Court Opinion

ID: 1039944
Source: CourtListenerOpinion
Date Created: 2013-09-05 15:27:52.244697+00
Date Added: 2024-06-11T12:38:57.573950
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

   KELLOGG BROWN & ROOT SERVICES, INC.,
             Plaintiff-Appellant,

                           v.

                  UNITED STATES,
               Defendant-Cross Appellant.
                ______________________

                   2012-5106, -5115
                ______________________

    Appeal from the United States Court of Federal
Claims in No. 09-CV-351, Judge Christine O.C. Miller.
                 ______________________

              Decided: September 5, 2013
               ______________________

    JOHN P. ELWOOD, Vinson & Elkin, LLP, of Washing-
ton, DC, argued for plaintiff-appellant. With him on the
brief were ERIC A. WHITE, TIRZAH S. LOLLAR and CRAIG D.
MARGOLIS.

    J. REID PROUTY, Senior Trial Counsel, Commercial
Litigation Branch, Civil Division, United States Depart-
ment of Justice, of Washington, DC, argued for defendant-
cross appellant. With him on the brief were STUART F.
DELERY, Acting Assistant Attorney General, JEANNE E.
DAVIDSON, Director, and ALEX P. HONTOS, Trial Attorney.
2                      KELLOGG BROWN & ROOT SERVICES    v. US

    DANIEL P. GRAHAM, Wiley Rein LLP, of Washington,
DC, for amici curiae. With him on the brief were NICOLE
J. OWREN-WIEST and BRIAN G. WALSH.
                 ______________________

    Before NEWMAN, LOURIE, and WALLACH, Circuit Judges.
    Opinion for the court filed by Circuit Judge WALLACH.
    Opinion concurring-in-part, dissenting-in-part filed by
                  Circuit Judge NEWMAN.
WALLACH, Circuit Judge.
    Before the March 2003 invasion of Iraq, Kellogg
Brown & Root Services, Inc. (“KBR”) entered into multiple
contracts with the United States Army for the provision of
dining facility (“DFAC”) services in Iraq. The contract at
issue in this case was for DFAC services at Camp Ana-
conda (“Anaconda”), one of the largest United States
military bases in Iraq at the time. In August 2003, KBR
subcontracted with Tamimi Global Company, Ltd.
(“Tamimi”) to provide DFAC services in Anaconda. As
troop levels increased, the Defense Contract Auditing
Agency (“DCAA”) engaged in audits of multiple DFAC
subcontracts. With respect to Anaconda, the DCAA
ultimately concluded that KBR had charged the Govern-
ment $41.1 million in unreasonable costs for services
provided from July 2004 to December 2004 and declined
to pay that amount to KBR.
    KBR sued in the United States Court of Federal
Claims, alleging the Government unreasonably withheld
the suspended $41.1 million. The Government brought
multiple counterclaims, including a claim under the Anti-
Kickback Act (“AKA”). The Court of Federal Claims held
that KBR was entitled to $11,460,940.31 in reasonable
costs. The court dismissed the majority of the Govern-
ment’s counterclaims, but awarded $38,000.00 to the
Government on its AKA claim.
KELLOGG BROWN & ROOT SERVICES,   v. US                    3
    KBR appeals the Court of Federal Claims’s calcula-
tion of reasonable costs, and the Government cross-
appeals the court’s decision with respect to its counter-
claims.
     Because the Court of Federal Claims did not clearly
err in its calculations, we affirm its determination of cost
reasonableness of the contract at issue. Additionally, we
affirm the dismissal of the Government’s Special Plea in
Fraud and False Claims Act claims and the denial of the
Government’s common-law fraud claim. However, be-
cause the Court of Federal Claims improperly calculated
KBR’s base fee and erred when it determined that the
actions of KBR’s employees should not be imputed to KBR
for purposes of the Government’s AKA claim, those claims
are reversed and remanded for further proceedings.
                       BACKGROUND
        1. LOGCAP III and Master Agreements
    On December 14, 2001, the Army awarded the Army
Logistics Civil Augmentation Program (“LOGCAP”)
Contract No. DAAA09-02-D-0007 (“LOGCAP III”) to
Brown & Root Services, which was then novated and
transferred to KBR on August 1, 2003. 1 Kellogg Brown &
Root Servs. v. United States, 103 Fed. Cl. 714, 716 (2012)
(“KBR II”). This contract required KBR to implement
logistics support services for the Army in Kuwait and Iraq
before and during Operation Iraqi Freedom pursuant to

   1    Unless otherwise noted, the Background section is
summarized from the findings of fact made by the Court
of Federal Claims in Kellogg Brown & Root Services v.
United States, 103 Fed. Cl. 714, 716–49 (Fed. Cl. 2012)
(“KBR II”). For a thorough background of this case, see
KBR II, 103 Fed. Cl. at 716–49; Kellogg Brown & Root
Servs. v. United States, 99 Fed. Cl. 488, 490–94 (Fed. Cl.
2011) (“KBR I”).
4                    KELLOGG BROWN & ROOT SERVICES   v. US
task orders issued under the contract. The compensation
arrangement under LOGCAP III was a cost-plus-award-
fee agreement that incorporated the provisions of Federal
Acquisition Regulation (“FAR”) § 52.216-7, whereby “the
Army would reimburse KBR for all costs that it incurred
in contract performance, including payments to subcon-
tractors, along with a fee determined by subcontract
costs.” Id.
    After the main contingent of ground troops began the
invasion of Iraq from Kuwait on March 20, 2003, the
Army began to focus on establishing dining facilities
throughout Iraq, requiring KBR to establish the capacity
to serve hot food to thousands of troops in a multitude of
camps, well beyond that envisioned in the contract. 2
    The typical competitive bidding process KBR used to
award subcontracts was burdensome and time-consuming
in light of the Army’s rapidly increasing demands. In
June of 2003, KBR personnel began to create an alterna-
tive system of “master agreements.” This allowed KBR to
establish agreements with certain subcontractors before
an Army directive was issued and abbreviate the proce-
dural process of procuring subcontractors, thus enabling
KBR to perform more quickly. The board deciding which
subcontractors should receive master agreements had six
members, including KBR’s Regional Food Service Manag-

    2   The contract itself required KBR to be prepared
for a “six-month deployment of a maximum of 50,000
troops at no more than eight camps.” KBR II, 103 Fed. Cl.
at 716. However, “KBR went from supporting tens of
thousands [of troops], to supporting hundreds of thou-
sands. Although initially KBR had approximately one
month to establish over thirty DFACs in Iraq, eventually
the Army was calling for more than fifty DFAC sites.” Id.
at 717–18 (internal quotation marks and citations omit-
ted).
KELLOGG BROWN & ROOT SERVICES,    v. US                    5
er for Iraq and Kuwait, Terry Hall, and his Deputy,
Luther Holmes. One of the subcontractors KBR ap-
proached to enter into such a master agreement was
Tamimi. 3
                 2. History of Kickbacks
   From April 2003 to January 2004, Mr. Hall and Mr.
Holmes received multiple kickbacks from Tamimi’s Vice
President, Shabbir Khan. KBR II, 103 Fed. Cl. at 720–23,
776.
    In April 2003, Mr. Khan agreed to finance a four-day
trip that Mr. Hall took to Dubai, paying for the plane
ticket and giving Mr. Hall $10,000.00, which Mr. Hall and
Mr. Holmes split. Mr. Hall spent the first two days of his
trip conducting business, and the second two days
“hav[ing] fun.” Id. at 721 (alteration in original). Mr. Hall
took another trip in early-summer 2003 to Jordan, and
Mr. Khan again paid for the ticket and gave Mr. Hall
$3,000.00. Additionally, in either August or September of
2003, Mr. Khan gave Mr. Hall an ATM card “with a
substantial amount of money on it.” Id. at 722. Mr. Hall
used some of the money for Christmas decorations for the
dining facilities, but then spent approximately $3,500.00
on himself and handed over the card to Mr. Holmes.
     Finally, Mr. Khan gave Mr. Hall $20,000.00 in cash in
January 2004. Mr. Hall had been interested in the possi-
bility of opening up a Golden Corral franchise after leav-
ing the Army, and Mr. Khan’s cash offer was for
“exploratory” research on opening this franchise. Id.
After spending approximately $7,000.00 on research for
the franchise, Mr. Hall was unable to secure adequate

    3  As detailed by the Court of Federal Claims, KBR
had previously employed Tamimi, and their relationship
“was not always smooth.” KBR II, 103 Fed. Cl. at 717.
6                    KELLOGG BROWN & ROOT SERVICES   v. US
financing and abandoned the project. He kept the re-
mainder of Mr. Khan’s money for himself.
             3. Tamimi at Camp Anaconda
    The master agreements KBR formed with subcontrac-
tors eventually corresponded to various regions of Iraq,
with different subcontractors servicing specific regions.
Not long after KBR instituted its master agreement
system, the Army issued a requirement for a DFAC in
Kirkuk, Iraq, a region associated with subcontractor The
Event Source (“TES”). However, the Government later
sent a letter directing KBR to relocate this DFAC to
Camp Anaconda. Although KBR initially planned to keep
TES as the subcontractor on this particular DFAC, it
ultimately awarded Master Agreement 3 Work Release 3
(“WR 3”) to Tamimi. Mr. Hall and Mr. Holmes had
strongly advocated choosing Tamimi over TES. Id. at 723.
    “WR 3 provided that KBR would pay Tamimi a fixed
per person/per day (“PPPD”) price based upon either
actual headcount of troops served at the Anaconda DFAC
or the projected headcount provided by the Army, which-
ever was greater.” Id. at 724. However, because of a
confluence of factors, Tamimi began operating DFAC
services at Anaconda before KBR had internally approved
WR 3 or generated the necessary requisitions to pay
Tamimi for its services. Id. 4
    On September 4, 2003, the Army instructed KBR to
replace two of the Anaconda DFAC facilities with new,

    4   A “requisition [is] a key instrument that provides
a general outline and description of work to be performed.
It provides the authorization, the signatures. It provides
[the Procurement personnel] an estimate, a rough order of
magnitude, price, cost.” KBR II, 103 Fed. Cl. at 725 (in-
ternal quotation marks and citations omitted) (alteration
in original).
KELLOGG BROWN & ROOT SERVICES,   v. US                   7
more permanent structures; however, KBR could not seek
reimbursement from the Army under LOGCAP III for this
work because it was in the business of providing services
and not procuring buildings. A solution was devised
where Tamimi would purchase the buildings and then
indirectly charge KBR for the buildings through its DFAC
subcontract. Id. at 725. As time elapsed, however, the
Government determined that KBR should own the facili-
ties. As the Court of Federal Claims noted, “[t]he negotia-
tions between KBR and Tamimi regarding the construc-
construction costs of these buildings played a significant
role in the present dispute.” Id.
    Tamimi continued to operate the DFACs at Anaconda
without the benefit of a contract and without the neces-
sary requisitions by KBR. On November 3, 2003, howev-
er, KBR issued a material requisition, pricing six months
of DFAC services for all four Anaconda DFACs at
$111,650,000.00. After significant negotiations, exten-
sions, and machinations, WR 3 was officially sanctioned
within KBR on April 26, 2004.
            4. Inquiry Into Tamimi’s Prices
    Despite this approval, Tamimi’s prices submitted to
KBR for DFAC services throughout Iraq were increasing-
ly scrutinized; both the Army and the DCAA objected to
the costs submitted. Under this scrutiny, in early- to mid-
2004, KBR had begun providing brief extensions while
recompeting many of its DFAC contracts. 5 “One group of

   5     “In some of those contracts, KBR was able to
secure prices that were up to 40% lower than the original
round of contracts.” KBR II, 103 Fed. Cl. at 730. Recom-
peting a contract (or a subcontract) means reengaging in
competitive bidding procedures, see, e.g., FAR § 6.101,
prior to or during contract performance, culminating in an
award of the contract to one of the bidders. In this case,
KBR, not the Army, was accepting and evaluating bids for
8                    KELLOGG BROWN & ROOT SERVICES    v. US
subcontracts that had been extended, yet was recognized
to need renegotiation, was Tamimi’s, including WR 3.”
KBR II, 103 Fed. Cl. at 730. DCAA had particular inter-
est in Tamimi’s subcontracts because Tamimi “was billing
. . . based on either projected or actual headcount, which-
ever was higher.” Id.
    After discussions between KBR and Tamimi, the two
negotiated modifications to WR 3, with Tamimi agreeing
to a retrospective overall price reduction of
$16,560,000.00 among Tamimi’s nine subcontracts with
$4,907,319.00 to be allocated to Anaconda. 6 On August
12, 2004, after those negotiations, KBR and Tamimi
created Change Order 6 to WR 3. A number of changes
were introduced including extending Tamimi’s perfor-
mance period through September 15, 2004, implementing
the negotiated price reduction, incorporating a new con-
tract pricing structure, and agreeing to further negotia-
tions concerning the ownership of the new DFAC
facilities.
    Notwithstanding those efforts, KBR internally deter-
mined to not issue payments on Tamimi’s invoices be-
cause of continued doubts as to the reasonableness of the
prices agreed to by Tamimi. 7

DFAC subcontracts through the use of competitive proce-
dures.
    6  According to the Court of Federal Claims, the
negotiations were acrimonious, with multiple failed
attempts, Tamimi taking an “all or nothing” position, and
KBR stopping all payments to Tamimi to induce and
maintain negotiations. KBR II, 103 Fed. Cl. at 730.
    7  The record contains testimony and internal docu-
mentation from KBR that the procurement situation at
Anaconda was, in the words of Mr. Petsche, “a mess.”
KBR II, 103 Fed. Cl. at 726.
KELLOGG BROWN & ROOT SERVICES,   v. US                   9
           5. KBR’s Failed Self-Performance
    While negotiating the above modifications with
Tamimi, KBR was also attempting to recompete the work
at Anaconda. After resisting, Tamimi eventually submit-
ted a proposal for the Anaconda DFAC services on July
31, 2004; two other vendors were also planning to submit
proposals. However, while waiting for these proposals,
“KBR was assessing whether it would be more benefi-
cial—and less costly—simply to self-perform the DFAC
work at Anaconda.” KBR II, 103 Fed. Cl. at 734. KBR
management approved the idea because it predicted self-
performance would result in savings of approximately $17
million.
    KBR solicited proposals from vendors for the neces-
sary labor pool to self-perform. Difficulties quickly be-
came apparent.       The necessary labor pool was not
forthcoming, in part because “certain countries were
precluding their citizens from entering Iraq.” Id. Because
of extensive subcontractor logistical problems, unrelated
to Tamimi, KBR was unable to begin self-performance
and was forced to extend Tamimi’s period of performance
until November 30, 2004, and again for a long-term
extension starting December 1, 2004. The latter exten-
sion, however, was contingent on negotiations for “(1) a
retroactive discount on prices from July through Novem-
ber 2004, and (2) a competitive price for the new period of
performance.” Id. at 735. 8

   8    Because of mounting tensions between KBR and
Tamimi, KBR had begun “slow rolling payments” on
Tamimi’s invoices, which were computed using “the actual
headcounts at the site and the average [PPPD] rate paid
by KBR to its subcontractors,” which was roughly half of
the invoiced amount. KBR II, 103 Fed. Cl. at 734 (internal
quotation marks and citation omitted) (alteration in
original).
10                   KELLOGG BROWN & ROOT SERVICES   v. US
            6. Change Order 9 Negotiations
     These negotiations commenced on November 7, 2004,
and included multiple items, in addition to the items
listed above, and continued negotiations over the owner-
ship of the new Anaconda DFAC facilities. Ms. Hayes, a
Procurement Manager at Anaconda, was asked by KBR to
attend and became the chief and sole negotiator in nego-
tiations that spanned from approximately mid-December
2004 to the third week of January 2005. According to Mr.
Jonas, KBR’s former Vice President for Procurement
Materials and Property, due to KBR’s strategy of slow
rolling payments, KBR owed Tamimi roughly
$40,000,000.00. Ms. Hayes was unaware of this leverage
and failed to use it in her negotiations. 9
     Based on the negotiations, Ms. Hayes and Tamimi
agreed to Change Order 9 to WR 3. Change Order 9
officially extended Tamimi’s period of performance at
Anaconda until December 31, 2005. Tamimi agreed that
ownership of the new DFAC facilities transferred to KBR
as of November 30, 2004. Finally, Change Order 9 re-
flected discounts that Tamimi conceded under Change
Order 6 (approximately $4,907,319.00) plus another
$22,721,827.54 in discounts; therefore, the original WR 3
pricing had been reduced by a total of $27,629,146.50
from March 2004 through December 2004.
    As per Change Order 9, Tamimi agreed to the follow-
ing invoice amounts from March through December 2004:

March                August
      $17,062,621.37           $11,839,168.60
2004                 2004
April                September
      $17,070,364.23           $11,722,522.57
2004                 2004

     9  An extremely detailed account of these negotia-
tions can be found in KBR II, 103 Fed. Cl. at 736–41.
KELLOGG BROWN & ROOT SERVICES,    v. US                   11

May                     October
         $11,604,646.78          $11,843,324.53
2004                    2004
June                    November
         $11,613,139.81          $11,682,396.16
2004                    2004
July                    December
         $11,806,568.98          $6,085,825.43
2004                    2004
KBR II, 103 Fed. Cl. at 741 n.9 (emphasis added). These
numbers reflected the negotiated solution to the DFAC
ownership dispute, with the amortization of the facilities
spread over all of the months until November 30, 2004,
when Tamimi agreed that ownership transferred to KBR.
Additionally, the cost of food was included for the first two
months when Tamimi was still providing food.
       7. The “Boots-through-the-Door” Controversy
    In October 2003, over a year before KBR and Tamimi
began negotiations for Change Order 9, the DCAA began
questioning the costs incurred at multiple DFAC facili-
ties. At this time, the main controversy concerned a
disagreement over whether the contracts were fixed-price
and KBR would “be prepared to serve the number of
troops that eventually were present at the location,” or
whether the contracts were variable-priced contracts
based on the actual number of troops serviced (“boots-
through-the-door controversy”). KBR II, 103 Fed. Cl. at
741.
    In mid-2004 the Army formed the Special Cost Analy-
sis Team (“SCAT”) to perform “an in depth study of DFAC
costs and issues.” Id. at 742 (internal quotation marks
and citation omitted). The leader of the SCAT effort was
Lynn E. DeRoche, an official with the U.S. Army Tactical
Command, who began working with KBR to resolve the
boots-through-the-door issue. On March 31, 2005, KBR
and the Government entered into the Global DFAC Set-
tlement to resolve this controversy. “The Government
offered KBR an overall decrement of $55 million on costs
12                    KELLOGG BROWN & ROOT SERVICES   v. US
invoiced under one of the task orders from September
2003 through February 2004, which KBR accepted.” KBR
II, 103 Fed. Cl. at 743. However, the site-specific reason-
able amount for Camp Anaconda was calculated to be
greater than the amount that KBR had invoiced in sub-
contract costs at the site. “Thus, none of the $55 million
decrement was allocated to the subcontract agreement for
DFAC services at Anaconda.” Id.
    The work of SCAT was ongoing. On July 8, 2005, Ms.
DeRoche authored the Price Negotiation Memorandum, a
summary of the negotiations between KBR and the Army
and the Government’s position on the Global DFAC
Settlement. One paragraph of the summary dealt specifi-
cally with costs at a group of Tamimi-run dining facilities
that included Anaconda during the March through June
2004 period included in Ms. Hayes’s negotiations. The
memorandum states:
     The reduced costs reflected for the credit memo
     period are the result of KBR’s protracted negotia-
     tion with Tamimi, and are considered reasonable.
     When the associated credits are applied to the
     original invoices, the resulting costs are equiva-
     lent to KBR’s new subcontract rate structure. The
     new Tamimi subcontract costs were viewed as
     reasonable . . . .
J.A. 5592.
    Although KBR and the Army issued modifications
implementing the Global DFAC Settlement, difficulties
with Anaconda continued. On July 19, 2006, the DCAA
“issued a preliminary findings report regarding DFAC
services at Anaconda that questioned $44.8 million in
KBR costs.” KBR II, 103 Fed. Cl. at 744. Ultimately,
DCAA determined $41.1 million to be unreasonable
overcharges. After KBR submitted a claim to a contract-
ing officer for the suspended $41.1 million, and while the
contracting officer’s decision was forthcoming, KBR
KELLOGG BROWN & ROOT SERVICES,   v. US                   13
commenced suit in the Court of Federal Claims on June 2,
2009.
                  8. Procedural History
    KBR brought this suit pursuant to the Contract Dis-
putes Act, 41 U.S.C. § 7101, et seq., alleging that the
Army had unreasonably withheld money from KBR when
it challenged approximately $41 million in costs and
markups associated with the Camp Anaconda dining
facilities for July through December 2004.
    As the case progressed, the Government brought
counterclaims centered upon Mr. Hall and Mr. Holmes’s
acceptance of kickbacks from Mr. Khan. The Government
sought the forfeiture of KBR’s claims pursuant to a Spe-
cial Plea in Fraud, 28 U.S.C. § 2514, penalties under the
AKA, 41 U.S.C. §§ 51–58, 10 damages and penalties under
the False Claims Act (“FCA”), 31 U.S.C. §§ 3729–3733,
and damages for common-law fraud. On June 24, 2011,
the court granted in part and denied in part KBR’s motion
to dismiss the counterclaims. See Kellogg Brown & Root
Servs., Inc. v. United States, 99 Fed. Cl. 488, 516–17 (Fed.
Cl. 2011) (“KBR I”) (dismissing the Government’s coun-
terclaims under the Special Plea in Fraud and the FCA
but refusing to dismiss the AKA and common-law fraud
claims for rescission and disgorgement).
    Following a ten-day bench trial, the Court of Federal
Claims determined that $11,460,940.31 of the direct costs
KBR sought were “reasonable” and thus reimbursable
pursuant to FAR § 31.201-3. Together with overhead
costs and general and administrative expenses, the court
awarded a total of $11,792,505.31 plus interest. KBR II,
103 Fed. Cl. at 780.

   10  The AKA has been recodified at 41 U.S.C.
§§ 8701–07.
14                     KELLOGG BROWN & ROOT SERVICES     v. US
     This calculation was based on a rate of $6,085,825.43
per month. This monthly rate was the price negotiated by
Ms. Hayes for the month of December 2004 and was “the
first month that Ms. Hayes negotiated that did not,
facially, include any facilities amortization.” Id. at 770. 11
The Court of Federal Claims found that KBR “has justi-
fied as reasonable a monthly pass-through cost” of this
amount. Id. at 771. The Court of Federal Claims then
multiplied that monthly cost by the six months at issue
($36,514,952.58), subtracting the amount that had al-
ready been paid to KBR ($25,054.012.27), which brought
the total still owed to KBR to $11,460,940.31.
    The court also awarded the Government $38,000.00
on its AKA counterclaim, but denied the Government’s
common-law fraud claims. Id.
   Both parties appealed. This court has jurisdiction
pursuant to 28. U.S.C. § 1295(a)(3).
                        DISCUSSION
    This court reviews legal conclusions of the Court of
Federal Claims without deference and its findings of fact
for clear error. Ind. Mich. Power Co. v. United States, 422
F.3d 1369, 1373 (Fed. Cir. 2005). Contract interpretation
is a question of law, which we review de novo. Sevenson
Envtl. Servs., Inc. v. Shaw Envtl., Inc., 477 F.3d 1361,
1364–65 (Fed. Cir. 2007).

     11 The Court of Federal Claims found that “[o]n this
record,” it could “not find that the facilities costs paid by
Ms. Hayes were reasonable,” and therefore chose to base
its calculation without taking into account facilities
amortization. KBR II, 103 Fed. Cl. at 770.
KELLOGG BROWN & ROOT SERVICES,   v. US                    15
                     I.   KBR’S APPEAL
    KBR appeals the Court of Federal Claims’s determi-
nation of reasonable fees and the calculation of KBR’s
base fee. We address each argument in turn.
1. The Court of Federal Claims Properly Evaluated Cost
  Reasonableness of the Subcontract Between KBR and
     Tamimi for July 2004 through December 2004.
    Both parties agree that KBR is entitled to be reim-
bursed only for its “reasonable” costs under LOGCAP III.
They also agree that LOGCAP III incorporated, by refer-
ence, the cost principles in the FAR and that FAR
§ 31.201-3 (codified at Title 48 of the Code of Federal
Regulations) governs the assessment of the reasonable-
ness of KBR’s costs. That provision states that a cost is
reasonable “if, in its nature and amount, it does not
exceed that which would be incurred by a prudent person
in the conduct of competitive business.” FAR § 31.201-
3(a). The regulation further provides that:
        (b) What is reasonable depends upon a variety
   of considerations and circumstances, including—
           (1) Whether it is the type of cost generally
   recognized as ordinary and necessary for the con-
   duct of the contractor’s business or the contract
   performance;
           (2) Generally accepted sound business
   practices, arm’s length bargaining, and Federal
   and State laws and regulations;
          (3) The contractor’s responsibilities to the
   Government, other customers, the owners of the
   business, employees, and the public at large; and
           (4) Any significant deviations from the
   contractor’s established practices.
FAR § 31.201-3(b).
16                    KELLOGG BROWN & ROOT SERVICES     v. US
    KBR admits that the language above “emphasizes its
nonexclusivity, saying reasonableness ‘depends upon a
variety of considerations and circumstances, including’
but not limited to those listed in the regulation.” KBR
Reply Br. 14 (emphasis in the original). Notwithstanding,
KBR’s core argument is that the Court of Federal Claims
committed legal error by “appl[ying] an improper stand-
ard for reviewing the reasonableness of costs under the
Contract Disputes Act . . . .” KBR Br. 29. According to
KBR, “cost-reimbursement contracts require only that the
contractor gives its ‘best efforts’ when performing, and its
costs are payable absent gross misconduct” or “absent
arbitrary action or a clear abuse of discretion.” Id. at 32.
     KBR’s suggested standard of review finds no support
in the text of section 31.201-3 or our precedent. Section
31.201-3 of the FAR affords the reviewing officer or court
considerable flexibility in assessing the reasonableness of
costs. The words “arbitrary,” “gross negligence,” and
“willful misconduct” do not appear in the text. Our prior
authority on cost reasonableness is contrary to KBR’s
position. In Boeing North American, Inc. v. Roche, this
court reasoned that a cost could be “unreasonable” under
section 31.201-3 when “the contractor overcharge[d] the
government for the materials.” 298 F.3d 1274, 1281 (Fed.
Cir. 2002). Absent from the court’s example was any
suggestion that the “overcharge” must be based on gross
negligence or arbitrary behavior. Although evidence of
willful misconduct, gross negligence, or arbitrary conduct
could well provide a basis for a contracting officer or court
to disallow costs under the regulation, such evidence is
not required. KBR offers many pages of non-binding law
to illustrate the amount of discretion courts have afforded
to contractors. 12 However, KBR offers no binding prece-

     12 KBR states: “The court’s conclusion conflicts with
the bedrock principle that the government bears all risk
in cost-reimbursement contracting and a half-century of
KELLOGG BROWN & ROOT SERVICES,   v. US                 17
dent in defense of their position that all risk in cost-
reimbursement contracting falls on the Government and
does not dispute that KBR is entitled to be reimbursed
only for its “reasonable” costs under LOGCAP III.
     Rather, the Court of Federal Claims applied the cor-
rect standard articulated by FAR § 31.201-3, and its
analysis was consistent with the regulation’s admonition
that the reasonableness of specific costs “must be exam-
ined with particular care” when the costs incurred “may
not be subject to effective competitive restraints.” FAR
§ 31.201-3(a).
    In addition to arguing that the Court of Federal
Claims employed the wrong standard, KBR argues at
length that the court improperly assessed specific evi-
dence with regard to cost reasonableness by crediting the
wrong information at trial and ignoring other pertinent
information.
    Cost reasonableness “is a question of fact.” Gen. Dy-
namics Corp. v. United States, 410 F.2d 404, 409 (Ct. Cl.
1969). The court will overturn factual determinations
only when they are clearly erroneous. See Ind. Mich.
Power Co., 422 F.3d at 1373. The standard for assessing
reasonableness is flexible, allowing the Court of Federal
Claims to consider many fact-intensive and context-
specific factors. See FAR § 31.201-3. The Court of Federal
Claims’s two opinions total roughly 150 pages, and com-
prehensively articulate the court’s assessment of the cost
reasonableness of the Tamimi subcontract from July 2004

case law acknowledging contractors’ considerable discre-
tion and holding costs to be reasonable absent gross
misconduct.” KBR Reply Br. 8–9 (emphasis added).
18                   KELLOGG BROWN & ROOT SERVICES    v. US
to December 2004. We address each of KBR’s specific
arguments in turn. 13
   A. The Court of Federal Claims’s Analysis of KBR’s
 Effort at Self-Performance Did Not Impermissibly Focus
          on Outcome Rather than “Best Efforts.”
    The Court of Federal Claims found that KBR’s sum-
mer 2004 effort to end Tamimi’s involvement by self-
performing dining services was “disastrous.” See KBR II,
103 Fed. Cl. at 752, 758. KBR argues that this was
reversible error since the Court of Federal Claims suppos-
edly focused on the outcome of KBR’s decision to self-
perform, not its reasonableness ex ante. KBR Br. 40. KBR
argues that this “error unquestionably infected the court’s
assessment of the reasonableness of all KBR’s June-
December 2004 prices.” Id. at 43 (emphasis in original).
    Contrary to KBR’s characterization, the Court of Fed-
eral Claims did not conclude that KBR’s costs were un-
reasonable based solely on KBR’s failed self-performance.
Rather, it adopted KBR’s urging at trial that reasonable-
ness must be determined in context, not based on stand-
ards for “conference room” contracting. KBR II, 103 Fed.
Cl. at 751. The Court of Federal Claims agreed with KBR
that “costs need to be reasonable, not in a vacuum, but in

     13 KBR bore the initial burden to establish that its
costs were reasonable. FAR § 31.201-3(a). As noted by the
Court of Federal Claims, “[p]reviously, a contractor’s
incurred costs were entitled to a presumption of reasona-
bleness, and the Government bore the burden of proving
that the costs were unreasonable”; however, this pre-
sumption was superseded in 1987 when FAR § 31.201-3
was amended. KBR II, 103 Fed. Cl. at 749–50 (citing 52
Fed. Reg. 19,800, 19,804 (May 27, 1987)); Ace Construc-
tors, Inc. v. United States, 70 Fed. Cl. 253, 275 (2006);
George Sollitt Constr. Co. v. United States, 64 Fed. Cl.
229, 245 (2005)).
KELLOGG BROWN & ROOT SERVICES,    v. US                   19
the context of the events in which they arose.” Id. But, it
cautioned KBR that consideration of all of the circum-
stances cut both ways: “KBR cannot now point to a deficit
in bargaining power and contend that its weakened state
entitles it to greater latitude” because a “contractor may
not itself manufacture—or in this case exacerbate—a
situation that leads to higher costs for the Govern-
ment . . . .” Id. at 752. Here, the Court of Federal Claims
found that KBR was in a weak position with Tamimi,
which stemmed from KBR’s own conduct, including
“fail[ure] to negotiate prices prospectively” and its “at-
tempt to self-perform the work at Anaconda.” Id. at 758.
     These observations did not end the Court of Federal
Claims’s analysis. Even in its weakened position, KBR
failed to act prudently to improve its leverage: “the court
finds that the prudent business person would have seized
any available advantage,” which for KBR was $40 million
in withheld funds that Ms. Hayes, KBR’s negotiator, did
not know about or use to KBR’s advantage. Id. The
subsidiary finding, that KBR’s disastrous self-
performance harmed its bargaining position with Tamimi,
is not clearly erroneous, nor was it legal error to consider
this fact in assessing cost reasonableness.
     Additionally, even if there had been an infirmity in
the Court of Federal Claims’s discussion of self-
performance, self-performance was only one of numerous
findings supporting the Court of Federal Claims’s reason-
ableness determination. See FAR § 31.201-3(b) (providing
that reasonableness is determined based “upon a variety
of considerations and circumstances”). Finally, KBR’s
self-performance argument attacks the Court of Federal
Claims’s weighing of the evidence, which this court will
rarely disturb. See Pacific Gas & Elec. Co. v. United
States, 668 F.3d 1346, 1353 (Fed. Cir. 2012) (weighing of
evidence is “within the special province of the trial judge”)
(internal quotation marks and citation omitted).
20                     KELLOGG BROWN & ROOT SERVICES     v. US
 B. The Court of Federal Claims Did Not Impermissibly
  Second-Guess KBR’s Arm’s-Length Negotiations with
 Tamimi or Fail to Consider KBR’s Collective Knowledge
             in Assessing Reasonableness.
    Similar to its argument above, KBR also contends
that the Court of Federal Claims impermissibly “second-
guessed” KBR’s negotiations with Tamimi. KBR Br. 43–
48. KBR argues that the court failed to give the proper
weight to this “arm’s length bargaining” and how such
bargaining supports a determination of reasonableness.
Id. at 43 (citing FAR § 31.201-3(b)(2)). KBR argues that
the Court of Federal Claims’s assessment of these negoti-
ations runs afoul of both the “business judgment rule” and
the requirement that the court look to management
collectively, not to the actions of individual employees. Id.
at 44, 46–47.
     KBR analogizes its requested standard, the “business
judgment rule,” to “its corporate-law analogue,” which
restricts courts from imposing liability “‘in the absence of
a showing of abuse of discretion, fraud, bad faith, or
illegality.’” Id. at 36 (quoting In re Bal Harbour Club, Inc.,
316 F.3d 1192, 1195 (11th Cir. 2003)). Similarly, Amici
Curiae the Professional Services Council and the National
Defense Industrial Association argue that the Court of
Federal Claims applied the wrong standard but do not
urge the extreme standard argued by KBR. Amici Curiae
offer instead that “what a contractor must prove, and
what the [Court of Federal Claims] or [Board of Contract
Appeals] must determine de novo, is whether any prudent
businessperson in the contractor’s position would have
incurred the disputed cost.” Amici Curiae Br. 8, 10 (em-
phases in original). As stated above, the Court of Federal
Claims employed the correct standard to determine cost-
reasonableness.
    FAR § 31.201-3(a) requires the court to examine the
reasonableness of a contractor’s actions to ensure that
KELLOGG BROWN & ROOT SERVICES,   v. US                  21
those actions result in costs that do not exceed “that
which would be incurred by a prudent person in the
conduct of competitive business.” A trial court’s review is
not restricted to only “management” actions. If a contrac-
tor acts primarily through one employee, manager or not,
that employee’s actions may well be a focus of the reason-
ableness inquiry. 14
     KBR again appears to contest the trial court’s weigh-
ing of the evidence and its assessment of KBR’s witnesses.
“[I]n reviewing factual findings under the clear error
standard, this court ‘gives great deference to the [trial]
court’s decisions regarding credibility of witnesses.’”
Medichem, S.A. v. Rolabo, S.L., 437 F.3d 1157, 1171 (Fed.
Cir. 2006) (citing Ecolochem, Inc. v. S. Cal. Edison Co.,
227 F.3d 1361, 1378–79 (Fed. Cir. 2000)).
    The Court of Federal Claims found the agreement
arising from Change Order 9 was unreasonable, based in
part on its determination that KBR’s negotiator, Ms.
Hayes, failed to leverage withheld funds, did not set goals
for the negotiation, and could not justify the prices. Ms.
Hayes’s testimony did not convince the court otherwise.
Rather, it found that “the enthusiastic endorsement of
Ms. Hayes by Mr. Jonas and plaintiff’s counsel was borne
out by neither her testimony nor the record of her negoti-
ations that she included in her Negotiation Memorandum
dated March 29, 2005. Her testimony was in the nature
of summations on the topics, flavored with anecdotes.”
KBR II, 103 Fed. Cl. at 736 (internal citation omitted).
KBR argues the court improperly “gave no weight” to the
fact that Change Order 9 arose from an arm’s-length
negotiation. See KBR Br. 43. The court’s credibility
determinations and extensive assessment of the Change
Order 9 negotiations are not clearly erroneous.

   14 Ms. Hayes testified that she was a procurement
manager. KBR II, 103 Fed. Cl. at 735.
22                    KELLOGG BROWN & ROOT SERVICES    v. US
 C. The Court of Federal Claims Did Not Clearly Err in
          Evaluating the Army’s Directives.
     KBR contends that the Court of Federal Claims failed
to consider the Army’s directives in evaluating reasona-
bleness. KBR Br. 48–51. According to KBR, although the
Court of Federal Claims “recognized that the Army had
told KBR that it was imperative for troop morale that
soldiers in the field have hot, freshly prepared meals,” the
Court of Federal Claims “refused to weigh the urgency of
the action—and the risk of non-performance . . . —in
evaluating the reasonableness of the prices negotiat-
ed . . . .” Id. at 48 (emphasis in original).
     KBR correctly notes that the FAR instructs “‘contrac-
tor’s responsibilities to the Government’” to be considered
in evaluating reasonableness. Id. at 48–49 (quoting FAR
§ 31.201-3(b)(3)). The Court of Federal Claims repeatedly
considered all the circumstances, including the Army’s
directives and the fact that the costs were incurred in a
demanding war-time environment. See KBR II, 103 Fed.
Cl. at 752 (noting “the Army placed great demands on
KBR at the outset of the war” and “the urgent need to
provide many services in many locations for the Army”);
id. (noting that the Army “favored” Tamimi); id. at 751
(concurring that KBR “need[ed] to fulfill the demands of
the Government in performing under LOGCAP III”); id.
at 752–53 (noting costs were incurred from a war “initial-
ly conducted as a contingency operation . . . that became a
sustained effort”); id. at 753 (recognizing that costs “were
impacted by fluctuating projections for the number of
troops on the ground”); id. (stating that costs “were driven
by the singular goal of putting DFAC facilities in place to
offer warm meals to the troops by July 4, 2003”); id. at
726–27 (acknowledging that the “constantly changing
demands required by the Army’s effort were foreseeable to
neither the Army nor to KBR”).
KELLOGG BROWN & ROOT SERVICES,   v. US                   23
    The Court of Federal Claims’s consideration of that
evidence and assessment of the Army’s directives was not
clearly erroneous.
D. The Court of Federal Claims Did Not Clearly Err in
Not Awarding Any Sum for the Amortization of Facilities
Cost nor Did It Impermissibly Equate Reasonable Costs
                  with Lowest Costs.
    KBR argues that the Court of Federal Claims incor-
rectly adopted the December 2004 pricing as the amount
reasonably supportable, arguing that the Court of Federal
Claims conflated reasonable cost with “lowest cost.” KBR
Br. 53–56. According to KBR, “there is no evidence what-
soever that Tamimi, or any other contractor, would have
accepted that as a stand-alone figure—the lowest price
ever obtained for Anaconda, cherry-picked out of a 22-
month package deal, divorced from other terms favoring
Tamimi.” KBR Reply Br. 21 (emphasis removed). 15
    The Court of Federal Claims was within its discretion
in finding that KBR failed to prove that its costs were
reasonable. KBR declined to present independent evi-
dence of the reasonableness of the facilities costs (or any
other component of the challenged costs). KBR II, 103
Fed. Cl. at 752. The Court of Federal Claims was “confi-
dent” of the evidence that KBR had paid “most” of the
expense of the facilities to Tamimi by July 2004 (i.e.,
before the period of costs at issue in this lawsuit). Id. at
770. It seems that KBR seeks a presumption that it is
entitled to reimbursement simply because it incurred

   15   As stated by KBR: “the court took [the December
2004] price—at 55% below Change Order 6 pricing, the
lowest price KBR ever achieved for that facility, and a far
greater reduction than KBR had achieved in any other
renegotiation or competition—and applied it to the entire
period services were provided[.]” KBR Br. 55–56 (empha-
ses in original) (citations omitted).
24                    KELLOGG BROWN & ROOT SERVICES     v. US
facilities costs. It is not. See FAR § 31.201-3(a) (providing
that it is the contractor’s burden to prove the reasonable-
ness of costs and that “[n]o presumption of reasonable-
ness” exists).
    Similarly, the Court of Federal Claims’s decision to
base its calculation on the negotiated December 2004
pricing is not clear error. FAR § 31.201-3, which provides
the standard for determining reasonableness, affords the
Court of Federal Claims considerable discretion in deter-
mining whether a cost is reasonable and therefore allow-
able. The Court of Federal Claims used Tamimi’s July
2004 competitive bid proposal as a guide for its reasona-
bleness analysis, even though it “was not the lowest of the
bids to be received in response to the July 2004 solicita-
tion.” KBR II, 103 Fed. Cl. at 770. 16 The Court of Federal
Claims stated that “subsequent events would suggest that
[Tamimi’s July 2004 bid] was itself inflated.” Id. As
discussed above, although it was KBR’s burden to prove
reasonableness, KBR chose not to provide independent
analysis to show the reasonableness of its costs. Having
chosen to proceed by what the Court of Federal Claims
characterized as “circumstantial” evidence (e.g., the Hayes
negotiations, the Global DFAC Settlement, and the DCAA
audits), see id. at 752, and attempting to show reasona-
bleness by focusing on Change Order 9’s “discounts” from
earlier prices, KBR has not now shown the Court of
Federal Claims’s weighing of the evidence or calculation
of price was clearly erroneous.
E. The Court of Federal Claims Did Not Err in Its Eval-
    uation of the Price Negotiation Memorandum.
    KBR argues that a one-paragraph “admission” in the
Price Negotiation Memorandum should constitute compel-

     16 As discussed above, KBR ultimately elected to
self-perform the DFAC services instead of making an
award based on the July 2004 solicitation.
KELLOGG BROWN & ROOT SERVICES,   v. US                  25
ling evidence of the reasonableness of the prices at Camp
Anaconda. 17 The Court of Federal Claims rejected this
argument, stating that KBR “attempt[ed] to place more
weight on the one paragraph in Ms. DeRoche’s [memo]
than it can fairly bear.” KBR II, 103 Fed. Cl. at 761. The
Court of Federal Claims went on to note that “[w]hile Ms.
DeRoche was a highly credentialed government employee,
the sheer scope [of the report at issue] colors any argu-
ment that price reasonableness at any one particular
[dining facility] was considered.” Id. The court’s decision
to find the one paragraph concerning Camp Anaconda to
be less persuasive than the information gleaned at the
trial was not clearly erroneous.
 2. The Court of Federal Claims’s Calculation of KBR’s
               Base Fee Was Incorrect.
    According to KBR, “[t]he court’s erroneous fee calcula-
tion is a second independent basis for reversal.” KBR Br.
59. The Court of Federal Claims awarded KBR a base fee
calculated as 1% of the total amount of direct costs it
awarded as reasonable ($11,460,940.31), or $114,609.40.
KBR II, 103 Fed. Cl. at 780. According to KBR, however,
because the LOGCAP III contract called for a fixed-base

   17  As noted in the Background section, on July 8,
2005, Ms. DeRoche authored the Price Negotiation Memo-
randum, which stated in part:
   The reduced costs reflected for the credit memo
   period are the result of KBR’s protracted negotia-
   tion with Tamimi, and are considered reasonable.
   When the associated credits are applied to the
   original invoices, the resulting costs are equiva-
   lent to KBR’s new subcontract rate structure. The
   new Tamimi subcontract costs were viewed as
   reasonable . . . .
J.A. 5592.
26                    KELLOGG BROWN & ROOT SERVICES    v. US
fee by which KBR would receive “1% of all fee-bearing
costs,” J.A. 5105 (emphasis added), that fixed base fee
remains the same regardless of the costs KBR actually
incurred, whether reasonable or not. KBR Br. 59.
    It seems the Government agrees: “The base fee, as
KBR correctly argues, is owed to it for negotiated esti-
mated costs.” Gov’t. Br. 77 (citing KBR Br. 60). However,
the Government argues, somewhat confusingly, that
because there was “no evidence presented that KBR will
not be paid the balance of the base fee that had been
calculated based upon its estimated costs on contract
close-out,” this court has no basis “to make such an award
at this appeal.” Gov’t. Br. 77–78.
    KBR responds that “the government provides no rea-
son KBR must wait until LOGCAP’s conclusion to receive
the fee it admits is rightly due for services performed
nearly a decade ago, or why this Court must leave a
flawed judgment intact.” KBR Reply Br. 23.
    The record shows that the base fee is to be calculated
as follows:
     The fee for this contract is composed of a base fee
     of 1% of all fee-bearing costs. Fee bearing costs
     shall be established based on negotiated estimat-
     ed costs to execute the effort.
J.A. 5105. The Court of Federal Claims incorrectly calcu-
lated the base fee to be awarded, and that determination
is reversed and remanded with instructions to calculate
the fee consistently with this opinion.
           II. THE GOVERNMENT’S CROSS-APPEAL
    Turning to the Government’s cross-appeal, the Gov-
ernment argues that the subcontract at issue was fraudu-
lent from its inception and that the subcontract “could
never have been awarded without the acquiescence of
KBR’s corrupted Food Services managers, who also inter-
KELLOGG BROWN & ROOT SERVICES,    v. US                   27
vened on Tamimi’s behalf when KBR’s subcontract ad-
ministrator decided to award the Camp Anaconda DFAC
subcontract to one of Tamimi’s competitors.” Gov’t. Br. 21.
KBR responds that the Court of Federal Claims “correctly
rejected the government’s ‘relentless efforts to shoehorn’
this contract dispute into the rubric of fraud, seeking to
recoup hundreds of millions of dollars for fully—and
successfully—performed services based on ‘taint’ allegedly
caused by $38,000.00 in kickbacks to two ‘mid-level’
employees.” KBR Reply Br. 9 (quoting KBR II, 103 Fed.
Cl. at 771).
     The Government challenges the Court of Federal
Claims’s holdings regarding the following claims: Special
Plea in Fraud, 28 U.S.C. § 2514; False Claims Act
(“FCA”), 31 U.S.C. §§ 3729–3733; Anti-Kickback Act
“(AKA”), 41 U.S.C. §§ 51–58; and common-law fraud.
This court reviews the Court of Federal Claims’s findings
with respect to each statute individually, because liability
under one statute does not automatically trigger liability
under the others. See Miller v. United States, 550 F.2d 17,
22–23 (Ct. Cl. 1977) (negligence and ineptitude are not
“practicing a fraud,” but may establish liability under the
False Claims Act); Little v. United States, 152 F. Supp. 84,
87–88 (Ct. Cl. 1957) (claimant practiced fraud and thus
forfeited claim, but was not liable under the False Claims
Act); Young-Montenay Inc. v. United States, No. 90–
3862C, 1993 WL 721993, at *4 (Fed. Cl. Jan. 6, 1993),
aff’d, 15 F.3d 1040 (Fed. Cir. 1994) (claimant was liable
under the False Claims Act but not under the Contract
Disputes Act’s Anti-Fraud provision).
    “This court . . . reviews de novo a dismissal for failure
to state a claim pursuant to Rule 12(b)(6) of the Court of
Federal Claims, just as it does dismissals under Federal
Rule of Civil Procedure 12(b)(6).” Laguna Hermosa Corp.
v. United States, 671 F.3d 1284, 1288 (Fed. Cir. 2012). “A
complaint must be dismissed under Rule 12(b)(6) when
the facts asserted do not give rise to a legal remedy or do
28                     KELLOGG BROWN & ROOT SERVICES    v. US
not elevate a claim for relief to the realm of plausibility.”
Id. (internal citations omitted). In deciding a motion to
dismiss, the court must accept well-pleaded factual alle-
gations as true and must draw all reasonable inferences
in favor of the claimant. Lindsay v. United States, 295
F.3d 1252, 1257 (Fed. Cir. 2002).
    Following a trial, we review the factual findings of the
Court of Federal Claims for clear error and its legal
conclusions de novo. Am. Pelagic Fishing Co., L.P. v.
United States, 379 F.3d 1363, 1371 (Fed. Cir. 2004).
1. The Court of Federal Claims Correctly Dismissed the
Government’s Special Plea in Fraud, Brought Pursuant to
      28 U.S.C. § 2514 (“the Forfeiture Statute”).
     The forfeiture statute provides that:
     A claim against the United States shall be forfeit-
     ed to the United States by any person who cor-
     ruptly practices or attempts to practice any fraud
     against the United States in the proof, statement,
     establishment, or allowance thereof.
28 U.S.C. § 2514. To prevail, the Government must prove
its allegations by clear and convincing evidence. UMC
Elecs. Co. v. United States, 249 F.3d 1337, 1338–39 (Fed.
Cir. 2001).
    This court has held that to prevail on a counterclaim
alleging fraud under 28 U.S.C. § 2514, the challenger is
required to “‘establish by clear and convincing evidence
that the contractor knew that its submitted claims were
false, and that it intended to defraud the government by
submitting those claims.’” Daewoo Eng’g & Constr. Co. v.
United States, 557 F.3d 1332, 1341 (Fed. Cir. 2009) (quot-
ing Commercial Contractors v. United States, 154 F.3d
1357, 1362 (Fed. Cir. 1998)); accord Glendale Fed. Bank,
FSB v. United States, 239 F.3d 1374, 1379 (Fed. Cir.
2001). “[F]orfeiture under 28 U.S.C. § 2514 requires only
KELLOGG BROWN & ROOT SERVICES,   v. US                    29
part of the claim to be fraudulent.” Daewoo Eng’g, 557
F.3d at 1341.
    The Government argues that the Court of Federal
Claims incorrectly held this statute inapplicable, stating
that (as in the analogous FCA context), “any invoice
submitted upon a fraud-tainted contract supports the
finding of a ‘false or fraudulent’ claim.” Gov’t. Br. 27
(emphasis added). The Government urges a finding of
fraud, supporting forfeiture, “when fraud in the contract
performance undermined the legitimacy of the contract
upon which the plaintiff sought compensation.” Id. at 27–
28.
   This is an impermissibly broad reading of the law.
The Court of Federal Claims correctly limited the statute:
   A valid cause of action under [the forfeiture stat-
   ute] must be tied to the submission of a claim,
   whether in producing false proof to support a
   claim, see, e.g., [Kamen Soap Prods. Co. v. United
   States, 124 F. Supp. 608, 622 (1954)] (forfeiting
   claim because falsified documentation was sub-
   mitted in presentation of claim), or in falsely es-
   tablishing the claim, see, e.g., [N.Y. Mkt.
   Gardeners’ Ass’n v. United States, 43 Ct. Cl. 114,
   136 (1908)] (Government’s objection to claim
   based on contractor’s not fulfilling contract speci-
   fications, i.e., “establishment” of a false claim).
KBR I, 99 Fed. Cl. at 501. On its face, the statute is
limited to those circumstances where the Government
proves fraud “in the proof, statement, establishment or
allowance” of a claim at the Court of Federal Claims, not
in the execution of a contract. 18

   18   Several other Court of Federal Claims decisions
state otherwise: “The words of the statute make it appar-
ent that a claim against the United States is to be forfeit-
30                   KELLOGG BROWN & ROOT SERVICES    v. US
    Statutory context confirms this reading. Alexander v.
Sandoval, 532 U.S. 275, 288 (2001) (beginning analysis of
the statute at issue with the text and structure of the
statute). The provision codified at section 2514 was part
of legislation creating the Court of Federal Claims and
regulating its operations and procedure. See Act of Mar. 3,
1863, ch. 92, 12 Stat. 765, 767. The surrounding provi-
sions concern requirements for filing claims, including
time limits and verification. Thus, the neighboring provi-
sions illustrate that the forfeiture statute is best under-
stood as a companion requirement of claims procedure
rather than a catch-all anti-fraud provision. The legisla-
tion’s sponsors confirmed the forfeiture statute addressed
fraud by “any claimant against th[e] Government in the
demand or establishment of his claim . . . .” Cong. Globe,
37th Cong., 2d Sess. 1674 (1862) (statement of Rep.
Bingham). And this court’s predecessor concluded the
forfeiture statute addressed “frauds committed in the
proof of claims before the newly empowered Court of
Claims.” O’Brien Gear & Mach. Co. v. United States, 591
F.2d 666, 678 (Ct. Cl. 1979). 19

ed if fraud is practiced during the contract performance or
in the making of the claim.” Crane Helicopter Servs., Inc.
v. United States, 456 Fed. Cl. 410, 431 (1991) (emphasis
added); see also Anderson v. United States, 47 Fed. Cl.
438, 444 (2000); Supermex, Inc. v. United States, 35 Fed.
Cl. 29, 39–40 (1996). This is an impermissibly broad
reading of the statute.
     19 This court has held that “[t]o prevail under [28
U.S.C. § 2514], the government is required to establish by
clear and convincing evidence that the contractor knew
that its submitted claims were false, and that it intended
to defraud the government by submitting those claims.”
Glendale Fed. Bank FSB v. United States, 239 F.3d 1374,
1379 (Fed. Cir. 2001) (internal quotation marks and
citation omitted) (alterations in original). The Govern-
KELLOGG BROWN & ROOT SERVICES,   v. US                 31
   The Court of Federal Claims correctly dismissed the
Government’s Special Plea in Fraud claim.
  2. The Court of Federal Claims Correctly Dismissed
Counterclaims Brought Pursuant to the False Claims Act
           (“FCA”), 31 U.S.C. §§ 3729–3733.
     To state an FCA claim, the Government must show
“(1) the contractor presented or caused to be presented to
an agent of the United States a claim for payment; (2) the
claim was false or fraudulent; (3) the contractor knew the
claim was false or fraudulent; and (4) the United States
suffered damages as a result . . . .” Young-Montenay, 15
F.3d at 1043.
     The Government argues two reasons why the Court of
Federal Claims incorrectly dismissed its FCA claims. The
first is that the invoices for the Camp Anaconda dining
services subcontract were false or fraudulent because the
subcontract itself was tainted by kickbacks. However, the
Government does not argue here and did not argue below
that the invoices themselves were false or fraudulent, a
showing that is required for a FCA claim to be successful.
As correctly pointed out by the Court of Federal Claims,
“[n]o presumption applies to the FCA that would relieve
defendant of its burden to plead facts supporting the
elements of an FCA claim.” KBR I, 99 Fed. Cl. at 510.
The Government must claim the threshold requirements

ment does not appear to plead the requisite “intent to
defraud.” Rather than alleging that KBR intended to
defraud the Government in filing its claim in the Court of
Federal Claims, the Government alleges that Hall and
Holmes “knew or had reason to know” their kickbacks
would lead to inflated contract prices. Defendant’s
Amended Answer and Counterclaims, J.A.150–51, ¶118.
The Government thus alleges fraud in the execution of the
contract, not fraud in the submission of a claim, as re-
quired by section 2514.
32                   KELLOGG BROWN & ROOT SERVICES   v. US
under the FCA, i.e., that a false or fraudulent claim was
submitted and that KBR knew of its falsity. See Young-
Montenay, 15 F.3d at 1043. 20
    The Government also argues its allegations are suffi-
cient because the invoices at issue should be presumed to
be inflated by at least the amount of the kickback, if not
more. Gov’t. Br. 39. The Government states that “[t]here
is no principled reason why the common-law presumption
of price inflation should not apply to the facts alleged
here.” Id. at 41. Again, however, the Government offers
no reason why in this particular case, the Government
should be discharged from alleging the threshold re-
quirements of an FCA claim. As the Court of Federal
Claims held: “Defendant must allege facts showing that
the costs actually inflated the contract price.” KBR I, 99
Fed. Cl. at 513. 21 None of the cases cited by the Govern-

     20  While there is a line of cases attaching FCA
liability for false statements that induced the Government
to award a contract, see Harrison v. Westinghouse Savan-
nah River, 176 F.3d 776, 787–88 (4th Cir. 1999), the
Government does not seem to allege “fraud in the in-
ducement” here, see KBR Reply Br. 43 n.21; but see Gov’t.
Reply Br. 14 n.7 (disagreeing that the Government had
“disclaimed reliance on a line of case law about ‘fraud in
the inducement’”). Even if the Government had alleged
fraud in the inducement, as the Court of Federal Claims
stated, “[t]hese cases do not support the proposition that
an FCA claim can be based on taint from a kickback
alone.” KBR I, 99 Fed. Cl. at 513.
     21 This would be difficult to accomplish because of
the Government’s attenuated allegations that $38,000.00
in kickback payments made in 2003 resulted in inflated
invoices for approximately $468 million worth of services
performed into 2005. See KBR Reply Br. 46.
KELLOGG BROWN & ROOT SERVICES,   v. US                    33
ment indicate that the Government can forgo compliance
with ordinary rules of pleading and proof. 22
 3. The Court of Federal Claims Erred When It Deter-
mined that the Actions of KBR’s Head of Food Services for
Iraq and Kuwait and His Deputy Should Not Be Imputed
    to KBR, for Purposes of Liability Under the Anti-
        Kickback Act (“AKA”), 41 U.S.C. §§ 51–58.
   The AKA sets forth two separate civil remedies as fol-
lows:
   (1) The United States may, in a civil action, recov-
   er a civil penalty from any person who knowingly
   engages in conduct prohibited by section 53 of this
   title. The amount of such civil penalty shall be—
        (A) twice the amount of each kickback in-
            volved in the violation; and
        (B) not more than $10,000 for each occur-
            rence of prohibited conduct.
   (2) The United States may, in a civil action, recov-
   er a civil penalty from any person whose employ-
   ee, subcontractor or subcontractor employee
   violates section 53 of this title by providing, ac-
   cepting, or charging a kickback. The amount of
   such civil penalty shall be the amount of that
   kickback.
41 U.S.C. § 55(a) (emphasis added). Under this statutory
scheme, a “kickback” is defined, in relevant part, as

   22   Additionally, the Court of Federal Claims found
that “even if KBR’s reimbursement vouchers were inflated
by the amount of the kickbacks, defendant has not alleged
facts tending to show that anyone at KBR, including
Messrs. Hall and Holmes, knew of that inflation.” KBR I,
99 Fed. Cl. at 513. Accordingly, the Government failed to
allege the requisite knowledge for a FCA claim.
34                    KELLOGG BROWN & ROOT SERVICES     v. US
     any money, fee, commission, credit, gift, gratuity,
     thing of value, or compensation of any kind which
     is provided, directly or indirectly, to any prime
     contractor, prime contractor employee . . . for the
     purpose of improperly obtaining or rewarding fa-
     vorable treatment in connection with a prime con-
     tractor or . . . a subcontract relating to a prime
     contract.
Id. § 52(2).
    The Court of Federal Claims, in interpreting the AKA,
found that a corporation can be held vicariously liable
under both § 55(a)(1) and § 55(a)(2). However, it found
that the KBR officials who accepted kickbacks were not
sufficiently senior to warrant a finding of vicarious liabil-
ity in this case. Accordingly, the court held KBR liable
only for the amount of the kickback under § 55(a)(2). We
address each holding in turn.
     Our analysis begins with the language of the statute.
Youngblood v. Sec’y of Health & Human Servs., 32 F.3d
552, 554 (Fed. Cir. 1994) (citing K Mart Corp. v. Cartier,
Inc., 486 U.S. 281, 291 (1988)). It is a well-settled princi-
ple of statutory interpretation that a “statute is to be
construed in a way which gives meaning and effect to all
of its parts.” Saunders v. Sec’y of Health & Human Servs.,
25 F.3d 1031, 1035 (Fed. Cir. 1994) (citing United States
v. Nordic Vill., Inc., 503 U.S. 30, 36 (1992) (noting the
“settled rule that a statute must, if possible, be construed
in such fashion that every word has some operative ef-
fect”)).
    The Court of Federal Claims correctly determined
that § 55(a) of the AKA contemplates vicarious liability in
both civil penalty provisions under subsections 1 and 2.
Section 55(a)(1) directs that a civil penalty may be recov-
ered from any “person,” which is defined to include indi-
viduals, corporations, and other business associations. See
41 U.S.C. § 52(3). Section 55(a)(1) necessarily includes
KELLOGG BROWN & ROOT SERVICES,    v. US                     35
the definition of “person” and, in doing so, establishes
liability for a “corporation.” See 41 U.S.C. § 52(3). To hold
otherwise would strip the term “person” of its plainly
intended definition.
    The difference between § 55(a)(1) and § 55(a)(2) is the
degree of knowledge that must be proven. The former
provision—which carries a higher penalty—applies if the
person knowingly engages in prohibited conduct. The
latter provides for strict liability against a “person” who
engages in prohibited conduct.
    KBR argues that this reading would render Con-
gress’s reference to acts committed by an “employee,
subcontractor, or subcontractor employee,” which appears
only in § 55(a)(2), superfluous. Indeed, there is tension
between the definition of “person” in both sections and the
presence of “employee, subcontractor, or subcontractor
employee” in only § 55(a)(2). The legislative history,
however, clarifies the point:
    Section [55(a)(1)] is meant to permit a civil recov-
    ery against anyone who knowingly engages in
    kickback activities . . . . It is intended to subject
    not only subcontractors and kickback recipients to
    civil liability, but also prime contractors, inde-
    pendent sales representatives and others who
    knowingly participate in kickback activities. It is
    also intended to reach companies whose employ-
    ees engage in kickbacks, under the doctrine of re-
    spondeat superior.
132 Cong. Rec. S16,311 (daily ed. Oct. 15, 1986) (state-
ment of Sen. Carl Levin). The distinction between the
two different provisions rests on the degree of knowledge
that must be proven, not the types of persons to whom the
provisions apply.
   After correctly determining that both sections con-
template vicarious liability, the Court of Federal Claims
36                    KELLOGG BROWN & ROOT SERVICES    v. US
then found that this case was not an appropriate case for
finding vicarious liability: “Section 55(a)(2) anticipates
circumstances where a prime contractor’s employees are
accepting kickbacks for which the prime contractor should
be held responsible, yet they are doing so without corpo-
rate knowledge of their activities or they occupy positions
of diminished or low authority, such that an imputation of
knowledge to the prime contractor would be inappropri-
ate.” KBR II, 103 Fed. Cl. at 774. The Court of Federal
Claims also stated that “[a]lthough facts in this case
approach the dividing line, the court rules that strict
liability under § 55(a)(2) is the appropriate and sole
remedy in this case.” Id.
    The Government on appeal seeks to hold KBR liable
under § 55(a)(1) of the AKA for the kickbacks accepted by
KBR’s employees, Hall and Holmes. 23 The Government
argues that the Court of Federal Claims erred by not
applying the correct principle of respondeat superior, and
instead “making the qualitative determination, without
articulating any test, that the two were insufficiently high
in the corporate hierarchy for their actions and knowledge
to be imputed to KBR.” Gov’t. Br. 43. The Government
argues that the Court of Federal Claims erred “by focus-
ing on the position KBR’s employees occupied within
KBR’s corporate hierarchy, rather than on simply wheth-
er they were KBR’s agents and whether they were acting
within the scope of their employment.” Gov’t. Reply Br.
21.
    Corporations act through their employees; the general
rule is that an agent’s knowledge is imputed to the prin-

     23 The Court of Federal Claims awarded the Gov-
ernment $38,000.00 for KBR’s violation of the AKA under
subsection 2, the actual amount of the payments the
Court of Federal Claims found to have been taken by
KBR’s employees.
KELLOGG BROWN & ROOT SERVICES,    v. US                   37
cipal when employees are acting with the scope of their
authority or employment, absent special circumstances.
See Meyer v. Holley, 537 U.S. 280, 285 (2003); Long Island
Sav. Bank, FSB v. United States, 503 F.3d 1234, 1250
(Fed. Cir. 2007) (explaining the general rule of imputation
of a culpable state of mind in the context of common-law
fraud). Congress is presumed to “inten[d] its legislation
to incorporate” traditional rules such as these. Meyer, 537
U.S. at 828.
    In Long Island Savings Bank, this court recognized a
narrow exception—the adverse-interest exception—to the
general rule that a principal is liable for the acts of his
agent: when the agent’s conduct is “entirely” in the
agent’s interest without even incidental benefit to the
principal. See 503 F.3d at 1249–50. There, the agent used
his position to hire a law firm in which he had a secret
interest to perform legal services for his principal, a bank.
Id. at 1239. This court found that, because the bank
received services through the transaction (albeit, a taint-
ed transaction), the adverse-interest exception did not
apply. Id. at 1250. Here, as in Long Island Savings Bank,
whatever motivation Hall and Holmes had to accept
kickbacks from Tamimi, KBR received a benefit. As the
trial court put it: “KBR in fact benefitted by Messrs. Hall
and Holmes’s selection of Tamimi in that Tamimi did
provide necessary services to KBR—operating DFACs.” 24

    24  Although the dissent agrees that respondeat supe-
rior applies under § 55(a)(1), it states that Hall and
Holmes’s knowledge should not be imputed to KBR be-
cause they acted adversely to KBR by taking the kick-
backs, and thus did not “benefit” KBR. Dissenting Op. at
3. However, the dissent’s agreement that respondeat
superior applies to § 55(a)(1) necessarily means an em-
ployer (who does not know of kickbacks) can be liable for
an employee’s knowing acceptance of kickbacks. See Long
Island Sav. Bank, 503 F.3d at 1249–50 (holding the
38                   KELLOGG BROWN & ROOT SERVICES    v. US
KBR I, 99 Fed. Cl. at 506 (internal quotation marks and
citation omitted).
    KBR argues that a different set of rules apply here
because the AKA imposes punitive liability: “‘The common
law has long recognized that agency principles limit
vicarious liability for punitive awards.’” KBR Reply Br. 55
(quoting Kolstad v. Am. Dental Ass’n, 527 U.S. 526, 541
(1999)).
    KBR argues that Kolstad stands for the proposition
that vicarious liability may give rise to liability under
section 55(a)(1) only when the agent serves in a “manage-
rial capacity.” Kolstad involved punitive damages under
Title VII for instances of intentional discrimination. It
was not an AKA case, and its rule should not be extended
to the AKA context for a number of reasons, not the least
of which is that a “punitive” damage award is distinct
from the type of damages provided by the AKA. Kolstad
grounded its holding in the Restatement (Second) of
Agency § 217 C (1957), explaining that the Restatement
limits when “an agent’s misconduct may be imputed to
the principal for purposes of awarding punitive damages.”
527 U.S. at 542. However, these limits do not apply to
“the interpretation of special statutes” like those giving
“triple damages.” Restatement (Second) of Agency § 217
C, cmt. (c) (1957). The “special statute” here, the AKA,
with its double damage provision, does not involve puni-
tive damages as that term was used in the statute at
issue in Kolstad; the AKA is outside of the scope of
Kolstad and the Restatement’s heightened standard for
vicarious liability.

agent’s knowledge was imputed to the principal in spite of
the Court of Federal Claims’s finding that the agent had
“abandoned his principal’s interest” and was “acting to
defraud his principal”).
KELLOGG BROWN & ROOT SERVICES,   v. US                    39
    Accordingly, the Court of Federal Claims’s determina-
tion that Hall and Holmes’s knowledge should not be
imputed to KBR is reversed and remanded with instruc-
tions to calculate damages consistent with the holding
that KBR is liable for AKA violations under section
55(a)(1). 25
4. The Court of Federal Claims Correctly Held KBR Was
         Not Liable for Common-Law Fraud.
   This court stated in Godley v. United States, 5 F.3d
1473, 1476 (Fed. Cir. 1993):
   . . . the general rule is that a Government contract
   tainted by fraud or wrongdoing is void ab initio . .
   . . A contract without the taint of fraud or wrong-
   doing, however, does not fall within this rule. Il-
   legal acts by a Government contracting agent do
   not alone taint a contract and invoke the void ab
   initio rule. Rather, the record must show some
   causal link between the illegality and the contract

   25    See also United States v. Kellogg Brown & Root
Services, Inc., No. 12-40447, 2013 WL 3779225 (5th Cir.
July 19, 2013) (holding that a corporation can be held
vicariously liable under section 55(a)(1) of the AKA and
remanding the case to the district court to determine
whether KBR officials acted under apparent authority in
accepting kickbacks for the purposes of a knowing viola-
tion of the AKA). Holding KBR vicariously liable for Hall
and Holmes’s conduct and state of mind requires the
subsidiary finding that Hall and Holmes were acting
within the scope of their employment, a question of fact.
No remand is required in this case, however, because the
trial court already found that Hall and Holmes were
acting “as KBR employees and operating under LOGCAP
III” when they accepted the kickbacks. KBR II, 103 Fed.
Cl. at 772. This finding was not clearly erroneous.
40                    KELLOGG BROWN & ROOT SERVICES   v. US
     provisions. Determining whether illegality taints
     a contract involves questions of fact.
It therefore fell to the Government to prove the causal
link between the kickbacks and the contract provisions.
The trial court’s finding that no such causational link
existed is reviewed for clear error. Ind. Mich. Power Co.,
422 F.3d at 1373.
    Following trial, the Court of Federal Claims found
that KBR would have awarded the Anaconda subcontract
to Tamimi even “absent any participation by Messrs. Hall
and Holmes.” KBR II, 103 Fed. Cl. at 779. The Govern-
ment argues that this “but-for test, rather than a causal
connection test,” was incorrect and that the Court of
Federal Claims found ample facts to support an overall
finding of common-law fraud, such as “the factual finding
that KBR employees receiving kickbacks played signifi-
cant roles in the award of the Tamimi subcontract, includ-
ing intervening with other KBR employees to ensure that
Tamimi received the Camp Anaconda DFAC contract,
rather than another contractor, as first intended.” Gov’t.
Br. 3, 46.
    The Court of Federal Claims found those facts. How-
ever, the Government does not dispute the Court of Fed-
eral Claims’s overall finding that notwithstanding the
kickbacks at issue, the subcontracts would still have been
awarded to Tamimi. This court’s precedent confirms that
common-law fraud is not established simply by showing
that kickbacks were paid to personnel involved in contract
decision making: “Illegal acts by a Government contract-
ing agent do not alone taint a contract . . . . Rather, the
record must show some causal link between the illegality
and the contract provisions.” Godley, 5 F.3d at 1476.
    Godley, on which the Government relies, Gov’t. Br.
55–57, demonstrates that fraud must be a but-for cause of
the outcome to satisfy the requirements of common-law
fraud. There, a property owner contracted to build a post
KELLOGG BROWN & ROOT SERVICES,   v. US                   41
office to lease to the U.S. Postal Service. When the Gov-
ernment later learned a subcontractor on the project had
bribed the decision maker, it sought to void the contract.
Because the case was before this court on summary
judgment, it was remanded since the court could not
“determine whether [the] illegal conduct caused any
unfavorable contract terms,” equating that inquiry with
“determin[ing] whether [the] illegal conduct tainted the
contract.” 5 F.3d at 1476 (emphasis added); accord id. at
1475 n.1 (quoting K&R Eng’g Co. v. United States, 616
F.2d 469 (Ct. Cl. 1980) (stating that contracts are “tainted
by illegality” when they are “‘the product of a conflict of
interest’”) (emphasis in original)).
     The Court of Federal Claims found facts both against
and supporting a finding of common-law fraud. For
example, with regard to WR 3, the Court of Federal
Claims found that Hall and Holmes were responsible for
WR 3’s price estimate and statement of work, and they
overrode the initial decision of KBR’s procurement au-
thorities to award the work release to a different contrac-
tor. 26 However, the Court of Federal Claims also found

   26   As discussed in the Background section, the Court
of Federal Claims stated:
Initially, Mr. Petsche considered simply relocating the
TES team that had already been mobilized for the work at
Kirkuk to Camp Anaconda. Although the evidence ulti-
mately showed that the decision to use Tamimi was sound
and practically justified, the court found Mr. Petsche’s
testimony credible that this idea [of using TES] was met
with strong resistance by Messrs. Hall and Holmes in
Food Service, both of whom advocated retaining Tamimi
at Camp Anaconda. Eventually, Mr. Petsche relented, and
on July 20, 2003, he authored a justification memoran-
dum supporting Tamimi’s retention as the vendor at
Camp Anaconda.
42                     KELLOGG BROWN & ROOT SERVICES     v. US
that “ample evidence supports a finding that Tamimi
would have received the award of the work at Anaconda
regardless of Mr. Hall’s actions,” crediting the testimony
of Mr. Jonas, KBR’s former Vice President for Procure-
ment Materials and Property, who testified that the
award of WR 3 to Tamimi “just made sense” and that it
“would have been irresponsible on the part of KBR at that
time” to attempt to use another subcontractor at Anacon-
da. KBR II, 103 Fed. Cl. at 779 (internal quotation marks
and citation omitted). Additionally, the Court of Federal
Claims found that “[t]he notion of awarding the work at
all four DFACs at Anaconda did not originate with Mr.
Hall, but with Mr. [Jim] Spore,” then-Regional Project
Manager for Northern Iraq. Id.
    Unlike Godley, this case is not before us on summary
judgment, and the Court of Federal Claims did determine,
as a finding of fact, that the illegal conduct overall did not
irreparably taint the contract, i.e., that “Tamimi would
have received a Master Agreement and WR 3 absent any
participation by Messrs. Hall and Holmes.” Id. We dis-
cern no clear error in this determination.
                        CONCLUSION
    Because the Court of Federal Claims did not clearly
err in its calculations, we affirm its determination of
reasonableness of costs. We also affirm the dismissal of
the Government’s Special Plea in Fraud and False Claims
Act claims and the denial of the Government’s common
law-fraud claim. However, because the Court of Federal
Claims improperly calculated KBR’s base fee and erred
when it determined that the actions of KBR’s employees
should not be imputed to KBR, for purposes of the Gov-
ernment’s AKA claims, those claims are reversed and
remanded for further proceedings.

KBR II, 103 Fed. Cl. at 723–24.
KELLOGG BROWN & ROOT SERVICES,   v. US   43
 AFFIRMED IN PART, REVERSED IN PART, AND
               REMANDED
  United States Court of Appeals
      for the Federal Circuit
                 ______________________

   KELLOGG BROWN & ROOT SERVICES, INC.,
             Plaintiff-Appellant,

                            v.

                  UNITED STATES,
               Defendant-Cross Appellant.
                ______________________

                    2012-5106, -5115
                 ______________________

    Appeal from the United States Court of Federal
Claims in No. 09-CV-351, Judge Christine O.C. Miller.
                 ______________________

NEWMAN, Circuit Judge, concurring in part, dissenting in
part.
    Although the decision of the Court of Federal Claims
is subject to controversy, for KBR provided substantial
evidence that its arrangements with subcontractors to
feed and accommodate a wartime Army were reasonable
in view of the “constantly changing demands” of the
Army’s activities in the Iraq war, the Court of Federal
Claims made a full and careful analysis. 1 The trial court
acknowledged the “fluctuating projections” and “unfore-
seeability” of the needs and facilities demanded of KBR,

   1    Kellogg Brown & Root Servs., Inc. v. United
States, 103 Fed. Cl. 714, 773 (Fed. Cl. 2012).
2                      KELLOGG BROWN & ROOT SERVICES      v. US
and there was no suggestion that KBR profited unduly
from the erratic demands of the escalating war in Iraq. I
concur in the conclusion that the trial court’s analysis is
supportable.
     However, unlike the panel majority, I would also af-
firm the trial court’s ruling that the actions of KBR’s
employees Hall and Holmes who accepted favors totaling
$38,000 from a sub-contractor should not invoke the
double penalty provision against KBR. There was no
evidence that KBR “received a benefit” from these bribes
to its employees, as the majority holds, maj. op. at 37, or
had knowledge of the kickbacks at the time. Thus al-
though I affirm the judgment of the Court of Federal
Claims that KBR is strictly liable to pay the government
this sum under 41 U.S.C. §55(a)(2), I would not impose
the doubled penalty under §55(a)(1). To this extent, I
respectfully dissent.
                         DISCUSSION
    As defined in the Anti-Kickback Act (AKA):
    The term “kickback” means any money, fee, com-
    mission, credit, gift, gratuity, thing of value, or
    compensation of any kind that is provided to a
    prime contractor, prime contractor employee, sub-
    contractor, or subcontractor employee to improp-
    erly obtain or reward favorable treatment in
    connection with a prime contract or a subcontract
    relating to a prime contract.
41 U.S.C. §52(2). 2 The AKA provides for two levels of
liability of employers whose employees accept bribes or
favors of any kind. Under 41 U.S.C. §55(a)(2), the em-
ployer is strictly liable to the United States for the specific
value of any kickback received by an employee. Under

    2  Congress re-codified the AKA without substantive
change, placing it at 41 U.S.C. §§8701–07.
 KELLOGG BROWN & ROOT SERVICES,   v. US                  3
§55(a)(1), the employer is subject to an additional “civil
penalty,” for a total liability of twice the amount of each
kickback, and a cap of $10,000 (now $11,000) per kickback
event, if the employer had knowledge of the kickback.
    Both liability levels arise under the “doctrine of re-
spondeat superior,” 132 Cong. Rec. S16, 311 (daily ed.
Oct. 15, 1986) (statement of Sen. Carl Levin), whereby
under general principles of agency law, principals are
charged with liability of their agents’ malfeasance “except
where the agent is acting adversely to the principal.”
Restatement (Second) of Agency §275 (1958). However, a
“principal is not affected by the knowledge of an agent in
a transaction in which the agent secretly is acting ad-
versely to the principal and entirely for his own or anoth-
er’s purposes.” Restatement (Second) of Agency §282
(1958).
    According to the majority’s ruling, KBR as employer is
charged with imputed knowledge of the kickbacks, and
thus of liability for the double civil penalty, although it
appears undisputed that KBR did not have actual
knowledge. The majority states that KBR “received a
benefit” from the kickbacks because Tamimi performed
DFAC services under its existing contractual obligations.
Maj. op. 37. This ruling erases the distinction between
the two statutory levels of liability in the AKA. An exist-
ing contractual relationship is a prerequisite for liability
under the AKA definition of “kickback.” See 41 U.S.C.
§52(2), supra, (defining kickback as payments etc. “in
connection with a prime contract or a subcontract”); see
also Black’s Law Dictionary (9th ed. 2009) (a “kickback” is
“A return of a portion of a monetary sum received . . . .”
(emphasis added)). The majority’s reasoning fails to
recognize this inconsistency.
    KBR acquiesced in its statutory strict liability under
§55(a)(2), for the $38,000 that the subcontractor paid to
KBR employees Hall and Holmes. KBR Reply Br. 6. The
4                      KELLOGG BROWN & ROOT SERVICES      v. US
Court of Federal Claims held KBR not liable under
§55(a)(1) for the doubled penalty because KBR’s manage-
ment had no knowledge of these illicit payments and KBR
did not benefit from them; this is the ruling that the panel
majority reverses.
    There was no evidence that the bribes paid to Hall
and Holmes were known to KBR or were of benefit to
KBR. Hall and Holmes kept the entire payments for
themselves, as “party money” and for sham business
ventures. 103 Fed. Cl. at 721–22, 773–74. Although the
government suggests that the bribe-paying subcontractor
may have procured its sub-contracts at inflated prices,
this did not benefit KBR. No benefit to KBR has been
shown.
    My colleagues have removed the distinction between
the two subsections of §55(a), by imposing the double
penalty provision of §55(a)(1) in circumstances that
invoke only the single strict liability provision of §55(a)(2).
The trial court’s ultimate and subsidiary factual findings
on this issue are not clearly erroneous, and the Court of
Federal Claims correctly limited KBR’s liability to
§55(a)(1). From my colleagues’ reversal of the Court of
Federal Claims’ ruling on this issue, I respectfully dis-
sent.