract containedFAR 52.215-2, AUDIT AND RECORDS-NEGOTIATION (JUN 1999); FAR52.216-7, ALLOWABLE COSTAND PAYMENT (DEC 2002)-ALTERNATE 1 (FEB 1997); FAR 52.233-1, DISPUTES (JUL 2002)-ALTERNATE 1(DEC1991); FAR52.244-2, SUBCONTRACTS (AUG 1998); and FAR 52.244-5, COMPETITION IN SUBCONTRACTING (DEC 1996) (R4, tab 1 at 25-29).
Relevant TOs and Subcontracts
4. TO 0002 was awarded to LCC on 26 March 2004, with an estimated cost-plus-fixed-fee of$19,511,325 to renovate and constructthe Ministry ofDefense headquarters complex located in Baghdad, Iraq (compl.,253; R4, tabs 2, 50). LCC awarded Subcontract 2004-007-SUB4, dated 13 October 2004, to Tigris River Company (Tigris) for labor services and supplies for the Ministry ofDefenseproject with a not-to-exceed price of$250,000. LCC issued ten change orders to the subcontract totaling $616,087. (Compl. ,,214-16, 294-95)
5. The government awarded TO 0006, dated 25 June 2004, to LCC for Phase II construction ofAnNumaniyah Military Base and to construct a bridge. The total amount ofthe TOwas $40,843,175. (Compl., 391) Underthis TO appellant awarded Subcontract 2004-015-SUB14 to Yacoub & Ramzi Snobar (Snobar) on 6 December 2004 in the amount of$1,860,000. Three change orders were issued to the subcontract in the total amount of$2,455,175. (Supp. R4, tab 83)
6. The government awarded TO 0012 to LCC on 21April2005 with an estimated cost-plus-fixed-fee of$8,589,474, to provide planning and phased construction services at Phoenix Base, Iraq (R4, tab 6). LCC awarded Subcontract 2005-009012-SUBl1, dated 15 May 2006, to Mercury Development Company (Mercury Development) for constructing an office building and convoy area at PhoenixBase atthe fixed-price of $454,600. LCC issued four change orders to the subcontracttotaling $379,885. (Compl. ,,492-93)
7. LCC awarded a number ofsubcontracts to the New Millennium Company (NewMillennium) under TO 0012. LCC awarded Subcontract 2005-009 012-SUBOl, dated 11 March 2005, to New Millennium for Convoy Area Upgrades

- Phoenix Base at the not-to-exceed total of$478,800. LCC issued ten change orders to this subcontract totaling $2,315,147. (Compl. ,,429-30) LCC awarded Subcontract 2005-009 012-SUB05, dated 12 May 2005, to NewMillennium for the Base Gym Project

- Phoenix Base at a fixed-price of$587,350. LCC issued one change orderto the subcontracttotaling $650. (Compl. ,,461-62) LCC awarded Subcontract 2005-009 012-SUB06, dated 19 May 2005, to NewMillennium for Guest Quarters at BlackHawk-PhoenixBase at the fixed-price of$1,267,000. LCC issued four change orders to the subcontracttotaling $253,972. (Compl. ,,466-67) LCC awarded Subcontract 2005-009 012-SUB07, dated 30 May 2005, to New Millennium, for BasePower Generation

- PhoenixBase at the

2fixed-price of$1,476,000. LCC issued two change orders to the subcontract totaling $719,655. (Compl. 

## iiii 472-73) LCC awarded Subcontract 2005-009 012-SUB08, dated 30 May 2005, to New Millennium for renovations to the Iraqi Armed Forces StaffCollege at the fixed-price of$933,690. LCC issued seven change orders to the subcontract totaling $2,007,370. (Compl. 

## iiii 477-78) LCC awarded Subcontract 2005-009 012-SUB09 dated 15 August 2005, toNewMillennium for building ofNew DFAC at the fixed-price of $1,841,000. LCC issued nine change orders to the subcontracttotaling $958,144. (Compl. 

## iiii 484-85) 8. The government awarded TO 0014 to LCC on 10 June 2005 in the amount of $20,555,941 to constructtwo Iraqi Police Commando Facilities, Commando Sites 4 and 6, at the Ministry ofDefense Headquarters, Baghdad, Iraq (supp. R4, tab 58). LCC awarded Subcontract 2005-010 014-SUBOl, dated 28 May 2005, to Hozan General Construction Company for "Commando Site 4 (Site Work, Renovation Buildings, Brigade Building and Dinning [sic] Hall)" in the total amount of$8,950,710. LCC issued thirteen change orders underthis subcontract in the total amount of$8,609,400. (Compl. 

## iiii 508, 511) LCC awarded Subcontract 2005-001 014-SUB04, dated 24 May 2006, to Tigris to "AddT-Wall Separation for Detention Facility, Baghdad, Iraq" in the amount of$129,000. LCC issued three change orders underthis subcontract in the total amount of$519,290. (Compl. 

## iiii 593-94)
9. The government awarded TO 0015 to LCC on 12 July 2005 at an estimated cost-plus-fixed-fee of$17,777,545 to constructthe BaghdadPolice College, consisting of two classroom buildings, two barracks, an officers' club and the construction ofan improvised explosive device (IED) training course (compI. 

## ii 615). LCC awarded Subcontract 2005-017 015-SUB07, dated 29 March 2007, to Aridh Al-Sahil Company LTD (Aridh) for water supply work at the Baghdad Police College in the amount of $920,000. LCC issued a number ofchange orders to Aridh under this subcontract. (Compl. 

## iiii 721-40) LCC issued Subcontract 2005-017 015-SUB03 toNew Millennium on 16 August 2005 for construction oftwo classroom buildings for the fixed-price of $4,023,762 (compI. 

## ii 619).
10. The government awarded TO 0020 to LCC on 21December2005 for construction and initial provisioning ofa station defense training facility and an IED course/track at various locations in Iraq for the total estimated cost-plus-fixed-fee of $11,972,902 (supp. R4, tab 65; compl. 

## ii 793). LCC awarded a subcontract, dated 16 December 2005, to Snobar in the amount of$3,690,000 for IED Training and Station Defense Training Facilities, Mosul, Iraq (compI. 

## ii 796). Kickbacks
11. In or around January 2008, the government initiated an investigation into allegations that LCC employees solicited and received kickbacks from subcontractors on

3its Iraq projects. Appellant'sproject manager, who later became construction manager and ultimately area manager, was interviewed by the Federal Bureau ofInvestigation (FBI) and Defense Criminal Investigative Service (DCIS). The results ofinterviews were summarized in a letter from the Special Agent in Charge, FBI Albuquerque Division, to Joseph S. Satagaj, Jr., Associate Counsel, Defense ContractManagementAgency (DCMA), Contract Integrity Center- Dallas, dated 6 October 2010. According to the investigation, LCC's managerprovided as follows:
He advised Special Agents that he was first employed by LCC as a Project Manager inMarch 2005, then as a Construction Manager, then subsequently as the Area Manager for LCC until December2007. During the interviews he admitted receiving kickbacks as an LCC employee and as a result ofLCC subcontract awards, from a number ofsubcontractors in Iraq

....

The kickbacks paidby employees ofthese companies totaled over $450,000 andwere paidby these subcontractors in orderto facilitate both the awarding of contracts as well as the timely payment ofinvoices. In at least two cases, the kickbackwas paid bythe owner ofthe company. [The] owner ofMercury Development, paid [him] $100,000 in orderto facilitate Mercury Development getting subcontract work. [The] owner ofAridh Al-Sahil Company Ltdpaid [him] $150,000 in orderto facilitate AridhAl-Sahil Company Ltd getting subcontract work as well as for getting invoices paid in a timely manner. [He] admitted specifically to receiving a kickback for the paving workAridh Al-Sahil performed on the BaghdadPolice College contract as well as from Hozan General Construction Company Ltd. for workperformed at the Ministry ofDefense, Commando Site 4. (Supp. R4, tab 87 at 1157-58) Accordingto the FBI letter, he also identified a number of the TOs during the time he received kickbacks, including TOs 0012, 0014 and 0015 (id. at 1158).
12. On 13 May 2010, the United States Attorney for the District ofNew Mexico filed a criminal information against this project manager. The information alleged that he conspired "[f]rom at least as early as April 2005, until in or about

4March 2008,"to violate 41 U.S.C. § 53, 1the Anti-KickbackAct, "by knowingly and willfully soliciting, accepting, and attempting to accept one ormore kickbacks, specifically: money, payments, and commissions, in connection with [Laguna's] award ofsubcontracts relating to prime contracts awarded by the United States to [Laguna]

...." (Supp. R4, tab 84 at 1132)
13. On 1 October 2010, this project managerpied guilty to Count One ofthe 13 May 2010 criminal information. That count chargedhim with "[c]onspiracy to pay or receive kickbacks, in violation of 18 U.S.C. 

### § 371 and 41 U.S.C. 

### § 53." (Supp. R4, tabs 86, 89)
14. As a part ofhis guilty plea agreement, he acknowledged as follows:
From at least as early as April 2005, until December 3, 2007, I was employedby [LCC], a New Mexico-based company, and was assignedto its office in Baghdad, Iraq. LCC was a prime contractorproviding contracting services to the United States. Projects in Iraq on whichLCC served as prime contractor included, but were not limited to: construction, restoration, and renovation projects involving the Multi-National Security Transition Command-Iraq (MNSTC-1) PhoenixBase; the Iraq Ministry ofDefense; the Baghdad Police College; Civilian Police Assistance Training Team (CPATT); Medical Aid Stations; the IndependentElectoral Commission Building; the International Zone Fire Station and the International Zone Sanitary Sewer System, located in Baghdad; the AnNumaniyah Military Base and the An Numaniyah Military Training Base West Pods, located in AnNumaniyah; and the Charlie Forward Operating Base (CFOB), located in AI Hillah. These projects were under the authority ofthe Air Force Center for Engineering and the Environment (AFCEE)

.... LCC hired numerous subcontractors to completethe work onthese projects. Underthe terms ofLCC's cost-plus contracts with DOD, LCC would submit its subcontractors' invoices to DOD, which subsequently would reimburse LCC for the amounts ofthe invoices plus

141 U.S.C. 

### § 53 was subsequently re-codified as 41 U.S.C. 

### § 8702, effective 4 January 2011.

5

### apercentage. LCC, in tum, wouldreimburse its subcontractors for the amounts specified in their invoices.
From April 2005 until March 2008, I agreed with others to accept kickbacks from LCC subcontractors, specifically: money payments for the purpose of improperly facilitating the award ofLCC subcontracts and favorably rating the performance ofsubcontractors

.... In orderto make contract funds available for kickbacks, I would cause subcontractors to submit inflated invoices to LCC for presentmenttothe government, butto agree to accept lesser amounts than those specified in their subcontractor invoices so that contract funds were available to pay me kickbacks. Through this practice, I caused the subcontracts paid by the United States Government to be inflated by the amounts I would receive as kickbacks. I am aware that I caused LCC to submit kickback-inflated billings from its corporate headquarters in New Mexico to AFCEE in Texas causing an over-billing to the United States Government, namely, DOD, of $847,904.00. (Supp. R4, tab 86 at 1149-50)
15. On 28 February 2012, a federal grandjury in the United States District Court for the District ofNew Mexico issued Criminal IndictmentNo. 12-413 MV (IndictmentNo. 12-413) againstthree principal officers ofLCC and four principal officers ofLCC subcontractors on the WERC contract. The LCC officers indicted were (1) the president ofLCC during LCC's performance ofthe WERC contract who was in charge ofall ofLCC's construction operations, including those involving wartime reconstruction efforts in Iraq and Jordan; (2) the executive vice president and chiefoperating officer ofLCC for LCC'sreconstruction efforts in Iraq (hereaftervice president for operations); and (3) LCC's contract compliance manager. (Supp. R4, tab 88 at 1161) 16. The four subcontractorprincipals indicted by the grandjury were the two owners ofSnobar; the owner ofMercury Development, a Lebanese contractor that received multiple reconstruction contracts from LCC and who also worked for New Millennium; and the owner ofTigris (supp. R4, tab 88 at 1162). 17. IndictmentNo. 12-413 alleged that Laguna's officers and employees received kickbacks for awarding construction subcontracts to certain subcontractors on task orders issued under the WERC contract. It asserted one count ofwire fraud

6conspiracy, seventy-four counts ofwire fraud, one count ofillegal kickbacks, one count ofmoney laundering conspiracy, eleven counts ofmoney laundering, and three counts ofincome tax evasion. (Supp. R4, tab 88 at 1164-91)
18. On 2 July 2013, the United States Attorney for the District ofNew Mexico filed a criminal information against appellant's vice president for operations. The information alleged that from in or about December 2004 through on or about February 2009, he and others conspired to defraud the United States by providing, soliciting, and accepting kickbacks in return for improperlyproviding favorable treatment to certain subcontractors in connection with the award ofsubcontracts by LCC to those subcontractors under the WERC contract. 

### It specifically identified numerous kickback payments to him from Snobar and Mercury Development. Total kickbacks paid by subcontractors were alleged to be at least $1,687,310. (Supp. R4, tab 90 at 1204-08)
19. On 2 July 2013, appellant's vice president for operations pied guilty to Counts 76 and 91 ofthe indictment. Count 76 was for solicitation and receipt of kickbacks, a violation of41 U.S.C. § 53. Count 91 was for federal income tax evasion, a violation of 26 U.S.C. § 7201. He also pied guilty to the above information, conspiracy toprovide, solicit, and accept kickbacks, a violation of 18 U.S.C. § 371. (Supp. R4, tabs 88, 90, 91, 92 at 1210).
20. In the plea agreement ofappellant's vice president for operations, he admitted that he and others submittedAFCEE proposals underthe WERC contract that included a "competition certification"under which LCC certified "that all subcontracting will be done using competitive biddingprocedures." He identified several specific proposals underthe WERC contract where he and others had made false statements about using competitive biddingprocedures. These were: a 4 January 2005 proposal for the AnNumaniyah Base Renovations Project; a 1March 2005 proposal for the PhoenixBase Upgrade project; a 15 March 2005 proposal for the Police Service Academy Project; an 18 April 2005 proposal for the Commando Satellites and Site 4 and Site 6 Project; and a 21 September2005 proposal for the Station Defense Training Facility and Improved Explosive Device Course Track Project. (Supp. R4, tab 91 at 1215)
21. In the plea agreement, he also admitted that: [D]uring and in conjunction with the administration ofthe LCC Iraqi reconstruction prime contracts and subcontracts, I accepted numerous kickbacks from defendants

...in return for giving them favorable treatment in connection with the awards ofsubcontracts under the WERC and HERC. I also have personal knowledge of[Laguna'spresident]'s



### 7acceptance ofnumerous kickbacks.... These subcontractors were willing to pay us kickbacks because we circumventedthe fair, open, and competitive bidding process required by the FARand LCC's policies and procedures, and instead directed subcontracts to these favored subcontractors

.

...To ensure thatthese subcontractors received favored treatment in the award ofthe various HERC and WERC subcontractors, [Laguna'spresident] and I subvertedthe biddingprocess....

...I improperly manipulated the contractingprocess in orderto ensure that the subcontractors who paid us kickbacks were awarded subcontracts. [Laguna's president] knew that I was not following the open, fair, and competitive biddingpractices requiredby the FAR. Throughthis process [we] circumventedthe competitive biddingprocess required bythe FAR and LCC's own policies andprocedures, and I was able to direct subcontracts to companies that were willing to pay us kickbacks. (Supp. R4, tab 91 at 1219-20)
LCC's Claim and Appeal
22. In February 2009, the Defense ContractAudit Agency (DCAA) began an audit ofLCC's incurred costs for its fiscal year (FY) 2006 (compl. 

### if 32). On 17 March 2011, DCAA issued Forms 1, Nos. 2011-002 through 2011-005 disapproving a total of$17,459,674 ofsubcontract costs (R4, tabs 26-29). On 4 August 2011, DCAA revised the Forms 1, redesignated them as Nos. 201 l-002(a) through 2011-005(a), and disapproved a total of$17,823,506 ofsubcontract costs (R4, tabs 32-35).2
23. On 6 April 2012, DCAArejected 14 LCC vouchers totaling $3,031,925 on TOs 0002, 0005, 0010, OOll, 0012, 0014, 0015, 0017, 0018, 0020, and 0022 based on the revised Forms 1 above (R4, tab 40 at 290; supp. R4, tab 82).

2 Forreasons discussed herein, we need not address DCAA's methodology and computation ofthe disapproved costs.
8

### 24. On 21 May 2012, LCC submitted a "Certified Claim under Contract No. FA890304D8690, Task Orders 002, 0005, 0010, 0011, 0012, 0014, 0015, 0017, 0018, 0020, 0022" on behalfofLCC to the Administrative Contracting Officer (ACO). That claim requested a decision, inter alia, 

### "authorizing paymentto Laguna ofthe improperly withheld sum certain of$2,874,081." (R4, tab 40 at 283-84)
25. The ACO did not issue a decision. On 18 September 2012, LCC submitted a notice ofappeal to the Board basedupon the deemed denial ofits claim. The Board docketed the appeal as ASBCA No. 58324. Pleadings and the Affirmative Defense
26. Appellant's complaint was filed on or about 26 October 2012, and the government's answer was filed on or about 2 January 2013. After Laguna's vice president for operations pied guilty in July 2013, the government moved to amend its answer to include the Affirmative Defense offraud, as follows:
The FraudByLCCOfficers andEmployees



### The Government is not liable for LCC's claim

...because of LCC'sbreach ofContract No. FA8903-04-D-8690 when its principal officers and employees solicited and accepted kickbacks for awarding subcontracts under task orders issued under that contract, which constituted fraud against the United States. Appellant objected to the government's motion. The Board granted the government's motion to amend its answer. Laguna Construction Company, 

### ASBCA No. 58324, 13 BCA

### if 35,464. DECISION Motion to Strike Documents Appellant moves to strike the following documents and the portions ofthe government's cross motion that address them. These documents were attached to the government's motion and were tendered as part ofthe government's Rule 4 file supplement:

9Tab 84: 

### Criminal Information for Ismael Salinas, a.k.a. Mike Salinas, Criminal No. 10-1383, United States District Court for the District ofNewMexico, dated 13 May 2010.
Tab 85: 

### Complaint for ForfeitureIn Rem, United States v. 11510 Anaheim Ave. NE, Albuquerque, NM 87122 and Bradley Christiansen and Sara Christiansen, claimants, Civil No. 10-647, United States District Court for the District ofNew Mexico, filed 9 July 2010.
Tab 86: 

### PleaAgreement for Ismael Salinas, a.k.a. Mike Salinas, to plead guilty to conspiracy to pay or receive kickbacks, Criminal No. H-10-438, United States District Court for the SouthernDistrict ofTexas, dated 1October 2010.
Tab 

### 87: Letter from Federal Bureau ofInvestigation, Albuquerque Division, to Joseph S. Satagaj, Jr., DCMA Contract Integrity Center, concerning illegal kickbacks from subcontractors to employees ofLaguna Construction Company, Inc., dated 6 October 2010.
Tab 88: 

### Criminal Indictment for Neal Kasper, Bradley G. Christiansen, Sara Christiansen, Tiffany White, Ramzi Snobar, Yacoub Snobar, Mustapha Ahmad, and Ali-Ardhi, Criminal No. 12-413, United States District Court for the District ofNew Mexico, dated 28 February 2012.
Tab 90: 

### Criminal Information for Bradley G. Christiansen, Criminal No. 12-413 MV, United States District Court for the District ofNew Mexico, dated 2 July 2013.
Tab 91: 

### PleaAgreement for Bradley G. Christiansen, Criminal No. 12-413 MV, United States District Court for the District ofNew Mexico, dated 2 July 2013.

The government has withdrawn tab 85 (gov't opp'nto mot. to strike at 2). We address the remaining documents below.

10The Indictment and the Criminal Informations (Supp. R4, tabs 84, 88, 90) Laguna objects to the admission ofthese documents for the truth ofthe matter stated therein on the ground ofhearsay, but does not objectto their admission "forthe limitedpurpose ofshowingthey were issued, the criminal charges includedtherein, and thepersons charged" (app. reply to gov't opp'nto strike at 2). Indeed, the government cannot reasonably tenderthese documents for more; these documents provide only charges or allegations and, perforce, they are not admissible for the truth ofthe matter asserted therein.
These documents are not stricken, butthey are admitted solely for the limited purposes stated above.
The PleaAgreements (Supp. R4, tabs 86, 91) Appellant's chiefcontention is thatthe plea agreements are inadmissible for the truth ofthe matter stated onthe ground ofhearsay underthe Federal Rules ofEvidence (FED. R. Evm.) as applied in the federal courts. The short answerto this is that the ASBCA is an administrative agency board that is notbound by the FED. R. Evm. as applied inthe federal courts. Rather, we are boundto follow our ownpublished Rules, which insofar as pertinent, permit the admission ofevidence in Boardproceedings "underthe Federal Rules ofEvidence or in the sound discretion ofthe presiding Administrative Judge or examiner." Rule lO(c). 3 This sound discretion includes the acceptance ofhearsay under appropriate circumstances. C.F. Electronics, Inc., ASBCA No. 43212, 95-2 BCA

### if 27,719 at 138,136; see E.R. McKee v. UnitedStates, 205 Ct. Cl. 303, 310 (1974) ("In an administrative [Interior Board ofContract Appeals] hearing 'rankhearsay' not only is admissible, depending on the applicable regulations, ifany, but can constitute substantial evidence ifsufficiently convincingto a reasonable mind.").
We find sufficient indicia oftrustworthiness in this evidence underthe circumstances. The admissions ofillegal activity cited in these documents were made by theputative defendants under oath and with the advice ofcounsel, and subjected themto significant criminal penalties. Indeed, appellant does not offer any affidavit, or cite to any other evidence ofrecord disputing the accuracy oftheseplea agreement admissions. Rather, appellant asserts that these admissions are redundant, immaterial orirrelevant to the appeals. We do not agree. The admissions in the plea agreements provide context to the guiltypleas, and in accordance with the government's affirmative defense, help explain and support how Lagunabreached the contract (see

3 Effective 21 July 2014, the Board's Rules were revised and renumbered. Fed. Reg., vol. 79, No. 139 (July 21, 2014). See ASBCA website, www.asbca.mil. We cite to the revised Rule here.

11

### infra). The Board admits these plea agreements into evidence for the truth ofthe matter stated, and appellant's motion to strike them is denied.
FBI Letter ofInvestigation to DCMA (Supp. R4, tab 87) Appellant objects, on the grounds ofhearsay, to the FBI letterto DCMA dated 6 October 2010, which sets forth the FBI's findings regarding its investigation. Unlike the plea agreements, this document does not contain any signed, sworn statement of the accused. Rather, it contains government summaries ofwhat was purportedly stated by the accused during various interviews. On the otherhand, the excerpts from the letter citedby the government (gov't mot. at 14-16), aportion ofwhich we have cited herein (SOF**~** 11), relate to the accused's receipt ofkickbacks under the contract. This information is generally corroborated by his guilty plea and plea agreement. We also note that appellant does not offer any evidence disputing the accuracy ofthis evidence. We believe that these excerpts cited by the government contain sufficient elements of trustworthiness so as to be admissible for the truth ofthe matter asserted, and appellant's motion to strike these excerpts is denied. However, this FBI letter also contains matters ofquestionable relevance to this appeal, including the subject'spurported encounterwith Customs and Border Protection officers and a claimed consensual search ofa residence. We decline to admit this material due to lack ofrelevance.
In conclusion, except as otherwise statedherein, appellant's motion to strike documents is denied.
The Cross-Motions for Summary Judgment
A party is entitled to summaryjudgment ifit can showthat there are no disputes ofmaterial fact and it is entitled tojudgment as a matter oflaw. 

### Mingus Constructors, Inc. v. UnitedStates, 812 F.2d 1387, 1390 (Fed. Cir. 1987). We believe there are no disputes ofmaterial fact here, and that the appeal is amenable to summary judgment.
It is undisputed that in April 2012, the DCAArejected, and the government declined to pay 14 LCC invoices under various TOs under this contract, based upon the DCAA's findings and calculations under the Forms 1as revised (SOF**~** 23). Appellant contends thatthe government's disapprovals, by nature and amount, were unsupported and the government breached the contract due to its failure to paythe invoices. Assuming, 

### arguendo, that appellant is correct, nevertheless it is not entitled to recover for reasons stated below.

12In Christopher Village, L.P. v. UnitedStates, 360 F.3d 1319, 1334 (Fed. Cir. 2004), the Court summarizedthe well settledprinciple ofantecedent breach:
When a "party to a contract...is sued for its breach [it] may ordinarily defend on the ground that there existed, at the time [ofthe breach], a legal excuse for nonperformance

...." In resolving disputes among parties who each claimthat the otherhas breached, courts will "[o]ften

...impose liability on the party that committed the first material breach." [Citation omitted]
We conclude below that appellant committed the first material breach underthis contract, whichprovidedthe government with a legal excuse for not paying appellant's mv01ces. Every contract contains a convenant between the parties to perform in good faith and fair dealing. A failure to fulfill this duty is a breach ofcontract. Metcalf Construction Co. v. UnitedStates, 742 F.3d 984, 990 (Fed. Cir. 2014). We believe an essential element ofthis convenant is the duty ofeachparty to perform with integrity. A breach ofsuch a duty is not only a breach ofcontract but a betrayal oftrust, and vitiates the reasonable andjustifiable expectation ofthe parties in the performance of that contract. Underthe cost-reimbursable TOs ofthis contract, appellant's officials pled guilty to taking kickbacks, causing appellant's vouchers to the government to be inflated to cover the payment ofthese kickbacks during the course ofcontract performance. We must first determine whetherthis criminal conduct may be imputed to Laguna.
The aforementioned criminal acts wereperformedby appellant's project manager and by its vicepresident ofoperations, both ofwhomwere operating under this contract and within the scope oftheir employment. This supports the imputation oftheir actions to Laguna. See KelloggBrown & RootServices, Inc. v. UnitedStates, 728 F.3d 1348, 1370 n.25 (Fed. Cir. 2013); see also UnitedStates v. AcmeProcess Equipment Co., 385 U.S. 138, 147 (1966) ("Since Acme selected those agents to carry on its business in obtaining and performing government contracts, there is no obvious reason why their conduct in that field should notbe considered as Acme's conduct, particularly where it touches the all-important subject ofkickbacks."). Accordingly, we conclude that Lagunabreached its duty underthis contract to perform in good faith and fair dealing. In addition, insofar as Laguna's vouchers to the government were improperly inflated to include the payment ofkickbacks, its

13vouchers also did notreflect allowable and reimbursable performance costs, which was a breach ofthe Allowable Cost and Payment clause in the contract (SOF**~** 3). Next, we address whether these breaches were material. Kickbacks are fraudulent and "any degree offraud is material as a matter oflaw." Christopher Village, 360 F.3d at 1335. That the government has notproventhatkickbacks were paid under every TO or under every voucher does not render the fraud any less material. See Joseph Morton Co. v. UnitedStates, 757 F.2d 1273, 1278 (Fed. Cir. 1985) ("balancing test" betweenthe fraudulent act and the work free offraud is contrary to precedent). Appellant's breaches here were material.
CONCLUSION
We conclude thatLaguna materially breached the WERC contract through the kickbacks taken by its agents and its billings to the government based on amounts inflated by their kickbacks. We concludethat these criminal acts constituted a first material breach, and this first material breach excused the government from subsequently paying appellant's invoices. Accordingly, we grant the government's cross-motion for summaryjudgmentunderASBCANo. 58324, and deny appellant's motion for summaryjudgment.
ASBCA No. 58324 is denied.
Dated: 23 September 2014

I concur

# ~E~ Administrative Judge Acting Chairman Armed Services Board ofContract Appeals

14 Administrative Judge Armed Services Board ofContract Appeals

RICHARD SHACKLEFORD Administrative Judge Vice Chairman Armed Services Board ofContract AppealsI certify that the foregoing is a true copy ofthe Opinion and Decision ofthe Armed Services Board ofContractAppeals in ASBCA No. 58324, Appeal ofLaguna Construction Company, Inc., rendered in conformance with the Board's Charter.
Dated:

15 JEFFREYD. GARDIN Recorder, Armed Services Board ofContract Appeals