United States Court of Appeals 

for the Federal Circuit ______________________ 

SUPREME FOODSERVICE GMBH,

Appellant

v.

DIRECTOR OF THE DEFENSE LOGISTICS 

AGENCY,

Appellee

______________________ 

2021-1965

______________________ 

Appeal from the Armed Services Board of Contract Appeals in Nos. 57884, 57884-QUAN, 58666, 58666-QUAN, 

59636, 59636-QUAN, 61361, 61361-QUAN, Administrative Judge J. Reid Prouty, Administrative Judge Michael 

N. O’Connell, Administrative Judge Richard Shackleford.

______________________ 

Decided: December 5, 2022

______________________ 

JOHN PRAIRIE, Wiley Rein LLP, Washington, DC, argued for appellant. Also represented by JAMES RYAN 

FRAZEE. 

 P. DAVIS OLIVER, Commercial Litigation Branch, Civil 

Division, United States Department of Justice, Washington, DC, argued for appellee. Also represented by BRIAN 

M. BOYNTON, PATRICIA M. MCCARTHY. 

______________________ 

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Before MOORE, Chief Judge, PROST and HUGHES, Circuit 

Judges.

HUGHES, Circuit Judge.

Supreme Foodservice GmbH appeals an Armed Services Board of Contract Appeals decision concluding that 

Supreme’s contract claims against the government were

barred by Supreme’s prior material breach. Supreme argues that the government waived its prior material breach 

defense and seeks Contract Disputes Act interest on money 

the Board found the government over-withheld. Because 

we agree that the government did not waive its defense, 

and because Supreme’s prior material breach means there 

is no valid underlying contractor’s claim through which Supreme may recover CDA interest, we affirm.

I 

A 

In 2005, the Defense Logistics Agency (DLA) awarded 

a “subsistence prime vendor” (SPV) contract to Supreme to 

furnish and deliver food to U.S. forces in Afghanistan. Initially, the contract only required Supreme to deliver food 

by truck to four main U.S. military bases, but DLA later 

modified the contract to direct Supreme to begin delivering 

food to other forward operating bases in Afghanistan. 

The parties then began negotiating payment for those 

deliveries to forward operating bases, known as Premium 

Outbound Transportation (POT). During negotiation, Supreme submitted inflated cost proposals that were, according to Michael Epp, Supreme’s Commercial Division 

Director, “completely false.” J.A. 9. Because Supreme 

threatened to withhold payments to subcontractors (thus 

potentially cutting off food supply to troops in Afghanistan), the parties executed Modification No. P00010 on August 2, 2006, agreeing to Supreme’s proposed rates “subject 

to final verification.” J.A. 13. DLA asked the Defense 

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Contract Audit Agency (DCAA) to audit Supreme’s proposed POT costs. The parties then entered into Modification No. P00012, which provided that DLA would 

reimburse Supreme at 75 percent of the P00010 rates until 

the audit was complete.

DCAA performed two audits of Supreme’s proposed 

POT costs and concluded that Supreme’s submitted documentation was not adequate to support its proposal. In its 

second and more-thorough audit, DCAA examined over 

$602 million in claimed costs and questioned more than 

$375 million of those costs due to inadequate documentation. 

Relying on information uncovered during the audit, the 

contracting officer (CO) issued a final decision (COFD I) on 

December 9, 2011, establishing final POT rates that were 

significantly lower than Supreme’s initial, inflated proposed rates. Using the final rates, the CO determined that 

DLA had overpaid Supreme by $567,267,940 and demanded Supreme return that money. DLA then began 

withholding money from Supreme’s monthly payments, 

eventually totaling over $540 million. In response, Supreme submitted a “reverse image” claim of the government’s December 9, 2011 claim, contending that it was 

entitled to the proposed rates from the start of performance 

and that, in total, it was due an additional $1.8 billion dollars. The CO denied that claim (COFD II). Supreme then 

submitted a second claim seeking $598,769,101. The CO 

never issued a final decision on that claim. Supreme appealed that deemed denial. 

B 

In its proposal, Supreme stated that it would get local, 

market-ready items from Barakat Vegetable and Fruits 

Co., which would consolidate items at a facility in Dubai 

and then airlift them to Afghanistan. Supreme later requested that Jamal Ahli Foods Co., LLC (JAFCO) be 

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approved as an additional place of performance for such 

items. DLA approved this request in September 2005.

In March 2009, Paul Rigby, a self-described “disgruntled former employee” of Supreme, wrote to the CO and 

DLA, alleging potentially fraudulent activity surrounding 

JAFCO. Specifically, he alleged that JAFCO was wholly 

owned by Supreme, and that when JAFCO would source 

and consolidate local market ready items, it would include 

an “undisclosed mark-up” (a 35 percent increase to the purchase price) which increased Supreme’s margin to “60ish 

percent.” J.A. 6026; Appellant’s Br. 11. DLA then referred 

the matter to the Defense Criminal Investigation Service, 

and an investigation followed. 

In September 2014, the United States filed a Criminal 

Information in the Eastern District of Pennsylvania 

against Supreme, alleging three counts of fraud. Supreme 

pled guilty to all three counts in December 2014. In its 

Guilty Plea Agreement, Supreme confirmed that it had devised a scheme to “use JAFCO to make profits over and 

above the profits made from the Distribution Fees in the 

SPV Contract by fraudulently increasing the Delivered 

Price for Local Market Ready . . . goods sold to the United 

States.” J.A. 11087.

Supreme had also sourced bottled water for U.S. forces 

in Afghanistan. Supreme collected water from various suppliers and then charged the U.S. $6.45 per case, telling the 

CO that that was the average price it paid. Mr. Epp, Supreme’s Commercial Division Director, later testified that 

water was the most profitable item on the contract because 

Supreme was actually paying less than $2 per case in some 

instances. The $6.45 price also included transportation 

costs, even when the government transported the water. 

Supreme’s guilty plea also acknowledged that it had defrauded the United States by overcharging for bottled water. 

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In March 2010, Mr. Epp, as relator, filed a qui tam complaint against Supreme under the False Claims Act in the 

Eastern District of Pennsylvania, alleging the fraudulent 

behavior described above. The United States intervened. 

The relator provided documents from his time at Supreme 

to the Assistant U.S. Attorney, who in turn informed DLA 

that the complaint had been filed and that they had “a fair 

volume of documents” regarding the fraudulent activity. 

J.A. 5436. In 2014, Supreme entered into a civil settlement 

agreement with the relator and the Department of Justice

to resolve the qui tam action. 

C 

While the fraud investigations were underway and 

with Supreme’s contract set to expire in December 2010, 

the parties entered into Modification No. P00092 on December 20, 2010 (the Modification), a two-year extension of 

the contract. In its Justification for Other than Full and 

Open Competition Memo regarding the contract extension, 

DLA explained that “[t]he proposed contract extension is 

required in order to maintain continuous prime vendor coverage and uninterrupted supply of vitally needed subsistence items, until implementation of the new, competitively 

awarded prime vendor contract for foodservice support can 

be put in place.” J.A. 11028. The Modification included new 

distribution prices that specifically covered JAFCO. And in 

June 2012, after the Department of Defense and the Department of Justice had had more than three years to investigate any fraud but before Supreme had entered any 

guilty plea, DLA issued a second bridge contract extending 

Supreme’s contract through December 12, 2013.

In January 2015, based on Supreme’s December 2014 

guilty plea, DLA issued a third CO final decision (COFD 

III) demanding the return of all money paid under the contract, about $8 billion dollars. Supreme appealed COFD III 

to the Board.

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In October 2017, a fourth CO final decision (COFD IV) 

updated the debt determination in COFD I regarding the

POT rates and duplicated costs. DLA asserted that Supreme owed a total debt of around $350 million. Supreme 

also appealed that decision to the Board.

D 

In May 2020, the Board issued its decision. As to the 

POT claims, it largely found in DLA’s favor, concluding 

that Supreme had failed to meet its burden of producing 

evidence of its costs sufficient to justify its proposed POT 

rates. The Board then considered DLA’s affirmative defenses to Supreme’s claims. It discussed whether DLA 

could assert affirmative defenses to a COFD that appears 

to be its own government claim, rather than a typical contractor claim. The Board concluded that it could address 

DLA’s affirmative defenses because DLA had already withheld about $540 million from Supreme to recoup the overpayments. “Due to the size of the DLA withholding . . . 

there is a significant possibility that DLA will have to return some money to Supreme. If so, Supreme will be potentially entitled to [Contract Disputes Act] interest on the 

amounts withheld. This interest, then, would fit into the 

‘box’ of being a contractor claim and, as such, would be subject to DLA’s affirmative defenses.” J.A. 55. Thus, the 

Board concluded that it could address DLA’s affirmative 

defense that Supreme’s fraud was a prior material breach 

barring recovery of CDA interest. 

Supreme argued that DLA waived its affirmative defense by continuing to contract with Supreme even after it 

first learned of Supreme’s fraud. Even though DLA “had 

ample evidence of Supreme’s extensive fraud” by June 

2010, yet still continued with its contract, the Board held 

that DLA had not waived its affirmative defense of first 

material breach because it did not continue the contract after Supreme pled guilty. J.A. 56–58. The Board based its 

decision on our prior decision in Laguna Construction

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Company, Inc. v. Carter, where we held that the government could not waive its prior material breach defense until it had a “known right” to the defense—i.e., when a 

contractor pled guilty to fraud. 828 F.3d 1364, 1369 (Fed. 

Cir. 2016). The Board also rejected Supreme’s contention 

that DLA’s prior material breach defense did not apply to 

the bridge contract from 2012–2013 because “the SPV and 

bridge contracts were inextricably intertwined for POT 

purposes and the parties treated them as such.” J.A. 60. 

The Board concluded that Supreme committed the first 

material breach and had lost its right to CDA interest. 

Supreme moved for reconsideration of the Board’s decision, arguing that the Board treated CDA interest as a 

contractual entitlement, rather than a statutory one. The 

Board denied the motion. It agreed with Supreme “that 

CDA interest is a statutory right on a valid claim,” but concluded that “Supreme’s prior material breach through its 

commission of fraud bars its claim for interest.” J.A. 80. 

The parties subsequently agreed upon quantum amounts, 

and the Board adopted them. 

Supreme now appeals. We have jurisdiction under 28 

U.S.C. § 1295(a)(10).

II

Our review of the Board’s decision is limited by statute. 

We review the Board’s legal conclusions de novo, but we 

may not set aside a factual finding unless it is “(A) fraudulent, arbitrary, or capricious; (B) so grossly erroneous as to 

necessarily imply bad faith; or (C) not supported by substantial evidence.” 41 U.S.C. § 7107(b)(2); Kellogg Brown & 

Root Servs., Inc. v. Sec’y of the Army, 973 F.3d 1366, 1370 

(Fed. Cir. 2020). Contract interpretation is a question of 

law reviewed without deference. Kellogg Brown & Root 

Servs., Inc., 973 F.3d at 1370. The appellant bears the burden of establishing reversible error. See Fernandez v. Dep’t 

of the Army, 234 F.3d 553, 555 (Fed. Cir. 2000).

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III

A 

Supreme argues that DLA waived its prior material 

breach defense by continuing with performance of the contract even after learning of Supreme’s fraudulent behavior. 

Under the doctrine of prior material breach, “when a 

party to a contract is sued for breach, it may defend on the 

ground that there existed a legal excuse for its nonperformance at the time of the alleged breach.” Barron 

Bancshares, Inc. v. United States, 366 F.3d 1360, 1380 

(Fed. Cir. 2004) (citing Coll. Point Boat Corp. v. United 

States, 267 U.S. 12, 15 (1925)). “The government may use 

the prior material breach doctrine to defeat a contractor’s 

breach claim.” Laguna, 828 F.3d at 1371.

The Board held that DLA did not waive its prior material breach defense based on our decision in Laguna. J.A.

56–57. In Laguna, the government learned of a kickback 

scheme in January 2008 on a construction contract where 

physical work was not complete until 2010. Laguna, 828 

F.3d at 1366. The government obtained its first guilty plea 

from one of Laguna’s project managers in October 2010. Id.

The parties continued with “conducting audits and making 

cost reimbursements” after the completed physical work in 

2010. Id. at 1372. The government did not raise its first 

material breach defense to the contractor’s claim until after 

a final guilty plea by a Laguna senior executive in 2013. Id. 

at 1367. Laguna argued that the government’s “continued 

performance” of paying incurred costs and auditing Laguna’s statements, even after the government knew of the 

kickback scheme, constituted waiver of the prior material 

breach defense.

We held that “[i]t was reasonable for the government 

to invoke the prior material breach rule after [the senior 

executive] entered a guilty plea in July 2013,” even though 

it had some notice of criminal conduct as early as 2008,

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because prior to the plea, “the government did not have a 

‘known right’ that would have invoked the prior material 

breach rule.” Id. at 1372. Thus, the actions the government 

took in continuing with the contract after 2008 still “did not 

waive [the government’s] right to invoke the prior material 

breach rule.” Id.

Laguna applies squarely to the facts of this case. Because waiver “is an intentional relinquishment or abandonment of a known right,” Massie v. United States, 166 F.3d 

1184, 1190 (Fed. Cir. 1983), DLA cannot have waived its 

defense prior to Supreme’s December 2014 guilty plea because it did not have a known right until Supreme finally 

entered that guilty plea, conclusively ending the criminal 

investigation into its fraud. Even though DLA had some 

notice of Supreme’s fraudulent behavior beginning in 2009, 

it had no “known right” until Supreme’s guilty plea. And 

DLA never extended Supreme’s contract after Supreme

pled guilty. Accordingly, we affirm the Board’s conclusion 

that DLA did not waive its affirmative defense of prior material breach.

B 

Supreme next argues that, even if we conclude that 

DLA did not waive its affirmative defense, we should still 

determine that Supreme is entitled to CDA interest on 

money the government over-withheld. The CDA provides 

that “[i]nterest on an amount found due a contractor on a 

claim shall be paid to the contractor for the period beginning with the date the CO receives the contractor’s claim, 

pursuant to section 7103(a) of this title, until the date of 

payment of the claim.” 41 U.S.C. § 7109(a)(1) (emphases 

added). Typically, this provision entitles a contractor to interest on its own successful claim. But here, there is no 

such successful claim. Although the Board concluded that 

the government had over-withheld approximately $143 

million when addressing the government’s claim, the Board 

terminated Supreme’s claims based on the government’s 

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prior material breach defense. Supreme seeks interest on 

that over-withheld amount related to the government’s

claim, despite the fact its own claims did not prevail. 

In Supreme’s view, this statutory language has only

two requirements for a contractor to be entitled to interest: 

(1) that a contractor is owed a monetary recovery on any

claim (an “amount found due”), and (2) that the contractor 

submitted its own certified claim to the CO (“on a claim”). 

Appellant’s Reply Br. 31. Under this view, it is enough for 

the contractor to simply submit its own claim—it need not 

prevail on that claim. Thus, Supreme argues that it is entitled to recover interest on the $143 million that the Board 

found Supreme is owed from the money DLA withheld, beginning from the date Supreme submitted its own certified 

claim to the CO. Appellant’s Br. 61. We must decide 

whether the CDA requires a contractor to successfully prevail on its own claim to be entitled to interest; or whether 

interest may be assessed on any monetary recovery owed

for which the contractor submitted a certified claim, regardless of how unsuccessful that claim may be. 

To answer this question, we look to the statutory text: 

Interest on an amount found due a contractor on a 

claim shall be paid to the contractor for the period 

beginning with the date the contracting officer receives the contractor’s claim, pursuant to section 

7103(a) of this title, until the date of payment of the 

claim.

41 U.S.C. § 7109(a)(1) (emphases added). This language is 

clear—the “claim” for which a contractor is owed interest 

is “the contractor’s claim.” Id. (emphasis added). Nothing 

in this provision grants a contractor the right to receive interest on an amount due under the Government’s claim. See 

Ruhnau-Evans-Ruhnau Assocs. v. United States, 3 Cl. Ct. 

217, 219 (1983) (“[W]here an award of interest against the 

government is at issue, such congressional silence cannot 

be read as an affirmative grant.”). Rather, it is obvious that 

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a contractor must be successful on its own claim to be entitled to interest under the CDA. 

Supreme relies on a non-precedential decision, Secretary of the Army v. Kellogg Brown & Root Services, 779 F. 

App’x 716 (Fed. Cir. 2019), to argue that a claim alone is 

all that is required to recover interest. In Kellogg, the contractor, KBR, brought three certified CDA claims between 

2007 and 2010, seeking to recover a total of $44 million that 

the Army had withheld. Id. at 722. In September 2011, 

KBR brought a fourth certified CDA claim for that same 

$44 million plus interest under the CDA. Id. at 718. In the 

2011 claim, KBR alleged a new legal theory for recovering 

the $44 million plus interest. Id. Although KBR’s original 

legal theories did not prevail, KBR was ultimately successful on its 2011 legal theory and was awarded $44 million 

plus interest. Id. at 722. The issue on appeal was whether

the clock for calculating interest on the $44 million recovery began when the claims for that $44 million were first 

made, or if it began when the prevailing legal theory was 

first raised. We concluded that the Board did not err in 

starting the interest clock as of the 2007 to 2010 claims, 

even though KBR’s prevailing legal theory was not raised 

until the September 2011 claim. Id. 

Kellogg is distinguishable from the circumstances here. 

This case does not ask what event triggers the interest 

clock, but whether a contractor is at all entitled to CDA 

interest if it has not prevailed on its own claim. “The purpose of the [CDA] interest provision . . . is to provide ‘interest to the contractor upon a favorable decision on his 

claim. . . .’” Esprit Corp. v. United States, 6 Cl. Ct. 546, 548 

(1984) (emphases added) (quoting S. Rep. No. 95-1118, at 

32 (1978)). While KBR received a favorable decision on its 

own claim in Kellogg, Supreme has received no favorable 

decision here. Rather, Supreme’s claims failed because of 

the Army’s successful affirmative defense. If anything, Supreme’s circumstances are more analogous to the cases 

that Kellogg distinguished and recognized “stand for the 

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proposition that defenses to government claims alone are 

not entitled to CDA interest.” Kellogg, 779 F. App’x at 

722–23 (citing, e.g., Magnus Pac. Corp. v. United States, 

133 Fed. Cl. 640 (2017) (“[T]he CDA awards interest on successful contractor claims denied by a contracting officer, 

not on successful appeals of government claims.” (emphases in original))). Supreme’s prior material breach, through 

its commission of fraud, bars its claim for payment for both 

the underlying amount and any interest that might otherwise have been due. We affirm the Board’s denial of CDA 

interest. 

C 

Finally, Supreme argues that DLA’s first material 

breach defense cannot apply to the two subsequently

awarded contract extensions covering 2010–2012 and 

2012–2013. It contends that those are separate contracts it 

did not breach and that it therefore should be able to recover CDA interest on the amounts DLA over-withheld 

during the periods of those two contracts. Appellant’s Br. 

66. The crux of its argument is that its actions that constituted the material breach (i.e., the JAFCO and bottled water fraud) all occurred before DLA awarded the first 

contract extension in December 2010, and therefore Supreme never breached the 2010–2012 or the 2012–2013 

contracts.

The Board concluded that the first contract extension, 

from 2010–2012, was clearly not a separate contract because it was implemented through a bilateral modification 

to the original contract, despite later references to the extension as a bridge contract. J.A. 41, 59. We agree with that 

conclusion—the agreement is clearly styled and executed 

as a modification. See J.A. 4257 (agreement entitled 

“Amendment of Solicitation/Modification of Contract”). 

Thus, DLA’s prior material breach defense applies to the 

2010–2012 extension of the parties’ original contract.

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The Board also concluded, and the government does 

not dispute, that the final extension from 2012–2013 is a 

bridge contract, not an extension. J.A. 59. But the Board 

found that the original SPV contract and the bridge contract “were inextricably intertwined for POT purposes and 

the parties have treated them as such.” J.A. 60. Specifically, the bridge contract increased POT rates by 4.5 percent, but otherwise was very similar to the original 

contract—incorporating by reference all the terms, conditions, and modification of the original contract, and providing that unresolved claims and requests for equitable 

adjustments were not affected by the bridge contract. J.A. 

59. Furthermore, the Board pointed out that “if the bridge 

contract were treated as a separate contract, Supreme 

would need to prove its costs during that contractual period, but it has not done so. It would not be consistent (or 

fair) to allow Supreme to treat the contracts as separate for 

purposes of DLA’s affirmative defenses but one and the 

same for purposes of proving its costs.” J.A. 60.

We agree that we should not allow Supreme to treat 

the bridge contract as separate only when it attempts to 

evade the government’s affirmative defenses. The parties 

treated the original contract and the bridge contract as inextricably intertwined, and so we shall too. We conclude 

that DLA’s prior material breach defense applies to the 

2012–2013 bridge contract as well.

IV

We have considered Supreme’s remaining arguments 

but find them unpersuasive. For the foregoing reasons, we 

affirm.

AFFIRMED

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