ARMED SERVICES BOARD OF CONTRACTAPPEALS Appeals of

-- ) ) Kellogg Brown & Root Services, Inc. ) ) ) Under ContractNo. DAAA09-02-D-0007 )

APPEARANCES FORTHEAPPELLANT:

APPEARANCES FORTHE GOVERNMENT: ASBCA Nos. 56358, 57151 57327,58583

Jason N. Workmaster, Esq. Raymond B. Biagini, Esq. Alejandro L. Sarria, Esq. HerbertL. Fenster, Esq. John E. Hall, Esq.

Covington & Burling LLP Washington, DC RaymondM. Saunders, Esq.

Army ChiefTrial Attorney ChristinaLynn E. McCoy, Esq. MAJ Lawrence Gilbert, JA

Trial Attorneys

OPINION BYADMINISTRATIVE JUDGE O'SULLIVAN ON THE GOVERNMENT'SMOTION TO DISMISS AND APPELLANT'S MOTION FOR SUMMARYJUDGMENT

These appeals involve costs incurred by Kellogg Brown & Root Services, Inc. (KBRS) and its subcontractors for private security to accompany company officials and convoys usedto deliver food and other supplies to U.S. and coalitiontroops in Iraq during military operations in the 2003-2006 timeframe. Starting in 2007, the Army withheld a total of$44,059,024.49 from KBRS billings underthe contract to recoup previously paid costs ofprivate security that the governmenthad determined
were unallowable. Three ofthe appeals, ASBCANos. 56358, 57151 and 57327, are before us on remand from the United States Court ofAppeals for the Federal Circuit, which held thatthe contractprohibitedthe use ofprivate security companies (PSCs) but, in orderto fully resolve the dispute, remanded the appeals to the Boardto decide whether KBRS "properlyraised its breach and remedy allegations, and ifso, to rule
on those contentions." 

### McHugh v. KelloggBrown & 

### RootServices, Inc., 626 F. App'x 974, 978 (Fed. Cir. 2015).

The fourth appeal, ASBCA No. 58583, is before the Board following KBRS's appeal from a deemed denial ofits 29 September2011 certified claim for breach ofcontract. This appeal was not decided by the Board and was consolidated with the other three appeals only afterthe appellate remand. On 19 January 2016 the Board denied the government's pending motion to dismiss this appeal for lack of jurisdiction. KelloggBrown & RootServices, Inc., ASBCA No. 58583, 16-1 BCA**~** 36,233. Following the Board's denial ofthe government's motion to dismiss in ASBCA No. 58583, KBRS filed a first amended and consolidated complaint (FACC) in all four appeals. 1 Thereafterthe government filed a motion to dismiss as to all counts and appellant filed a motion for summaryjudgment. Oral argument was held on the motions on 23 August 2016.
DISCUSSION

KBRS in its FACC asserts the following:

Count I-the government's recovery on its claim is time-barred because the contracting officer's 30 January 2013 final decision was issued more than six years after the government's claim accrued, which was no laterthan 10 June 2005.
Count II-KBRS is entitled tojudgmentbecausethe Army breached its contractual obligation to provide adequate force protection and the use ofPSCs was a permissible remedy.
Count III-theArmy breached the contractby requiring KBRS to perform beyondthe original scope and the use of PSCs was apermissible remedy.
Count IV-theArmy breachedthe contractby failing to comply with the FAR 16.301-3 requirementto have available adequate resources to manage a costreimbursement contract and use ofPSCs was a permissible remedy.

Count V-KBRS is entitled tojudgmentbecause the contractprohibition relied on by the Army applies only in peacetime, not during war.

1Priorto the filing ofthe FACC, KBRS's amended complaints in ASBCANos. 56358, 5

7151, and 57327, filed 16 January 2013, containedthree counts: Count I (Breach ofContract), Count II (Waiver/Ratification), and Count III (Bad Faith).



### 2Count VI-KBRS is entitled tojudgmentbecause the government waived the contract prohibition on the use ofPSCs.

Count VII-KBRS is entitled tojudgmentbecause the Army cannot reopen the firm-fixed-price subcontracts at issue.

Count VIII-under a cost-reimbursement contract, KBRS is entitled to recover all ofits incurred costs so long as they
were not incurred due to fraud, lack ofgood faith, or willful misconduct.

Count IX-KBRS is entitled tojudgmentbecause the Army released KBRS from all claims related to the pricing and award ofthe ESS subcontracts.

Count X-KBRS is entitledtojudgmentbecausethe Army contracting officer's 30 January 2013 final decision was invalid.

Count XI-theArmy's damages calculation is inaccurate andunsupported.

Count XII-theArmy acted in bad faith in its decision to recapture funds from KBRS.

KBRS has moved for summaryjudgment only on Counts II (breach ofcontract) and VI (waiver).

The affirmative defenses asserted by KBRS on 25 March 2013 in its complaint in ASBCANo. 58583 largely foreshadow the affirmative defenses articulated in KBRS's FACC. The only new counts in the FACC are Counts IV, V, and VII.

Before considering the parties' arguments, we address the parametersgoverning what is, and what is not, properly before us in these consolidated appeals. On appeal from our 2014 decision, the United States Court ofAppeals for the Federal Circuit (hereinafter "court"or "Federal Circuit") was asked to decidetwo issues: (1) whether the Board erred in deciding thatthe contract did not prohibitthe use ofPSCs, and therefore that KBRS was entitledto payment for the use ofPSCs; and (2) whetherthe Board erred in decidingthatthe Army's affirmative claim against KBRS contained in the contracting officer's final decision (COFD) issued 30 January 2013 was barredby the CDA's six-year statute oflimitations. McHugh, 626 F. App'x at 976. The court affirmed the Board on the second issue, finding thatthe Army's 30 January 2013 affirmative claim was time-barred, but reversed the Board'sholding thatthe contract did not prohibitthe use ofPSCs. Id. at 977, 979. The courtrecognized that "[t]his

3narrow contract interpretation based onthe weapons prohibition

...may not fully resolve the dispute," and remanded to the Boardto determine whether "KBRproperly raised its breach and remedy allegations, and ifso, to rule on those contentions." Id. at 978. In ascertaining the proper scope ofthe appeals now before us, we are mindful that our appellate mandate constitutes the law ofthe case on all issues that
were explicitly or implicitly decided by the court. Exxon Corp. v. UnitedStates, 931 F.2d 874, 877 n.7 (Fed. Cir. 1991) (citing lB J. MOORE, J. LUCAS & T. CURRIER, MOORE'S FEDERAL PRACTICE 

### ii 0.404[10] at 172-74 (2d ed. 1988)). However, we do not read the court's opinionto foreclose the Board from considering and deciding other issues presented in these appeals that were not previously decided by the Board and were therefore never appealed.

I. The Government's Motion to Dismiss

The government has moved to dismiss all counts ofKBRS's FACC and KBRS has responded in opposition. A short discussion ofthe approach taken by the government and how we intend to decide the motion to dismiss is in order. The government's motion, with respect to some counts ofthe FACC, asserts that they fail to state a claim upon which reliefcan be granted. With respect to othercounts, the government asserts that the Board lacksjurisdictionto entertainthem; and with respect to the remainder, the government argues that they are foreclosed eitherby law ofthe
case orby the Federal Circuit's mandate. Because a government claim is at the heart ofthe matter and KBRS's complaint primarily consists ofaffirmative defenses to that claim, it is appropriate with respect to certain counts to treat the government's motion to dismiss as a motion to strike affirmative defenses under Federal Rule ofCivil Procedure (FRCP) 12(f) rather than as a Rule 12(b)(6) motion to dismiss. 2 Further, in those instances in which the motion to dismiss relies on matters outside the pleadings,
we may treat it as a motion for summaryjudgment. DongbukR&UEngineering Co., ASBCA No. 58300, 13 BCA

### ii 35,389 at 173,637. And, unlike the usual circumstance in which a motion to dismiss for failure to state a claim is filed beforethe evidentiary record has been fully developed, a full record exists in these appeals. Thus, in considering the government's motion, we will lookboth to KBRS's FACC and the record in these appeals.

The parties' contentions onthe government's motion to dismiss and the Board's related dispositions are as follows:

2 In appropriate circumstances, where ourrules do not address a matter, we commonly look to the Federal Rules ofCivil Procedure for guidance. TTF, L.L.C., ASBCA No. 58494, 13 BCA

### ii 35,343.

4Count I (Government Claim Time-Barred) and Count X (COFD Invalid)

The government asserts that Count I fails to state a claim on which reliefcan be granted because all but nearly $12 million3 ofthe total amount claimed in the final decision was the subject ofboth government withholding in 2007-2009 and subsequent KBRS claims, ofwhich the Board hasjurisdiction. Therefore, the three remanded appeals involve KBRS claims for withheld monies that are properly before the Board after remand. As to Count X, the Army states that the "invalidity" ofthe COFD, like its untimeliness, has no logical connectionto whether KBRS i's entitled to recover on its claims for the withheld sums.
KBRS responds that what is at issue here is a government claim and that claim is untimely as to the $44 million that was withheld as well as the $12 million thatwas not. At oral argument, KBRS summed up its position as being that the government needed to issue timely COFDs on the withheld amounts in orderto "perfect" its claim (tr. 38). KBRS further states that in the absence ofa COFD on the government's claim for the $44 million, KBRS's 2007, 2009, 2010 and 2011 claims (which KBRS calls ·'submissions") did not '"magically convert" a government claim into contractor claims. Rather, the principal effect ofKBRS's claim submissions was to start the running ofCDA interest and ensurethat the Boardhadjurisdiction over any subsequent appeals by KBRS. (App. opp'n at 5-6)

The government replies that the Army's notices ofwithholding were administrative claims which KBRS could have appealed, but it choseto submit its own claims for the monies withheld and then appeal from the deemed denials ofthose claims (gov'treply at 3-5).

We conclude that Counts I and X ofthe FACC are within the proper scope of
our consideration. Both ofthese counts were asserted by KBRS in its complaint in ASBCA No. 58583 in March of2013. They were not decided by the Board and thus
were not appealed.

As previously found by the Board, the Army procuring contracting officer (PCO) and the Defense Contract Audit Agency (DCAA) first notified KBRS by letter dated 6 February 2007 and DCAA Form 1(No. 127) ofthe same date that they were respectively ·'adjusting payments" (PCO) and "suspending" costs (DCAA) in the amount of$19,652,815 representing PSC costs incurredby KBRS's subcontractor,

3 As to the nearly $12 million affirmative claim, the Board's holding that this claim
was untimely was affirmed on appeal; therefore, this part ofthe claim is no longer before the Board. The exact amount was $11,561,567.55. Kellogg Brown & RootServices, Inc., ASBCA No. 56358 etal., 14-1 BCA

### ii 35,639 at 174,520.



### 5

### ESS, in performingthe contract (finding 70)4. On 22 October 2007, KBRS submitted
a certified claim to the PCO for the withheld amount. Following a deemed denial, KBRS appealed to the Board and the appeal was docketed as ASBCANo. 56358. (Finding 72; see also 

### KBRS's FACC 

### iiii 7, 70, 73-74)

On 24 August 2009, KBRS submitted an invoice under the contract for payment of$22,279,678.49. On or about 1September 2009, the government withheld the entire amount ofthe invoice on the recommendation ofDCAAto "take immediate action to recoup the disapproved costs" in a revised DCAA Form I (No. 127 Revision-I, 3 August 2009). KBRS submitted a certified claim to the PCO
on 20 October 2009 for $21, 131,743 ofthe withheld amount. When no decision issued on its claim, KBRS appealed the deemed denial ofits claim andthe appeal was docketed as ASBCA No. 57151. (Finding 75)

In March 2010, the government withheld an additional $2,126,531 from payments otherwise due underthe contract to recoup additional PSC costs. Thereafter,
on 16 June 2010, KBRS submitted a certified claim for that amount plus the remainder ofthe 1September 2009 withholding for a total claim amount of$3,274,466.49. Followingthe PCO's failure to issue a final decision on the claim, KBRS appealed the deemed denial and it was docketed as ASBCA No. 57327. (Finding 76; see also 

### KBRS's FACC 

### iiii 9, 83-84)
The applicable legal standard in considering a motion to strike pursuantto FED. R. 

### CIV. P. l2(F) is whetherthe pleading asserts an "insufficient defense" or contains any "redundant, immaterial, impertinent, or scandalous matter." Only ifa defense is insufficient as a matter oflaw will it be stricken. Danae, Inc., 

### ASBCA Nos. 30227, 33394, 88-3 BCA

### ii 20,993 at 106,071; SpaceAge Engineering, Inc., 

### ASBCA No. 25761 et al., 

### 83-2 BCA

### ii 16,789 at 83,439 (citingAnchorHocking Corp.
v. The Jacksonville ElectricAuthority, 

### 419 F. Supp. 992 (D.C. M.D. Fla. 1976)).

We conclude, based on the facts alleged in the FACC (as well as the facts previously found by the Board), thatthe PCO issuedtimely final decisions on the government's claim. As set forth above, the government's claim was asserted by the PCO, in writing, by set-offand withholding, in February 2007, September 2009, and March 2010. In Placeway Construction Corp. v. UnitedStates, 

### 920 F.2d 903, 906-07 (Fed. Cir. 1990), the court reversed the lower court's dismissal for lack of jurisdiction where the contractor had appealed from the government's assertion ofa right ofset off. Though there was no "final decision" labeled as such and no notice ofappeal rights, the court held that the CO had effectively issued a final decision and granted a government claim in the amount ofthe set off. See also KAL ME.I. Manufacturing & Trade, Ltd.,

4 

### References to "findings" refer to findings offact in ourprevious decision, Kellogg Brown & RootServices, 

### 14-1 BCA

### ii 35,639.

6ASBCA No. 44367 et al., 94-1BCA,-i26,582 at 132,257 (citing Placeway, 920 F.2d at 902) (government's withholding constituted "a final decision on a government claim").
Likewise, here the PCO's decisions may not have conformedto the usual COFD format, including the language required by the CDA to inform a contractor ofits appeal rights, but they were nevertheless a "formal and final action equivalentto a decision from which the contractor could appeal." P.X Engineering 

### Co., ASBCA No. 38215, 89-2 BCA,-i 21,859 at 109,952 (contractor could appeal from unilateral contract modification); see also Systron Donner, InertialDivision, ASBCA No. 31148, 87-3 BCA,-i 20,066 (CO's determination ofCAS noncompliance
was appealable final decision). The decisions were issued within sixyears ofthe date
we previously found that the government knew or should have known ofthe use of PSCs to perform the contract-IO June 2005. KBRS, 14-1 BCA,-i 35,639 at 174,520. KBRS could have directly appealed the PCO's withholdings but chose to file claims contesting the withholdings in orderto startthe running ofCDA interest. Moreover, KBRS has not been prejudiced by the omission offinal decision language and an explanation ofappeal rights, as is evidenced by its promptfiling ofcertified claims and appeals from deemed denials. Thus, we agree with the governmentthatthe affirmative def enses contained in Counts I and X should be stricken becausethey fail
as a matter oflaw, and grantthe government's motion to strike as to Counts I and X of the FACC.

Counts II (Prior Material Breach-Force Protection), III (PriorMaterial Breach-Cardinal Change), and IV (Prior Material Breach-Noncompliancewith FAR 16.301-3)

The government contends that Counts II, III and IV shouldbe dismissed for lack of jurisdictionbecause KBRS did not submit a claim tothe CO allegingthese grounds for relief(gov't mot. at 4-6). In the alternative, for any ofthe three counts for which the Board finds it hasjurisdiction, the government moves to dismiss for failure to state a claim for relief, onthe grounds that KBRS is not entitled in law to breachthe contract as a remedy for the government's breach (id. at 6-7), and also that KBRS has
no valid claim for breach for the government's alleged failure toproviderequired force protection because it had adequate remedies underthe contract (id. at 8-9). Finally, with respect to the samethree counts, the government argues in the alternative that they are time-barred because KBRS's September2011 claim for breachwas filed
more than sixyears after accrual ofthe claim (id. at 9).

Forits part, KBRS argues that the Boardhasjurisdiction overCounts II through IV because these counts, which allege differentprior material breachesby the government, are common law defenses to the government's claim which are not required to be submitted to a contracting officer (CO) for a decision; and in any event, the allegations made in the counts fall ·'within the scope" offour previous claims · submitted to the PCO (app. opp'n at 7-13). Because common law defenses are not

7required to be the subject ofclaims, the government's argument that Counts II through IV are time-barred also fails (id. at 22). Addressingthe government's alternative ground for dismissal, KBRS contends that the counts state a claim upon which relief
can be granted, because a party's prior material breach excuses the otherparty's later breach (id. at 14-18). KBRS adds that the government is foreclosed from claiming that KBRS had an adequate contractremedy and couldhave delayed its performance without penalty underthe contract's "excusable delay" clause, becausethis issue was decidedagainstthe government in the Board's 2014 decision and was not appealed (id. at 18-19).

In reply, the government argues that KBRS is only entitledto assertthat a "mere defense" need not be submitted to a contracting officer for decision ifit has timely appealed from a government claim (gov'treply at 6). The government argues with respect to Counts II-IV that KBRS's submission ofcertified claims for the amounts withheld by the government means that the appeals do not involve a government claim,5 thus restricting the Board'sjurisdictionto the contents ofKBRS's certified claims (id.). Further, the government posits that KBRS was required under M Maropakis Carpentry, Inc. v. UnitedStates, 609 F.3d 1323 (Fed. Cir. 2010), to have submitted a timely certified claim ofbreach because it alleges that the government's priormaterial breach excused KBRS from complying with any contract prohibition on the use ofPSCs and thus "seeks an adjustment ofcontractterms." (Id.)

Counts II-IV are within the proper scope ofour consideration on remand. Counts II and III were asserted as affirmative defenses in ASBCANo. 58583 in KBRS's complaint filed 25 March 2013, and have not yet been decidedbythe Board. Additionally, our appellate mandate specifically instructs us to considerwhether KBRS'sbreach and remedy allegations are properly before us and, ifso, to rule on them. Count IV was not separately asserted until KBRS filed its FACC, but it, along with Counts II and III, asserts prior material breach as an affirmative defense.

We also concludethat we havejurisdiction over Counts II-IV. The government argues that the Board lacksjurisdictionbecausethe "claims" asserted by these three counts were not clearly presentedtothe contracting officer for a decision (gov'tmot. at 4-6). We have already found that KBRS's 29 September2011 breach claim underlying Count II adequately apprised the PCOthatthe basis for the claim was the Army's failure to meet its contractual obligation to provide force protection,6 and the government withdrew its request for reconsideration ofthat finding at oral argument

5 We note this assertion is inconsistent with the government's argumentwith respectto Counts I and X that KBRS couldhave appealed directly from the government claims effected by the Army'snotices ofwithholding (gov'treply at 4-5). 6KelloggBrown & RootServices, Inc., ASBCANo. 58583, 16-1BCAii36,233 at 176,771.

8(tr. 45). As to Counts III and IV, they were not presented to the Army CO for decision. We hold as to all three counts that they are affirmative defenses that do not seek adjustment ofthe terms ofthe contract, and therefore did not need to be presented to the CO for decision for the Board to havejurisdiction under 

### M Maropakis. Laguna Construction Company v. Carter, 828 F.3d 1364, 1369-73 (Fed. Cir. 2016); 

### see alsoASFA International Construction Industry and Trade, Inc., ASBCA No. 57880,**14-1BCA~35,736** at 174,911.

The government also argues that KBRS is entitledto assert a "mere defense" to a government claim only ifit has timely appealed from a government claim and that the appeals before us do not involve a government claim because KBRS filed its own claims for the withheld costs. Both parties have shifted position on whether it is a contractor claim or a governmentclaim that is before us, depending on the results produced. We have already held with respect to Counts I and X, to the government's benefit, that these appeals involve timely asserted government claims to recover allegedly unallowable costs previously paid. With respect to Counts II through IV, we hold the same, this time to the detriment ofthe government's argument. Additionally, because these counts each invoke prior material breach and thus are affirmative defenses that need not have been presented to the CO for a decision, we reject the government's further argument that they are time-barredby the CDA's six-year statute oflimitations (gov'tmot. at 9). In doing so, we deem it unnecessary to determine whether KBRS's 29 September 2011 claim would have beentimely ifin fact it constituted a contractor claim ratherthan a defense to a government claim. Alternatively, the government asserts that Counts II through IV fail to state a claim for relief. The government argues that hiring and billing the government for the costs ofPSCs does not qualify as "mitigation ofdamages" and that a prior material breach by the government does not entitle KBRS to also breach the contractwhile continuing to perform it. In otherwords, KBRS hadto choosebetween ending the contract and electingto continue performance, and ifit chosethe latter, its contract obligations continued in full force and effect. (Gov'tmot. at 6-7) The government also contends that KBRS had no valid claim ofbreach because it had contractual remedies for government failures to provide force protection (gov't mot. at 8).7

7In a footnote, the governmentreiterates its argument that Count II independently fails to state a claim for reliefbecause adjudication ofwhether the Army provided force protection "commensurate with the threat" is a non-justiciable political question. The Boardpreviously rejected this argument on the ground thatwe havejurisdiction to determine whetherthe government met its contractual obligations. KBRS, 14-1 BCA**~** 35,639 at 174,522. This issue was not appealed, and we consider it foreclosed underthe doctrine oflaw ofthe case. 

### See Exxon Corp., 931 F.2d at 877 n.7.

9

### The doctrine ofprior material breach holds that when a party to a contract is sued for breach, it may defend on the ground that a legal excuse for its nonperformance existed at the time ofthe alleged breach. Faced with two parties to a contract, each ofwhom claims breach by the other, courts will often impose liability
on the party that committedthe first material breach. LongIslandSavings Bank, FSB 

### v. UnitedStates, 

### 503 F.3d 1234, 1251 (Fed. Cir. 2007) (false certification constituted material failure ofperformance precluding plaintiffs' claim for breach damages) (citing BarronBancshares, Inc. v. UnitedStates, 

### 366 F.3d 1360, 1380 (Fed. Cir. 2004); and Christopher Village, L.P. v. UnitedStates, 

### 360 F.3d 1319, 1334 (Fed. Cir. 2004)).

In Laguna Construction, 

### 828 F.3d 1364, the Federal Circuit affirmed the ASBCA's grant ofsummaryjudgmentto the government on its affirmative defense of prior material breach. The contractorhad filed a claim for the unpaid costs of performing an environmental remediation and construction contract in Iraq. It then appealed to the Board from the contracting officer's deemed denial ofits claim. Meanwhile, the governmenthad been investigating allegations that Laguna's employees
were receiving kickbacks from subcontractors. Several employees and officers of Laguna pied guilty to criminal indictments from 2010 to 2013. Afterthe last ofthese pleas, the government moved to amend its answer in the appeal to include the affirmative defense that it was not liable for Laguna's claim since Lagunahad committed a prior material breach ofthe contractby soliciting and accepting kickbacks, which constituted fraud against the United States. In granting summaryjudgmentfor the government, the Board observedthat Lagunahad breached the duty ofgood faith and fair dealing by its acts offraud, and had also breached the Allowable Cost and Paymentclause, FAR 52.216-7, by submission ofvouchers thatwere improperly inflated to include the kickbacks.

The Federal Circuit affirmed the Board on the grounds that Laguna committed the first material breach by violating the Allowable Cost and Payment clause, which states that a cost is allowable only ifit is reasonable and complies with the terms ofthe contract. Laguna, 

### 828 F.3d at 1372-73. The court found "unpersuasive" Laguna's argument that the remedies available to the governmentunderthe contract's termination and Anti-Kickback clauses foreclosed application ofthe common law defense ofprior material breach. The court statedthat the government could have availed itselfofthose clauses, but was not required to do so, and "may use the prior material breach doctrine to defeat a contractor'sbreach claim." Id. 

### at 1371. The court also rejected the argument that the government waived the defense by continuingto perform the contract until 2015 when it knew ofthe kickbacks as early as 2008, finding it was reasonable ofthe government to wait to invoke the defense un.til after the last ofthe guilty pleas was entered. Id. 

### at 1372.

10

### With that background, we address the arguments that the government makes in pressing its case that Counts II-IV fail to state a claim. First, the government advances the proposition that a party who chooses to continue to perform waives any prior material breach as a matter oflaw (gov't mot. at 6-7). We do not agree. In Northern Helex Co. v. UnitedStates, 197 Ct. Cl. 118, 129 (1972), the government's primary defense to the contractor's claim for breach damages for nonpayment on a contract to deliver helium was that the contractorwaived its right to claimtotal breach by continuing performance and treating the lack ofpayment as immaterial. The court acknowledged that "there is venerable authority" that when performance is continued in spite ofa known breach, the wronged party can no longer avail itselfofthat excuse. However, the court observed that "itis very doubtful that, even when first formulated, that rule disregarded particular circumstancesjustifying further performance in the specific case." Id. 

### at 125.

While acknowledging "the general proposition"that a party cannot continue performing after a material breach (although stoppingperformance wouldbe fair and convenient), run up damages, and then go to court, the court found for two reasons that Northern Helex had not waived its right to damages for the government's material breach. First, the contractor's continuedperformance was commercially reasonable, because its helium extraction facilities were so interrelated with the rest ofits operations that its helium facilities must continue in operation whetherthe helium was sold orwasted, and since it had no storage facilities, and there was no othermarket for the gas, it had no realistic alternative butto continueto tenderhelium to the government. Northern Helex, 197 Ct. Cl. at 126. As Judge Davis concluded:

Id. 

### at 129. [T]o determine whetherwaiverhas occurred, a more complex inquiry must be made than merely, "did performance continue?" The guiding principle is whether, in the individual circumstances, the seller exercised "reasonable commercialjudgment" in continuingto manufacture and deliver, in the effortto mitigate damages, although his obligation to perform has been discharged by the buyer'stotal breach.

Second, there was a "special aspect" to the case, which was that "the action taken by Northern Helex was consistent with the purpose ofthe program, the conservation ofa valuable national resource.'' The court went on to elaborate:

In consideringthe Government's failure to observe the procedural requirements ofthe National Environmental Policy Act of 1969 when it terminated the contracts ofthe

11

### three other suppliers, the Tenth Circuit characterizedthe termination as "an action which has environmental consequences, namely rapid depletion ofthe helium
resources ofthe country." NationalHelium Corp. v. Morton, 

### 455 F.2d 650 (10th Cir. 1971). The decision, requiring that the Secretary at least consider the environmental impact ofhis action, is predicated on the view expressed by Congress "that it is in the national interest to foster

...[the development and] distribution of supplies ofhelium

...sufficientto provide for essential government activities."

Northern He/ex, 

### 197 Ct. Cl. at 126 (footnote and citation omitted). This "special aspect" was also held by the court to be good reason for the company's continued performance.

The record in these appeals similarly supports the conclusion that continuing to perform the contract with PSC protection was not only a commercially reasonable decision on the part ofKBRS and its subcontractors,8 

### but also that it was consistent with the purpose ofthe contract and in the national interest. In ourprevious decision
we cited testimony that, for example, without a convoy every three days the military dining facilities would run out offood to feed the soldiers (finding 52), underscoring the important national interest in continuing to run the supply convoys. We also noted thatthe contractwas a "rated'" orderpotentially subjecting KBRS to criminal penalties for failure to deliver within the required time. KBRS, 

### 14-1 BCA**~** 

### 35,639 at 174,521. Thus, KBRS's affirmative defenses ofprior material breach (Counts II-IV) are not insufficient as a matter oflaw simply because KBRS continued to performthe contract.
The government also argues that the defense ofprior material breach is inapplicable here because it is a defense to a claim ofbreach and the government has not asserted a claim ofbreach against KBRS (gov'treply at 10). We disagree. The government's claim against KBRS, that KBRS and its subcontractors violated the contractprohibition against employing PSCs and that KBRS billed the government for

8

### We also note that while KBRS was continuingto perform, Army COs with knowledge ofKBRS/subcontractor use ofPSCs continuedpaying KBRS's invoices and took no other action to stop the use ofPSCs. The Army did not seek to disallow PSC costs until February 2007. Under the circumstances, it would have been reasonable for KBRS to think, at least until February of2007, thatthe parties had achieved a mutually acceptable solution that allowed KBRS to continue to accomplish its warfighter support mission despite the acknowledged force protection issues.

12unallowable PSC costs in violation ofthe Allowable Cost & Payment clause, is plainly
a claim ofbreach regardless ofthe fact that the government may not have used the word "breach''to describe its claim. See also Laguna, 828 F.3d at 1371 (contractor, by billing the government for unallowable costs, violated the Allowable Cost & Payment clause and committed material breach ofcontract).

The government's next argument is that KBRS cannotclaim that its PSC costs
were incurredto mitigate the damages caused by the Army's prior material breach because, under Count II, the PSC costs are the damages causedby the allegedbreach (gov'treply at 10). In its FACC, KBRS alleges both that it incurredthe PSC costs to mitigate damages causedby the Army'sprior material breach, and thatthe Army's prior material breach excused it from any subsequent failure to comply withthe contract's prohibition on the use ofPSCs (FACC 

### ,-i,-i 123-25). Although we are not convinced that these types ofdamages are mutually exclusive,9 we do not think that the government'sproffered distinction between PSC costs as damages causedby a breach and PSC costs as costs incurred in mitigation ofdamages that otherwise would result from a breach makes a difference in the context ofdecidingthe government's motion to dismiss, because in these appeals KBRS is first and foremost asserting prior material breach as a defenseto the government's claim ofbreach.

The government's last argument for the proposition that Counts II-IV "fail to state a claim for relief' is that the contract afforded KBRS adequate remedies for any government-caused delays pursuantto the Changes and Excusable Delay clauses and therefore the dispute arises "underthe contract," rendering KBRS's breach claim invalid (gov't mot. at 8). The government recognizes that the Boardpreviously rejected its argument that KBRS's sole remedy for government failure to provide the level offorce protection promised in the contractwas delay, but argues that ourprior ruling rested principally on the premise thatthe contract allowedthe use ofPSCs (id.). This notion is not supported by the government's citationto our 2014 decision. In our prior decision we rejectedthe identical argument, statingthat it was fortunate for the troops who depended on KBRS for life supportthat KBRS and its subcontractors did not adopt the attitude now suggested by the government. We also noted thatthe contractwas a "rated order" under which a failure to deliverwithintherequired time could be subjectto criminal penalties. Only then did we observe that "[m]oreover, the

9 For example, ifthe alleged breach had not occurred (i.e., the contractually promised level offorce protection had been provided by the Army to KBR and its subcontractors), KBRS and its subcontractors would not have incurred PSC costs (damages). But also, ifKBRS and its subcontractors had not hired and paidPSCs to perform their missions when force protection was not available, it is entirely conceivable thatthe resulting damages couldhave been vastly in
excess ofthe cost ofthe PSCs. (See app. reply at 9-11)

13government's argumentpresupposes that PSCs were prohibited underthe terms ofthe contract." KBRS,**14-1BCA~35,639** at 174,521. Clearly, this additional observation
was not the driver ofourrejection ofthe government's "delay" argument. And since
our 2014 decision, the Federal Circuit issued its decision inLaguna in which it explicitly held that the availability ofa contract remedy does not meanthe wronged party must avail themselves ofthat remedy in lieu ofthe affirmative defense ofprior material breach. 828 F.3d at 1371. The government is bound by ourprior holding which is the law ofthe case. Exxon Corp., 931 F.2d at 877 n.7.

The government also attempts in its motion to distinguish between "mere delay,'' which it states is permissible under a rated order, and "willful failure to perform," which is not permissible (gov't mot. at 8). We decline the invitation to reconsider ourprior holding on the basis ofa hypothetical dividing line between "mere delay'' in deliveries and willful failure to perform. The record in these appeals indicates that any such line was extremely thin, ifnot non-existent. The military dining facilities neededto be resupplied no less often than every three days to keep the soldiers fed. (Finding 52) Moreover, we have found as fact that during the years 2003-2006 the government was unable to provide force protection at the levels specified in the contract and that the use ofPSCs by KBRS and its subcontractors to supplement government force protection was reasonably necessary to accomplish the logistical support mission ofthe contract andtask orders thereunder. KBRS, 14-1 BCA**~** 35,639 at 174,521, and findings 13-60.
Therefore, we conclude that the affirmative defenses ofpriormaterial breach contained in Counts II-IV are not insufficient as a matter oflaw simply because the Excusable Delay clause was incorporated into the contract. 10 The government's motion to strike is denied as to Counts II, III, and IV.

Counts V ((LOGCAP III Special H Clauses Applied Only in Peacetime), VI (Army Waived Contract's Prohibition on Use ofPSCs), VII (The Army is Prohibited from Re-opening Firm-Fixed-Price Subcontracts), and VIII (KBRS is Entitledto Reimbursement ofIts Incurred Costs Absent Evidence ofWillful Misconduct)

The government moves to dismiss these four counts as foreclosed by either law ofthe case orby our appellate mandate (orboth). As to Counts V andVIII, the government contends that "[t]hese counts mustbe dismissedbecause they conflict with the Federal Circuit's express holdings that the H Clauseswere applicable and barredthe use ofarmed PSCs in contractperformance" (gov'tmot. at 10). As to Count VII, the government points outthat in Kellogg, Brown & RootServices, Inc.,

10 While the government's motion also mentions that the contract containedthe Changes clause, it makes no argumentregardingremedies available underthat clause (gov'tmot. at 8).

14ASBCA No. 56358, 12-1BCAii35,001at172,015, we held that "[i]n the context ofdetermining the reasonableness ofa subcontract fixed price under a cost reimbursement prime contract, the government may properly considerthe components ofthat subcontract fixed price." And as to Count VI, the government states that KBRS's waiver argument is foreclosed by the Federal Circuit's declination ofKBRS's invitation to affirm the Board's 2014 decision on the alternative ground that the government gave permission to KBRS and its subcontractors to use PSCs, statingthat '·we do not find any ofthose purported alternative grounds persuasive." 11 As to these four counts, we treat the government motion as one to strike affirmative defenses.

KBRS in response states thatthe issue ofwhetherthe contract's H clauses only applied in peacetime (Count V) was never squarely before the Federal Circuit because the Board never decided it. Itwas presented on appeal only as an alternative ground on which the appellate court could affirm the Board's decision, and was opposed by the government not on the merits, but becausethe Board had not made findings on the issue and a remand would be necessarybefore it could be considered (app. opp'n at 24-25). As to Count VI (waiver), KBRS opposes the government motion on the groundthatthe "permission" argumentthat it advanced on appeal as an alternative ground for affirmance is distinct from the**"waiv~r"** defense asserted in Count VI-whilethe former advances the proposition that use ofPSCs was allowed, the premise ofthe latter is thatthe use ofPSCs was not allowed butthis restriction was waived by the government. Thus, the appellate decision shouldhave no effect on KBRS's ability to pursue its waiver defense. (Id. at 26-27)

On Count VII, KBRS points out that the Board expressly advised the parties that its 2012 decision denying cross-motions for summaryjudgmentwas interlocutory and any errortherein was subjectto correction in the Board's final decision on the merits following the hearing. KBRS adds that during the hearing on the merits, the presidingjudge invited it to raise the argument again in its post-hearingbriefing, and it did so. Therefore, it concludes, the issue is not foreclosed. (App. opp'n at 27-28) With respect to Count VIII, KBRS responds that the Federal Circuit's opinion was limited to the contract interpretation issue and neither explicitly nor implicitly reached KBRS's argument that under a cost reimbursement contract a contractor is entitled to
recover all its incurred costs unless they stem from fraud, lack ofgood faith, orwillful misconduct (id. at 28-29).

In reply, the government cites to the transcript ofthe hearing on the merits to argue that the presiding Boardjudgehad no interest in revisitingthe issue presented by Count VII and in fact did not revisit it in the Board's decision on the merits, confirming that the issue was settled (gov'treply at 19). The government also points

11 Count VI was not part ofthe government's original motion to dismiss, but was added to it by letter supplement dated 9 February 2016.

15outthat KBRS has not distinguished GrummanAerospace Corp. v. UnitedStates, 549 F.2d 767 (Ct. Cl. 1977), the precedent on whichthe Boardrelied in its 2012 decision, and thatthe Federal Circuit did not find this ground persuasivewhen it was raised on appeal as an alternative ground for affirmance (gov'treply at 19).

Which ofthese counts pose issues that are properly before us at this stage ofthe proceedings? Count V asserts as a defense that the H clauses which the Federal Circuit interpreted in deciding the contract interpretation issue raised in the government's appeal only applied in peacetime and thus were inapplicableto performance in the war conditions under which the PSC costs were incurred. While
we acknowledge KBRS's argument that this issue was notbeforethe Federal Circuit
on appeal because it was never decidedby the Board, we conclude that this issue is foreclosed on remand. The court's holding on appeal thatthe H clauses prohibited KBRS and its subcontractors from**hir~ng** PSCsby necessary implication decides the issue ofwhetherthe H clauses were applicable. SUFINetworkServices, Inc. v. UnitedStates, 817 F.3d 773, 779 (Fed. Cir. 2016), and cases cited therein. Therefore,
we grantthe government's motion and strike the affirmative defense presented in Count V.
Count VI asserts the affirmative defense thatthe Army waived any rightto refuse to reimburse the PSC costs incurred by KBRS or its subcontractors on the basis that use ofPSCs was prohibited bythe contract. We agree with KBRS thatthe defense ofwaiver is distinct from the argument advanced by KBRS on appeal that it received "permission"to use PSCs as an alternative ground for affirming our 2014 decision. Moreover, the waiverdefense was assertedby KBRS in the remanded appeals (ASBCANos. 56358, 57151, and 57327) well priorto the hearing onthe merits, but was not decidedby the Board and not appealedbythe government, and
was not, therefore, beforethe Federal Circuit on appeal. 12 And, sincethe issue was not decided by us on the merits, and was not necessary to the Federal Circuit's disposition ofthe contract interpretation issue, we are not barred from considering it on remand. Laitram Corp. v. NEC Corp., 115 F.3d 947, 951-52 (Fed. Cir. 1997) (citing Conway v. ChemicalLeaman TankLines, Inc., 644 F.2d 1059, 1062 (5th Cir. 1981)). The government does not raise any argument in support ofits motionto strike Count VI otherthan its argumentthatconsideration ofCountVI is foreclosed by our appellate mandate. Therefore, we deny the government's motion as to Count VI.

We also find that CountVII is properly before us and that we may consider it in these remand proceedings. The Board's 2012 decision denied theparties' cross-motions for summaryjudgment. In the course ofdoing so, the Board addressed

12 KBRS also asserted the defense ofwaiver in Count V ofits initial complaint in ASBCA No. 58583, which was filed on 25 March 2013. The issue has not been decided in that appeal either.

16KBRS's contention that the government has no contractual right to disallow a particular component ofa subcontract fixed price:
However, none ofthe authorities cited for this proposition involved the allowability ofa questioned component ofa subcontract fixed price as a reimbursable cost under a cost reimbursementprime contract. In the context ofdetermining the reasonableness ofa subcontract fixed price under a cost reimbursement prime contract, the government may properly considerthe components ofthat subcontract fixed price. [Citation omitted]
KBRS, 12-1 BCA**~** 35,001 at 172,015 (citing GrummanAerospace Corp., 549 F.2d at 774-7 5). The Board noted that there remained a genuine issue ofmaterial fact as to whether, at the time the 11 subcontracts at issue were awarded, the component for PSC costs included in the subcontract fixed prices was reasonable as to boththe need for, and the amount of, that component. Id. at 172,016. After a hearing on the merits, the Board found as a matter offact that the PSC costs incurredby KBRS and its subcontractors were reasonable underFAR 31.201-3(a). KBRS,**14-1BCA~35,639** at 174,521. The Board did not address in that decision KBRS's contention that the government could not disallow specific components ofthe price ofa firm-fixed-price subcontract, presumably finding it unnecessary in light ofits holding thatthe contract did notprohibitthe use ofPSCs.
The law ofthe case doctrine does not apply to issues that were not decided. l8B WRIGHT, MILLER & COOPER, FEDERAL PRACTICE AND PROCEDURE: LAWOFTHE CASE 2d 

### §4478 at 664-67. In its 2012 interlocutory decision the Board'sdiscussion of the GrummanAerospace case may well have been dicta, since it was not necessary to the result-denyingthe cross-motions for summaryjudgmentonthe basis ofunresolved issues ofmaterial fact. But even iftheBoard's discussion was more than dicta, it did not decide the issue presentedto us now. The defense presentedto us by KBRS in its FACC Count VII is:
Under applicable regulations, includingthe FAR, andthe federal common law applicable to government contracts, the Army is barred from reopening firm-fixed price subcontracts awarded under a cost-reimbursementprime contractto contestthe allowability ofa particular component included in the subcontractprice.
(FACC at 29,**~** 180) KBRS alleges in Count VII that it awardedthe subcontracts in issue between 2003 and 2006 pursuantto its approved purchasing system for the provision ofdining and other logistical support services attotal prices it determined

17were fair and reasonable based on competition and/or price analysis. The government's position all along in this case has been that the costs in question are unallowable based on the contract's prohibition against using PSCs, not that the total subcontract prices were unreasonable. Presumably for that reason, the government did not appeal the Board's finding that the PSC costs incurred by KBRS and its subcontractors were reasonable. 13

Because the issue presented by Count VII was presentedto but not decided by the Board, and was neither before the Federal Circuit on appeal nor necessarily implicated in its decision, we do not view the appellate court's statementthat the alternate grounds (one ofwhich mirrored CountVII) presented by KBRS for affirmance were "not persuasive" to signify anything otherthan that the court declined KBRS's invitation to affirm on alternate grounds not properly before it. In conclusion, Count VII is properly before us now. The government's motion to strike is denied as to CountVII.

We also find that CountVIII is properly before us. This defense-thatunder a cost reimbursement contract KBRS is entitled to recover its incurred costs absent evidence offraud, lack ofgood faith, orwillful misconduct-wasraised by KBRS in its 25 March 2013 complaint in ASBCANo. 58583 and has not been decided on the merits. We do not agree with the governmentthat the Federal Circuit's decision that the contract prohibited the use ofPSCs equates to a finding thatthe costs ofPSCs are unallowable underthe contract (gov'treply at 20). We note the court itself characterized its decision as one of"narrow contract interpretation based on the weapons prohibition" and did not purportto decide the question ofcost allowability. McHugh, 626 F. App'x at 978.

The case law citedby the government does not persuade us to its view. Geren
v. Tecom, Inc., 566 F.3d 1037, 1041 (Fed. Cir. 2009)merely recognizes that to be allowable a cost must comply with the "terms ofthe contract," and that "where neither the contract nor the FARdictates the treatment ofspecific costs, we must determine how those costs are to be treated by looking to''the principles and standards in FAR Subpart 31.2. In this case, there was no term ofthe contract orFARcostprinciple dictating the treatment ofPSC costs. 14 In Kellogg, Brown & RootServs., Inc. v.

13 Tobe sure, we recognizethat the government'sposition may also be that the costs were unreasonable because they were specifically prohibited by contract. However, that position is still based on a term ofthe contract disallowing a specific type ofcost, not any determination that the total price ofthe subcontracts
was unreasonable, which was whatthe GrummanAerospace case and the Board's 2012 decision addressed. 14 In Geren, the court noted that costs resulting from a breach ofa contractual obligation are not allowable costs under a contract. 566 F.3d at 1043 (citing Dade Brothers, Inc. v. UnitedStates, 325 F.2d 239, 240 (Ct. Cl. 1963)). This

18

### UnitedStates, 728 F.3d 1348, 1359 (Fed. Cir. 2013), the Federal Circuitrejected a similar argument made by KBRS in that case, holding that in determining the reasonableness ofcosts, evidence ofwillful misconduct, gross negligence, or arbitrary conduct could be relevant, but such evidence is not required to disallow costs as unreasonable. This is a ruling by our appellate authority in a different case. It is bindingprecedent, but it does not implicate the law ofthe case doctrine or otherwise preclude us from deciding a similar issue on the record created in these appeals. Therefore, the government's motion to strike is denied as to Count VIII.

Count IX (The Army Released KBRS from All Claims Related to the Pricing and Award ofEleven ESS Subcontracts and KBRS is Entitledto Recover PSC Amounts Associated with Those Subcontracts)

The government moves to dismiss Count IX or in the alternative for summaryjudgmenton the ground that PSC costs were expressly excluded from the 2010 and 2011 settlement agreements relied on by KBRS, eitherby the underlying Forms 1or by the underlying audit reports (gov'tmot. at 12). KBRS maintains that any exclusion in the underlying Forms 1is ineffectiveto counterthe broad language ofthe settlement agreements (app. opp'n at 29). The governmentreplies that the settlement agreements clearly state their intent to settle only claims relating to the specified Forms 1, which do not include the Form 1in which DCAA questioned the PSC costs, No. 127 and revision 1to same, which has not been settled (gov'treply at 20, ex. G-4). We treat this portion ofthe government's motion as one for summary judgment on Count IX. There are no material facts in dispute, only the parties' differing interpretations ofthe settlement agreements.
The two settlement agreements are appended to the government's motion as exhibits G-5 (2010 agreement) and G-6 (2011 agreement). The 2010 settlement agreement recites that it is in settlement offive specified DCAAForms 1: Nos. 143, 145, 147, 148, and 153, for a total of$13,269,983 including $12,349,633 in direct subcontract cost (ex. G-5 at 2-3). The 2011 settlement agreement similarly states that it is in settlement ofsix specified Forms 1: Nos. 142, 144, 151, 152, 154, and 157, for a total of$34,236,526 including $33,024,789 in direct subcontract cost (ex. G-6 at 2-3). Both settlement agreements contain the following language (with one minor grammatical variation not pertinentto the meaning):

case was remanded to us with specific instructions to determine ifKBRS's breach ofthe contractual prohibition on use ofPSCs was excusedby the government's priormaterial breach. With this issue open, we inferthat the absence ofany determination in the court's decision on the allowability ofthe costs was a considered choice.

19[T]he Government, to the extentpermitted by law, remises, releases, and discharges the Contractor, its officers, agents, and employees ofand from all civil liabilities, obligations, claims, appeals, and demands which it nowhas orhereafter may have, whetherknown or unknown, administrative, judicial, legal, or equitable, arising under orin any way related to the Forms 1.
(Ex. G-5 at 4,**~** 8, ex. G-6 at 4,**~** 5)

Four ofthe underlying Forms I-Nos. 142, 144, 152, and 154-specifically excluded the PSC costs disapproved by Form I No, 127, revision I (ex. G-7 at 9,
ex. G-9 at 10, ex. G-14 at 11, ex. G-16 at 13). A review ofthe remainder ofthe Forms 1, along with their underlying audit reports, makes it clearthat PSC costs
are not amongthe costs disapproved (exs. G-8, G-10-13, G-15, G-17-24). Therefore, PSC costs were not within the scope ofthe two settlement agreements and KBRS's contentions to the contrary must fail. Moreover, KBRS does not dispute that the Form 1disallowing the PSC costs has notbeen settled.

We note also thatthe settlement agreements resulted in a near-complete win for KBRS: ofthe disapproved costs that were the subject ofthe 2010 agreement, KBRS recovered $12,349,633 out ofa total of$13,269,983. Ofthe disapproved costs that were the subject ofthe 2011 agreement, KBRS recovered $31,073,009 out ofa total of$33,024,789 in direct subcontract costs, plus applicable overhead and base fee. (Ex. G-5 at 3, ex. G-6 at 3-4) These numbers render nonsensical KBRS's argument that the settlements encompassed subcontract PSC costs, since ifone wereto believe that to be true, it would lead to the conclusion that KBRS has already recovered the vast majority ofthose costs.

Forthe reasons stated, we grant summaryjudgmenttothe government on Count IX ofthe FACC.

Counts XI (Army's Quantum Calculation is Inaccurate and Unsupported) and XII {Army Acted in BadFaith)

KBRS asserts in Count XI ofthe FACC that, for several reasons, the damages calculation underlying the Army's withholding is flawed. This contention is premature at best and, in the interests of judicial economy, we see noreason to address it before entitlement has been decided. Therefore, the government's motion to dismiss CountXI is denied withoutprejudice to its reinstatement in appropriate circumstances.

In Count XII KBRS states it is entitledto findings offact thatthe Army acted in bad faith by, it alleges, effectingthe withholdings in question in response to

20

### Congressional inquiries and without conducting any investigation into the underlying facts regarding the hostile conditions in Iraq from 2003-2006 and the military's inability to provide the promised level offorce protection. The requested findings are not tied to any particularclaim or affirmative defense advanced by KBRS in this litigation. Rather, KBRS asserts that the requested findings are the reliefto which it is entitled (FACC at 34-35). Moreover, KBRS represented to the Board at oral argument that no new findings offact are necessary to decide its motion for summaryjudgment (tr. 

### 58).

The government moves to dismiss Count XII for failure to state a claim, positing that "[a]ppellants cannot come before the Board for freestanding 'findings' unconnected to well-pleaded claims for contractual relief' (gov't mot. at 13). KBRS responds simply that the requested findings "are clearly within the scope ofthese appeals" and that the government has not cited to any legal authority prohibiting us from making the requested findings (app. opp'n at 30).

·We have been presented with no reason why the Board should make new findings offact unconnected to any contractual claim or defense before it. We therefore grant the government's motion to strike as to Count XII.

In conclusion, the surviving counts ofKBRS'sFACC are II,HI, IV, VI, VII, VIII, and XI. We now turn to KBRS's motion for summaryjudgment.

II. KBRS's Motion for Summary Judgment

KBRS has moved for summaryjudgment on the affirmative defenses presented by Counts II (prior material breach) and VI (waiver), and the government has opposed. The standards for summaryjudgment beforethe Board are well established15 

### and need little elaboration here. Summary judgment should be granted ifithas been shownthatthere are no genuine issues ofmaterial fact andthe movingparty is entitled tojudgment as a matter oflaw. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A non-movant seekingto defeat summary judgment by suggesting conflicting facts "must set forth specific facts showingthatthere is a genuine issue fortrial." Anderson v. LibertyLobby, Inc., 477U.S. 242, 248 (1986) (quoting FirstNational Bank of Arizona v. Cities Service Co., 391 U.S. 253, 288-89 (1968)).

The posture in which we are asked to decide appellant's motion differs from the usual, in that there has already been a lengthy hearing on the merits in three of these appeals. Appellant relies on the Board's findings offact set forth in our

15 

### Board Rule 7(c)(2) provides that the Board looks to FED. R. CIV. P. 56 for guidance in deciding motions for summaryjudgment.

21decision in KBRS, 14-1 BCA**~** 35,639, for its statement ofundisputed material facts (app. mot. at 2). The government does not dispute those findings offact and has proposed "additional material facts" drawn from the existing record in these appeals (gov't opp'n at 2-3). The parties agree that the Board need not find further facts in order to decide the motion (tr. 59).
Based on the foregoing, we find the following facts to be undisputed for purposes ofthe motion.
STATEMENT OF FACTS (SOF) FORPURPOSES OF APPELLANT'S MOTION FOR SUMMARYJUDGMENT

1. Contract No. DAAA09-02-D-0007 (contract or Contract 0007), awarded to KBRS on 14 December 200I by the Army Operations Support Command, Rock Island, Illinois (hereinafter Rock Island), was a cost-plus-award-fee, indefinite-quantity, indefinite-delivery contract which was part ofthe Army's Logistics Civil Augmentation Program (LOGCAP) and is also referred to as the LOGCAP III contract (findings 2, 3). The contract included the FAR 52.211-15, DEFENSE PRIORITY AND ALLOCATION REQUIREMENTS (SEP 1990) clause, which stated: "This is a rated order certified for national defense use, and the Contractor shall follow all the requirements ofthe Defense Priorities and Allocation Systems regulation (15 CFR700)." The cited regulation stated in pertinent part: 

### § 700.3 Priority ratings and rated orders. (a) Rated orders are identified by a priority rating

.... Rated orders take preference over all unrated orders as necessary to meet delivery dates

.... (b) Persons receivingrated orders must give them preferential treatment as required by this regulation. This means aperson must accept and fill arated order for items thatthe person normally supplies

.... (c) All rated orders must be scheduledtothe extentpossible to
ensure delivery by the required delivery date.

22

### § 700.7 Compliance 

### (a) Compliance with the provisions ofthis regulation

...is required by the Defense Production Act..

.. Violators are subject to criminal penalties. (Findings 4, 5)
2. The contract also contained section H, Special Contract Requirements, which set forth the following clause:

(Finding 9) H-16 Force Protection



### • While performing duties [in accordance with] the terms and conditions ofthe contract, the Service Theater Commander will provide force protection to contractor employees commensurate with that given to Service/Agency (e.g., Army, Navy, Air Force, Marine, DLA) civilians in the operations area unless otherwise stated in each task order.

3. Followingthe invasion and occupation ofIraq in March 2003, Rock Island issued task orders underthe contract for logistic and life-support services, including food service and billeting, for the coalition combat forces. Task Order (TO) 59, with
an initial total ceiling price of$802,065,733, was issued effective 24 June 2003, and its successor, TO 89, was issued effective 1May 2005 with an initial ceilingprice of $4,972,882,216. Paragraph 1.10 in Change 5to the TO 59 Statement ofWork (SOW), effective 27 August 2003, stated: "The government will provide for the security ofcontractorpersonnel in convoys and on site, commensurate with the threat, and [in accordance with] the applicable TheaterAnti-Terrorism/ForceProtection guidelines." Paragraph 1.7 ofthe TO 89 SOW as issued on 1May 2005 stated: "The Government will provide for the force protection and security ofcontractorpersonnel in convoys and on site, commensurate with the threat, and [in accordance with] the applicable Theater Anti-Terrorism/Force Protection guidelines." (Findings 11, 13)
4. Attacks on KBRS and subcontractor supply convoys began in June 2003. KBRS warned the Rock Island PCO on 27 June 2003 that failure to provide force protection in accordance with the LOGCAP III contract would mean that KBRS and subcontractor vehicle convoys would have to be delayed, adversely affecting timely delivery offood service support. (Findings 14, 15) The Deputy Commander ofthe Coalition Forces Land Component Command (CFLCC) from 2003-2004,

23Major General (MG) Stephen Speakes, testified that he arrived in Iraq in late June and that it was obvious to him that "wewere taking new levels ofthreat to our supply and reliefformations across Iraq." Amongthe options he considered for dealing with the increased threat were assigning more combatunits to protectthe convoys, and looking at the potential for hired contractual security. (Finding 16)

5. On 9 July 2003, KBRS met with MG Speakes and reported thatthe personnel and equipment casualties from attacks on its convoys and those ofits subcontractors from mid-May to date were 7 killed, 7 wounded, 4 missing and 10 trucks missing. MG Speakes noted: "Tomorrowthe governmentwill provide convoy protection for 46% ofthe convoys waitingto travel north. This level ofsupport must increase, but presently the government is short convoy escortvehicles and shooters (shotgun riders).'' The parties discussed KBRS contracting for private security, and agreedthat "LOGCAP Planners will develop a revised statement ofwork requesting contracted security.'' (Finding 19)

6. On 19 September2003, MG Speakes sent the following message and formal request to the Rock Island Commander: Subject: CFLCC Request for Help with LOGCAP Contractor Convoy Security.
[I]n message belowwe request yourhelp in solving one of
ourmost vexingproblems, specifically convoy security for contracted operations in Iraq

....[W]e see no otheroptoin [sic] butto ask that the currentcontractprovisoins [sic] be amended to support operations in Iraq. We appreciate your support andhope thatthis is a requestthat is supportable

....

MEMORANDUM FORCommander, Army Field Support Command. Rock Island, 1161299

SUBJECT: Adequate Force Protection for the Logistics Civil Augmentation Program (LOGCAP) Convoys in Kuwait and Iraq

1. Request Army Field Support Command (AFSC) review the basic LOGCAP contract andprovide a contractual recommendation allowing Kellogg Brown & Root (KBR) the authorization to pursue a civilian transport and

24transportation security company to conduct convoy escorts missions for the execution ofconvoys in Iraq during the movement ofgovernment materiel on theater supply routes. The current force protection posture, pending reductions in force structure, present and future demands for military police forces, all support the need to explore options otherthan military escorts in orderto conduct
secure and unhindered convoy operations.

2. The LOGCAP Basic contract and Statements ofWork (SOW) needs to be modified to allow for KBRto provide contract security for their convoys moving government materiel on theater supply routes in Kuwait and Iraq. This changeto authorization and utilization ofcontracted security should be in compliance with US Federal and Military Regulations that establishedthe currentbase contract.
3. The contract should be administeredby KBRorits subcontractor, with standards and operatingprocedures in accordance with the seniormilitary police organization in theater. The scope ofoperations ortask execution plan will be developedby KBR and acceptedthrough the appropriate contracting and command channels.

4. We understand that there will be legal and perception
concerns in the use ofcontracted security, but with pending reductions in force structure, present and future demands on contractor support, we must ensure unimpeded flow ofsupplies. We believe this is a viable course of action.

MG Speakes expectedthat Rock Island wouldprepare a proposal for contract modification thathe could submit for approval by the appropriate commanders in Iraq and at CENTCOM. However, he testified: "'Despite my repeated efforts, to my knowledge I never got a formal proposal back, and I neverwas able to take anything and formally bring it up to a higher staffto ask for theirhelp." (Findings 20, 21)

7. On 24 November2003, the commander ofthe Defense Contract ManagementAgency (DCMA) activity in Kuwait, CDR Kent Caldwell, USN, sent a message to the CFLCC 143rct Transportation Command. The message citedthe

25conflicting standards in operation orders (OPORDS) issuedby CFLCC and CJTF-7 16 for convoy protection, and further stated in pertinent part:

(Finding 23) As convoy security is contractually required to beprovided by the government and be consistentwith the standards set for all DOD civilians, I believe the government is faced with an unexecutable task. As I understand it, they are no longerresourced to comply with either standard, especially when you consider that contractors cannot carry weapons. Their need for external security is greater [than] that of armed soldiers moving in military convoys for which the majority ofthe guidance found in both OPORD's applies.

While I understand and appreciate the resource restrictions on both soldiers and government equipmentto perform the missions assumedby KBR underthe LOGCAP III contract, the Army has entered into a contract with KBR and is apparently unable toprovide the requisite security and protection requirements establishedby either CFLCC or CJTF-7. Ifuncorrectedthis will significantly impactthe fuel, line haul, mail, and Class 1transportation mission areas supported underthis contract.

8. On 19 December 2003, CJTF-7 Fragmentary Operations Order (FRAGO) 1242, (KBR Convoy Security Procedures) stated in relevantpart:

ATTACKS AGAINST KELLOGG, BROWN AND ROOT (KBR) CONVOYS HAVE DRAMATICALLY INCREASED DURING THE MONTHS OF OCTOBER AND NOVEMBER. BASED UPON INTELLIGENCE ESTIMATES, THE THREAT OF FUTUREATTACKS AGAINST KBR CONVOYS IS PROJECTEDTO INCREASE DURING THEMONTHS OF DECEMBER 2003 THROUGH APRIL 2004

....SINCETHE BEGINNING

16 CombinedJoint Task Force-7 (CJTF-7) was the initial designation ofthe coalition military forces in Iraq. On 15 May 2004, the designation was changedto Multi National Force-Iraq (MNF-I). CJTF-7 and MNF-I reportedto the Theater Commander, CENTCOM. 

### KBRS, 14-1 BCA

### i! 35,639 at 174,522 n.3.

26(Finding 24) OF OCTOBER, TH[E] MAJORITY OF ATTACKS AGAINST KBR CONVOYS HAVE BEEN THE RESULT OF IEDS AND SMALLARMS FIRE. NINETY PERCENT OF ALL ATTACKS DIRECTED SPECIFICALLY AGAINST KBR CONVOYS HAVE OCCURRED ON MSR TAMPA. HOWEVER, SEGMENTS OF ASRJACKSON, MSRMICHIGAN, MSRMILTON AND MSRMOBILE REMAIN EXTREMELY DANGEROUS TO KBR CONVOYS. KBR CONVOYS REMAIN EXTREMELY VULNERABLE TO ATTACKS AT REST STOPS, REFUEL POINTS, TRAFFIC CHOKE POINTS, LOCATIONS OF VEHICLE BREAKDOWNS, HAND-OFF POINTS FOR CONVOY SECURITY ESCORTS, MSC BOUNDARY LINES

...AND MOVEMENT UNDEROVERHEAD PASSES.

9. On 22 February 2004, the KBRS Deputy Area Manager for V Corps North sent the following messageto the troop unit thatwas responsible for force protection in that area:
Foryour informationthe military has failed to comply with providing escortrequirements. Time and time again we have sent emails after emails and made phone calls after phone calls to get this escortrequirement taken care of. As you know last week a convoy was arranged for four (4) trucks and they were abandoned while in route because of the speed oftravel. I would like to point outthis same subcontractorhad employees shot in a drive by shooting yesterday around B3, so they are a marked target.
Itwas also briefed onthe last [meeting with the government] that [the government] would preferto have at least nine (9) to ten (10) trucks in a convoy. We consulted with our subcontractor and they hired additional trucks for
a total often (10) trucks which are loaded and ready to go, when request for convoy was acquired today, KBRwas told [the government] was not able to provide the escorts due to lack ofassets and would not have the assets for two to three weeks ifthen. This has directly affected our ability to carry out ourtasked assigned to KBRby CJTF7,

27plus is causing the subcontractorto occur [sic] unexpected costs.
The government answerto KBRS's 22 February 2004 message was that: (i) "these combat units were sent here to fight the war, not do escorts for KBR ONLY"; (ii) the tasking placed on the troop unit responsible for providingthe force protection
was 'enormous'; and (iii) when the troop unit was ready to resume escort duty, 'I will let you
...know."' (Findings 30, 31)
10. On 12 April 2004, CJTF-7 FRAGO 622 described the current convoy security situation as follows:

THE ENEMY IS PROSECUTING A DELIBERATE OPERATION TO INTERDICT OURLINES OF COMMUNICATION (LOC). WITH THE SIMULTANEOUS ATTACKS ON SIX OVERPASSES ON 10-12 APRIL 04, IT IS APPARENT THE ENEMY HAS TAKEN HIS CAMPAIGN BEYOND HARASSMENT THROUGH DIRECT ACTION TO A DELIBERATE EFFORT FOCUSED ON THEATERLOC INTERDICTION.
CURRENT SITUATION. ALONG MSRS LEADING INTO AND OUT OF BAGHDAD THERE HAVE BEEN 66 ATTACKS IN THE LAST WEEK, 49 ATTACKS ONE WEEK AGO, AND 50 TWO WEEKS AGO. THERE HAVE BEEN 3 COMPLEX ATTACKS/ AMBUSHES IN LAST THREE DAYS RESULTING IN THE DESTRUCTION OF A REFUELING CONVOY

...DESTRUCTION OF 4 OVERPASSES

...AND THE AMBUSH OF A CONVOY

....THE MSRS BETWEEN 1) BAGHDAD AND BALLAD, 2) BAGHDAD AND KARBALA, AND 3) BAGHDADAND FALLUJAH ARE EXTREMELY DANGEROUS AND CONTINUE TO BE HIGHLY SUSCEPTIBLE TO THREATACTIVITYRANGING FROM IEDS TO SMALL ARMS AND RPG ATTACKS/ AMBUSHES.
CURRENTASSESSMENT: ATTACKS ARE MUCH HIGHER THIS WEEK AND UPWARD TREND IS LIKELY TO CONTINUE AS A RESULT OF THE CONTINUED SADR/MAHDI MILITIA UNREST, AND



### 28

### (Finding 32) OPERATIONS AGAINST THREAT FORCES IN WESTERN IRAQ.

11. On 14 April 2004, the DCMA administrative contracting officer (ACO) for TO 59 (MAJ Hills) reported to the Commander, DCMA Northern Iraq (LTC Blaine) the following:

(Finding 33) All indications are that the government has failed to live up to its contractual obligation to provide Force Protection (FP) to the TTM convoys (T00059). Given that, KBR is currently not required to run most (ifany) convoyroutes. They did run three convoys to Anacondatoday. Only one made it. The other two got lost. They are now at an FOB. KBR may not run any convoys tomorrow ifthe government does not improve its track record on FP. The
same MP escorts that got them lost are to bringthe two convoys in to Anaconda tomorrow. The best I can tell at this time is that they have neverran the route they are about to set out on. Based on my discussions with TTM's PM

...I 

### went over and talkedto the 13th COSCOM CC

...I 

### told him ofKBR's concerns. I feel contractually the government is not living up to its contractual obligations. [The COSCOM Commander] stated that COSCOMwas doing their part by providing a soldier for every third truck. He said it was the 15th MP's that were providingthe escort not COSCOM and that the issue ofgetting lost was
...not a FP issue "

...they are all safe aren'tthey." Ijustwantto go on record that absent any new information from the government, I concurwith KBR in that the government is not providing FP commensurate with the threat. If

### they choose not to run tomorrow Iwould be hard pressedto disagree with them. Oh by the way, one ofthe trucks in
one ofthe lost convoys got destroyed by an IED.

12. Lieutenant General (L

### TG) Ricardo Sanchez, commander ofCJTF-7 and its
successor unit from June 2003 to July 2004, testified that there was insufficient capacity to accomplish all the tasks that were assigned to the force on the ground in Iraq during that period and that he did not have sufficientresources to provide the
same level ofprotection to KBRS that was beingprovidedto civilians. Forthat

29reason, he stated, in the "fall and early winter of2003, we very clearly established within the command that the capacity ofthe force, the quantity ofthe force, and the demands ofthe mission

...we were not goingto be able to continue supporting that without private security." By March 2004, he testified, there were between 10 and 20 private security contractors operating in Iraq, and he believedtheirpresence and assistance in accomplishing the mission was welcomed by commanders at the battalion and brigade level. (Findings 35, 37, 38)

13. Following termination ofthe Coalition Provisional Authority (CPA) and establishment ofthe Interim Iraq Government as the civil government oflraqon 30 June 2004, CENTCOM issued a Warning Order (WARNORD) on 4 July 2004 entitled "CONTRACTORRISK MITIGATION" that tasked commanders to develop
courses ofaction (COAs) for U.S. Government contractor risk mitigation in Iraq. The WARNORD stated that MNF-1 had not to date providedprotection for contractors ·'AS CONTRACTOR SECURITY IS NOT A SPECIFIED MILITARYMISSION," and further statedthat "CONTRACTORS ARE PRIMARILY RESPONSIBLE FOR THEIR OWN SECURITY." The WARNORD concludedthat "giventhe current security environment in Iraq, all USG agencies must coordinate protection ofUSG contractors through a combination ofcoalition military forces, Iraq security forces, and private security companies." (Finding 39)

14. From March to September2004, attacks on KBRS subcontractor employees and vehicles continued, with 5 employees killed, 1beaten, and 25 missing
orheld captive (finding 40). On 29 August 2004 KBRS notified LTC Sean O'Day, Commander ofDCMANorthern Iraq, that a subcontractorconvoy escortedby a private Iraqi security company hadbeen ambushed and three trucks were missing. LTC O'Day remarkedthat there mightbe questions why private security and not a military escortwas used for protection. Atthe hearing, he testified that security was always a big issue, and that there weren't enough military forces in Iraq to do everythingthat needed to be done and provide convoy security for contractors. (Findings 40, 41)
15. Craig Peterson, KBRS's Program Manager in Iraq from November 2004 to 1April 2005, testified that although he did not have specific knowledge, KBRS subcontractors in Iraq had to be using PSCs because "[i]ftheywere notusing PSCs, I have no ideahow they did theirjob. None -yvhatsoever. Becausethey couldn'thave gone anywhere." Mr. Peterson furthertestified as to the availability ofmilitary protection for KBRS subcontractor convoys:
I myself, as the head [ofLOGCAP] and a retired general officer, would be on an installation and ask the young lieutenant or captain who has got a convoy goingto Arifjan or somewhere ifI couldpile in. They said, "I don't

30do contractors." I said, "I'm Craig Peterson. I'm in charge ofLOGCAP." They said, "I don't do contractors."
Q. They didn't say, "Who?"

A. No

....So, I mean, it

-- ifl gotkicked out of convoys, then there is no doubt in my mind that subs did. (Findings 49, 50)
16. KBRS'sprincipal subcontractor in Iraq was Eurest Support Services Worldwide (ESS), who installed and operated military dining facilities (DFACs) at specified sites throughout Iraq and concluded its operations in Iraq on 30 June 2006. ESS's operation manager from June 2003 to June 2006 was Steven Murray. Mr. Murray testified that ESS used PSCs for the entire period ofits performance in Iraq to supplement military force protection:
[W]e pretty consistently used, from early '03 and all the way through our departure in '06, PSD [private security detachment] teams to move people and money and equipment in and out ofthe country, because again, even in '05 and '06, the [military] convoy system would not let
ourNTVs [non-tactical vehicles] in the convoy. Ifyou disclosed you're carrying cash, you're not getting in the convoy with cash, and it was a total cash economy the whole time we were there

.

...It became extremely difficult to move things between sites. We'd approach

- wetriedto use some military force protection onthe site, and Ipersonally talked totwo orthree commanders about this. We were told pretty consistently that the military is not there to babysit contractors.

I had some people

...stuck on a southern site, and I neededto move them to a northern site. [They were included in a government convoy but] halfway through Baghdad, they stopped our vehicle

...[S]aid they got a call to go on a mission and they took offin another

31direction

....[W]e dispatched, enormous cost,

...a PSD team to go and pick them up
.

...Another occasion happened whereby we were moving equipment

...we had two orthree large 500 kV generators

...at one site; we had to move them across Baghdadto another site. They [the government] agreed to
move us
.

. . .Halfway there, they told ourtruck to pull over and wait. They had to leave, and they left. Never saw my truck again. It wasjust gone. The driver,

...! don'tknow whathappened to him. The truck was gone.
We learned ourlesson very quick. We did ask, from time to time, and most times it was "We'renot doing that. We can't do that. We're warfighters. Take care of yourselves." It's extremely difficult to move between sites, and it was a pretty regular need ofours to do that.

... Money, people, sometimes food

.... [We] only carried two orthree days' worth offood [at each dining facility site]. So ifyou don't have a delivery coming in everythird day, you're in trouble. You can'tfeed soldiers. That was unacceptable to us, as a caterer, and to ourclient, KBR. We could not fail.

So we had to move food, andthe military would not touch it from intra-theater. They hadbiggerthings to do than to move contractors. Q: Didthere evercome a time when you simply gave up on seeking force protection?

A. Honestly, no. It was in our interest. I mean this is a business, and ifI didn'thave to pay a PSDteam, which
were not cheap, and I could get itin a convoy, I'drather
use a convoy. It didn't always fit with ourbusiness unfortunately.

32

### Either you didn't have the time to do it, or they wouldn't do it. But always, even up until middle ofJune of2006, when we were leaving, we tried to use convoys as much as we could. It's a cost saver for us. So but the
answer ts yes. We never gave up trying to do that. (Findings 51, 52)

1

7. Lack offorce protection extended to static security as well as security for convoys. Mr. Murray testified that between January and June of2006, as demobilization activities began, the military was either leaving or on their way out. Although it tried to secure military force protection, in several instances ESS was left to move people and assets out ofinstallations that had been left completely open, and had to bring PSCs in to provide security for the compound while assets were taken down and loaded, and then used "our own guns to move those things across country." (Finding 53)
18. Most ifnot all ofthe subcontracts awarded by KBRS to perform LOGCAP III were awarded on a negotiated firm-fixed-price basis (finding 54). Asked ifESS made or lost money on its use ofPSCs at the hearing, Mr. Murray testified that the
use ofPSCs was unequivocally a money-losingproposition. He explained that ESS proposed and negotiated a price based on an estimated use ofPSCs, and that as the scope ofwork expanded and the security situation worsened, boththe frequency of
use and the costper mission ofPSCs increased far beyond the estimated amount, with the result that "[w]e incurred more costs than we charged [KBRS]." (Finding 54)
19. LTC Scott Sheridan succeeded LTC O'Dayas commanderofDCMA Northern Iraq in November 2004. On 22 April 2005 the award fee determination for KBRS's performance ofTO 59 for the previous yearwas issued with a rating of '·excellent" and specific note ofthe challenging circumstances under which that rating was earned, including "attacks on and hijacking ofyour convoys" and "lack offorce protection to escort convoys with needed materials." LTC Sheridan briefed the award fee determination the next day, underscoring the same two special considerations-"[o]perating in a non-permissive environment" and "[a]vailability of escorts." (Findings 43-45)
20. KBRS's initial policy in Iraq was not to use private securityto perform the contractbecause force protection was supposed to be provided by the Army (finding 46). However, KBRS senior managers did begin to use private security to be able to move around from location to location, and this was known in 2004 to both the Rock Island PCO (Mary Beth Watkins) and the DCMA Iraq commander, COL Ainsworth Mills, who expressed the opinion at the time that the PSC costs would not be allowable on the

33contract (finding 47). The record contains no evidence thatthe government, including the PCO, did anything to stop KBRS from using PSCs (finding48).

21. The record also shows that the government was aware that KBRS subcontractors were using PSCs to move convoys and did not object. The KBRS coordinator for all subcontractor movements from Kuwait into Iraq from mid-July 2003 until some point in 2005 was Ms. Leslie Smith, who testified that while the primary method ofmovement was a military escorted convoy, the Army Movement Control Battalion (MCB) routinely received and granted requests to move with private security. These requests were made expressly and in writing on the KBRS MP Escort Allocation Request submitted daily to the MCB. In addition, Ms. Smith on 24 March 2004 sent a memorandum to MAJ Grady Sessoms, the designated point ofcontact at the MCB, stating in partthat "Private security is allowed. Iraqi security escorts wait in Iraq to hook up with their convoy." On no occasion did MAJ Sessoms or anyone else at MCB respond that private security was not allowed. (Findings 57, 58) Moreover,
on I0 June 2005 a DCMA administrative contracting officerconsentedto the award of
a food services subcontract with an express pricingjustification in the consent documents referring tothe expected use ofPSCs to help transport maintenance personnel to theirrespective sites (finding 60).

22. The government offered five statements ofadditional material facts (GSAMF), for the purpose ofdemonstrating disputes ofmaterial fact preventingthe grant ofsummaryjudgment on either Count II or Count VI. They are as follows.

I. In February 2006, Kristan Mendoza, the acting chiefofthe Army's LOGCAP Contracting Branch at Rock Island Arsenal Illinois, wrote to Mary Wade, KBR's LOGCAP contract manager in Houston, Texas, about a report that a KBRTier I LOGCAP III subcontractorhad accidentally discharged a handgun. Ms. Mendoza asked Ms. Wade, among otherthings, "whatmeasures are being taken to ensurethat contractor or subcontractorpersonnel do not possess firearms in the AO [area ofoperations]." The following day, Ms. Wade advised Ms. Mendoza, among otherthings, that "[t]he subcontractorterms and conditions state weapons are not allowed on theproject," and that KBR's "policy is that no LOGCAP or subcontractoremployees are allowed to carry weapons."

2. In July 2006, Sylvia Youngman, the chiefofthe Army's LOGCAP Contracting Branch at Rock Island, emailed Philip Wagner, a KBR contract administrator, seeking comments on proposed responses by the Army to

34

### questions posed by Representative Henry Waxman about the LOGCAP III contract. Ms. Youngman proposed to tell Representative Waxman that KBR "has advised the Army that it has never directly hired a private security contractor in support ofthe execution ofa statement of work under any LOGCAP III Task Order" and that "KBRis presently unaware ofany payments to subcontractors which include[d] charges for private security costs, but [KBR] continues to look into this,'' When Ms. Youngman's proposed responses were circulated within KBR, Chris Heinrich, a KBR legal official, commented internally, "These answers look to be appropriate."
3. Also in July 2006, William Walter, a seniorvice president ofthe appellant, who had been the appellant's Director ofGovernment Compliance from 2003 to 2005, prepared a declaration for filing in Smith v. Halliburton 

### Co., No. H-06-0462 (S.D. Tex.), a tort action against the appellant and its parent company. In a draft declaration, Mr. Walter stated that "underthe LOGCAP Contract [No. DAAA09-02-D-0007] and Task Order 59, KBRSI had no obligationto provide, and in fact was prohibited from providing, force protection for its employees at [Forward Operating Base] Marez [in Iraq], including security ofany kind to protect KBRSI personnel in the Dining Facility

... [from] a suicide bomber."

4. "In response to Congressional inquiries aboutthe
use ofPSCs by KBRS and its subcontractors

..., Ms. Mendoza on 31 January 2007 obtained documentation from [KBR subcontractorEurest Support Services (ESS)] that in March 2005, 'Security' was 12.55% of'ourlabor pricing in our subcontracts[.]'"
5. In February 2007, George Seagle, an executive of the appellant, testified before the House Government Reform Committee. In response to questions from Representative Waxman, Mr. Seagletestified that KBRhad "neverdirectly subcontracted for armed security underthe LOGCAP contract" and had not "required or directed any of
our subcontractors to subcontract for security either."
(Gov't opp'n at 2-3)

35DECISION

The governmenthas made a number ofdifferent arguments with respect to Count II ofKBRS's FACC. The vast majority ofthese were made in connection with the government's motion to dismiss and have been dealt with above. In its briefing, the only two arguments the government makes specifically in opposition to KBRS's motion for summaryjudgment are that (1) whether a breach is material is not a determination appropriate for summaryjudgment, and (2) we must deny summary judgment on Count IIbecause there is a genuine dispute ofmaterial fact with respect to the materiality ofthe Army's breach (gov't opp'n at 11-12). Forthe latter, the government offers the following: (1) KBRS did not believe at the time it submitted its claims in three ofthese appeals that the contract obligatedthe Army to protect KBRS subcontractors, meaningthat KBRS entered into the LOGCAP contract "with no expectation offorce protection for its subcontractors;" and (2) seniormanagement of KBRS in 2006-2007 told the governmentthat KBR did not allow either KBR or subcontractorpersonnel to carry weapons, meaning that KBR seniormanagement, at least, did not think that the need for security was so greatthat the failures in force protection by the Army amounted to a total or material breach. 

### (Id. at 12)

We address first the government's contention thatwhether a breach is material is not an issuethat should be decided summarily. The governmentrelies ontwo Federal Circuit cases to supportthis argument. The first is 

### Stone ForestIndustries, Inc. v. UnitedStates, 973 F.2d 1548 (Fed. Cir. 1992). 

### Stone Forest is cited for the following proposition:

Not every departure from the literal terms ofa contract is sufficientto be deemed a material breach ofa contractrequirement, thereby allowingthe nonbreaching party to cease its performance and seek appropriate remedy. The standard ofmateriality for the purposes of deciding whether a contractwas breached "is necessarily imprecise and flexible." 

### Restatement (Second) of Contracts § 241 cmt. a (1981).... The determination depends on the nature and effect ofthe violation in light of howthe particular contractwas viewed, bargained for, entered into, and performed by the parties.


### Id. at 1550-51. In 

### Stone Forest, the Federal Circuitreversed the U.S. Claims Court and found thatthe government's denial ofaccess to 15.89 percent ofthe timber originally contracted for was a material breach. 

### Id. at 1552.
The second case relied on by the government is 

### Beta Systems, Inc. v. UnitedStates, 838 F.2d 1179 (Fed. Cir. 1988), cited for the proposition that questions ofcontract

36

### interpretation requiring the weighing ofextrinsic evidence are not amenable to summary resolution. We think the government's reliance on this decision is misplaced. In Beta Systems, 

### as in most cases where a court orboard is called upon to decide motions for summaryjudgment, there had been no trial on the merits. In this case, there was an extensive hearing on the merits and testimony from numerous government and contractor witnesses bearing on how the LOGCAP contract and task orders were viewed, bargained for, entered into, and performed by the parties, as well as detailed factual findings made by the Board on the basis ofthat record. Anyjudgmentrendered on this record is not truly "summary." At oral argument the government appeared to back offthe position taken in its briefs, agreeing that the Board's original findings plus the government's additional material facts were a sufficientbasis for the Board to rule on the motion for summaryjudgment (tr. 59).
Next, we turn to the government's argument that KBRS's claims underlying ASBCA Nos. 56358, 57151, and 57327 show that KBRS had no expectation underthe contract that the Army would provide force protection to any ofits subcontractors, precluding summaryjudgment at least with respect to the subcontractorPSC costs at issue (gov't opp'n at 12). Forthis proposition, the government cites to KBRS's certified claims of22 October 2007 (ex. G-1) and 16 June 2010 (ex. G-3) for sums withheld by the Army to recover allegedly unallowable PSC costs incurredby its subcontractors. It 

### is true that in these claims, KBRS argued that the contractrequired the Army to provide force protection to KBRS employees but did notrequire the Army to provide force protection to subcontractoremployees (ex. G-1at10-12, ex. G-3 at 13-15). However, these arguments mustbe viewed in context. KBRS presentedthis argument as one of many reasons why the Army's disallowance ofsubcontractorPSC costs under Clause H-16 was improper: ifthe contract did not obligate the Army to provide force protection to subcontractors, then it could not be reasonably read to preventthose same subcontractors from providing for their own force protection, when the Army did not provide it, and billing the cost ofsame as a reasonable cost ofcontractperformance.

The undisputed facts show that at the time the contractwas beingperformed, 

### both KBRS and governmentpersonnel believedthe governmentwas obligated underthe contractto provide force protection to both KBRS and its subcontractors (see 

### SOF 

### ii 4 (KBRS warned the Rock Island PCO on 27 June 2003 that failure to provide force protection adequate to the threat in accordance with the LOGCAP III contract would mean that KBR and subcontractorvehicle convoys would have to be delayed, adversely affecting timely delivery offood service support); SOF 

### ii 7 (the commander ofDCMA in Kuwait expressed concern in November 2003 that the government would be unable to meet its contractual obligation to provide security and protection for KBRS convoys); SOF 

### ii 9 (KBRS manager sent a message in February 2004 to the troop unit responsible for force protection, saying that "the military has failed to comply with providing escortrequirements" and citing (1) the abandonment ofa subcontractorconvoy while en route and (2) the assembly ofa

37

### subcontractor convoy of 10 trucks loaded and ready to go only to be told no military escort was available and might not be available for weeks); SOF 

### ii 11 (the DCMA ACO for TO 59 stated to the commander ofDCMANorthern Iraq in April 2004 that "[a]ll indications are that the government has failed to live up to its contractual obligation to provide Force Protection

...to the [TO 59] convoys
.... Given that, KBR is currently not required to run most (ifany) convoy routes.")). The government has cited to no statement by either KBRS or the government contemporaneous with contractperformance that would support the assertion that KBRS "viewed, bargained for, entered into, and performed'' the LOGCAP III contract "with no expectation of force protection for its subcontractors." Therefore, its argument that the Army's failures to provide force protection to KBRS subcontractors was not a material breach, because there was no expectation that force protection would be provided,**i~** 

### unpersuasive. Finally, the government asserts that there is a dispute ofmaterial fact with respect to how important government force protection was to KBR itself, given "[t]he persistence ofKBR's official no-weapons policy throughout the claimperiod" (gov't opp'n at 12). For this, the government cites to GSAMF paragraphs 1, 2, and 5. GSAMF 1deals only with employee possession ofprivate weapons, which KBRS did prohibit, but not with PSCs, which is how KBRS provided security to its employees in Iraq when military force protection was not available. GSAMFs 2 and 5both deal with accurate statements by KBRS officials that KBRS did not hire a PSC directly in support ofLOGCAP III. The cost ofPSCs hired to protecttop KBR officials traveling in the Middle East was incurredby a KBRS office servicing a number ofKBRS contracts in the Middle East, including LOGCAP III, and was allocated to those contracts as an indirect cost. KBRS, 14-1 BCA

### ii 35,639 at 174,514. The government has failed to raise any genuine issue ofmaterial fact regarding the importance offorce protection to KBRS under LOGCAP III.
The undisputed facts establish that the government committedthe first material breach under the contract. The invasion and occupation ofIraq occurred in March 2003. Attacks on convoys began in June 2003, and by 27 June 2003 KBRS
was already warning that the government was not providing force protection in accordance with its contractual obligation. (SOF 

### iii! 3-4) MG Speakes, the deputy commander ofCoalition land forces in Iraq, quickly assessed that increased force protection was necessary and requested that the commander at Rock Island have the LOGCAP III contract amended to allow for use ofprivate security for convoys moving materiel in Iraq. However, that neverhappened. (SOF 

### iii! 4-6) In November 2003, the commander ofDCMAin Kuwait warned that the government was "facedwith an unexecutable task" to provide force protection to convoys in accordance with applicable standards (SOF 

### ii 7). In response to a KBRS message in February 2004 that neither it nor its subcontractors were receiving the promised protection, the responsible military unit replied that "these combat units were sent here



### 38to fight the war, not do escorts for KBR ONLY" (SOF 

### ii 9). The DCMA ACO stated in April 2004 in no uncertain terms that the governmenthad failed to live up to its contractual obligation toprovide force protection to the convoys (SOF 

### ii 11). Several witnesses testified that by spring and summer of2004 it was evident thatthe force on the ground was insufficient to accomplish military missions and provide security for contractors. The need for PSCs to supplement Coalition and Iraqi forces to provide security to contractors was widely recognized (SOF 

### iii! 12-14).

The government does not seriously dispute that it was obligated underthe LOGCAP III contractto provide force protection to KBRS and its subcontractors equivalent to that providedto DoD civilians, and obligatedunderTOs 59 and 89 to provide them with force protection commensurate with the threat. Indeed, it would be unconscionable to take the position that the contractprohibited KBRS and its subcontractors from providing for their own protection, while performing in a war zone, without otherwise providing for their security. Yet, despite the many and continuing failures ofthe governmentto provide the promised level offorce protection to KBRS and its subcontractors summarized above, the government seeks to disallow the PSC costs incurred by KBRS and its subcontractors in orderto accomplish their mission underthe LOGCAP contract despite the government'sbreach, and argues that its breach was not material. It is hard to imagine a contract breach more material than this one, which eviscerated the promise at the heart ofthejustification for the government's claim. The government's breach was material.

One ofthe grounds for the government's motion to dismiss Count II is that KBRS waived the material breach by continuingto performthe contract. We previously rejected this argument as a basis for dismissing Count II for failure to state
a claim for relief, statingthatthe record in these appeals amply demonstrated that KBRS and its subcontractors made a commercially reasonable decision to continue to perform the contract with PSC protection ratherthan abandon performance in response to the government's breach, and citingthe decision ofthe Court ofClaims finding that continued performance did not waive the government's material breach in Northern He/ex, 197 Ct. Cl. 118, 129. We also found thatthis case presents the same sort of"special aspect" present in Northern He/ex, i.e., that the contractor's continued performance was consistent with the purpose ofthe contract and in the national interest. It is unclearto us whetherthe government also asserts this ground in opposition to summaryjudgment, butto the extentthat it does, we hold that KBRS and its subcontractors did not waive the government's prior material breach by continuing to perform.

What remains is the question ofthe appropriate remedy for the government's material breach. KBRS has raised prior material breach as a defense to the government's claim ofbreach embodied in its claim for unallowable costs. Our appellate precedent recognizes that a party may defend a claim ofbreach on the

39ground that a legal excuse for its nonperformance existed atthe time ofthe alleged breach. LongIslandSavings Bank, 503 F.3d at 1251 (plaintiffs' claim for damages precluded by their priorbreach-submitting a false certification). In Laguna, 828 F.3d at 1372-73, the Federal Circuit affirmed this Board's grant ofsummaryjudgmentto the government, holding that a contractor's claim for unpaid costs ofperforming an environmental remediation and construction contract in Iraq was precluded by the contractor's prior material breach-violation ofthe contract's Allowable Cost & Payment clause.

In these appeals, the government has claimed and withheld from paymentto KBRS the amounts it believes it previously paid in unallowable PSC costs. The basis for the government's claim ofunallowability is that the costs were incurred in violation ofthe contract'sprohibition against the use ofPSCs. Because the record in these appeals establishes that the claimed PSC costs were reasonable in amount and
were incurred only when necessitated by the government's failure to providethe contractually promised level offorce protection to KBRS and its subcontractors, the government's prior material breach operates to excuse any subsequent noncompliance with the contract's PSC prohibition. Thus, the government's claims for unallowable PSC costs are precluded in their entirety and we grant summaryjudgmentfor KBRS
on Count II ofits FACC.

CONCLUSION

The government's motion to dismiss is granted as to Counts I, V, and X, and those affirmative defenses are stricken from KBRS's FACC. The motion to dismiss is denied as to Counts II, III, IV, VI, VII, and VIII. We grant summaryjudgmenttothe government on Count IX. The government's motion is denied withoutprejudice as to Count XI, and granted as to Count XII.

We grant KBRS's motion for summaryjudgment on Count II ofits FACC. Having done so, we deem it unnecessary to decide whether KBRS is also entitled to summaryjudgmenton Count VI ofits FACC. The consolidated appeals are sustained in the amount of$44,059,024.49, with Contract Disputes Act interest as follows: on $19,652,815 from 22 October 2007, on $21,131,743 from 20 October2009, and on $3,274,466.49 from 16 June 2010.

Dated: 8 June 2017

(Signatures continued)

40 

# ---I concur

RICHARD SHACKLEFORD Administrative Judge Acting Chairman Armed Services Board ofContract Appeals OWEN C. WILSON Administrative Judge Acting Vice Chairman Armed Services Board ofContractAppeals

I certify that the foregoing is a true copy ofthe Opinion and Decision ofthe Armed Services Board ofContractAppeals in ASBCANos. 56358, 57151, 57327, 58583, Appeals of Kellogg Brown & Root Services, Inc., rendered in conformance with the.Board's Charter.

Dated:

41 JEFFREY D. GARDIN Recorder, Armed Services Board ofContractAppeals