Posted on Sep 2, 2015
"Army Ordered to Pay KBR’s Legal Expenses"
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From: Pogo
The hefty legal bills KBR has been racking up in litigation involving its Iraq contracts must be paid by the taxpayers, according to a ruling by a federal administrative tribunal.
On August 13, the Armed Services Board of Contract Appeals (ASBCA) ordered the Army [PDF] to reimburse KBR for the more than $30 million it has spent defending lawsuits alleging toxic chemical exposure in Iraq. The ASBCA ruled that an indemnification provision in KBR’s Restore Iraqi Oil (RIO) contract [PDF] requires the government to cover KBR’s legal expenses arising from property damage, injury, or death at KBR worksites in Iraq.
The government is also on the hook for legal judgments and settlements. One toxic exposure lawsuit filed in Oregon resulted in an $81 million judgment against KBR that was recently overturned on appeal. Another lawsuit raising similar claims is pending in Texas.
Three years ago, the Project On Government Oversight highlighted some of KBR’s expenses: fees for a battalion of lawyers billing up to $750 per hour; expenses for first-class airfare, transportation, hotels, and meals; and at least $500,000 for expert witnesses, including one who billed KBR for the time she spent napping at a deposition. Fortunately, the government has some wiggle room. The indemnification provision requires that the costs must not be covered by insurance and—more importantly—must be “just and reasonable.” The government could also ask the ASBCA to reconsider its decision or appeal it to the United States Court of Appeals for the Federal Circuit.
Documents posted on the Web by Representative Earl Blumenauer (D-OR) show that several other large federal contractors—BAE Systems, Boeing, General Dynamics, L-3 Communications, Lockheed Martin, and Raytheon—have or had contracts with the Pentagon containing indemnification clauses. The documents identify approximately 100 such contracts over a ten-year period, with only one instance of indemnification. In 2010, the Army paid Emergent BioDefense Operations Lansing, Inc. $646,352 for litigation expenses [PDF] relating to a contract to manufacture anthrax vaccine. The company sought more than $1.5 million, but the Army determined that the rest of the claims were not just and reasonable.
Representative Blumenauer and others in Congress have long condemned indemnity provisions, arguing that they encourage contractors to drag out lawsuits and rack up exorbitant legal bills. In 2012, Congress passed a measure requiring the Pentagon to disclose and provide justification for contracts that contain such provisions. With taxpayers ultimately footing the bill, we fear that indemnification encourages contractors to act recklessly. In fact, the jury in the Oregon toxic exposure lawsuit found that KBR had “acted with reckless and outrageous indifference” [PDF] to the plaintiffs’ health, safety, and welfare. (The damage award was thrown out earlier this year on a technicality unrelated to the liability verdict.)
The ASBCA ruling has emboldened KBR. Just four days later, the company filed a Freedom of Information Act (FOIA) lawsuit [PDF] against the Department of Defense seeking documents relating to the RIO contract and the Logistics Civil Augmentation Program (LOGCAP) III contract. KBR claims that it is also entitled to indemnification under the LOGCAP III. If true, that means taxpayers will have to cough up millions more to cover the costs of litigation involving KBR’s work in Iraq, Afghanistan, and elsewhere, including the Ryan Maseth shower electrocution lawsuit and lawsuits alleging toxic exposure from open-air burn pits and contaminated water in Iraq and Afghanistan.
http://www.pogo.org/blog/2015/08/army-must-pay-kbr-legal-expenses.html?referrer=https://www.reddit.com/r/Military/
The hefty legal bills KBR has been racking up in litigation involving its Iraq contracts must be paid by the taxpayers, according to a ruling by a federal administrative tribunal.
On August 13, the Armed Services Board of Contract Appeals (ASBCA) ordered the Army [PDF] to reimburse KBR for the more than $30 million it has spent defending lawsuits alleging toxic chemical exposure in Iraq. The ASBCA ruled that an indemnification provision in KBR’s Restore Iraqi Oil (RIO) contract [PDF] requires the government to cover KBR’s legal expenses arising from property damage, injury, or death at KBR worksites in Iraq.
The government is also on the hook for legal judgments and settlements. One toxic exposure lawsuit filed in Oregon resulted in an $81 million judgment against KBR that was recently overturned on appeal. Another lawsuit raising similar claims is pending in Texas.
Three years ago, the Project On Government Oversight highlighted some of KBR’s expenses: fees for a battalion of lawyers billing up to $750 per hour; expenses for first-class airfare, transportation, hotels, and meals; and at least $500,000 for expert witnesses, including one who billed KBR for the time she spent napping at a deposition. Fortunately, the government has some wiggle room. The indemnification provision requires that the costs must not be covered by insurance and—more importantly—must be “just and reasonable.” The government could also ask the ASBCA to reconsider its decision or appeal it to the United States Court of Appeals for the Federal Circuit.
Documents posted on the Web by Representative Earl Blumenauer (D-OR) show that several other large federal contractors—BAE Systems, Boeing, General Dynamics, L-3 Communications, Lockheed Martin, and Raytheon—have or had contracts with the Pentagon containing indemnification clauses. The documents identify approximately 100 such contracts over a ten-year period, with only one instance of indemnification. In 2010, the Army paid Emergent BioDefense Operations Lansing, Inc. $646,352 for litigation expenses [PDF] relating to a contract to manufacture anthrax vaccine. The company sought more than $1.5 million, but the Army determined that the rest of the claims were not just and reasonable.
Representative Blumenauer and others in Congress have long condemned indemnity provisions, arguing that they encourage contractors to drag out lawsuits and rack up exorbitant legal bills. In 2012, Congress passed a measure requiring the Pentagon to disclose and provide justification for contracts that contain such provisions. With taxpayers ultimately footing the bill, we fear that indemnification encourages contractors to act recklessly. In fact, the jury in the Oregon toxic exposure lawsuit found that KBR had “acted with reckless and outrageous indifference” [PDF] to the plaintiffs’ health, safety, and welfare. (The damage award was thrown out earlier this year on a technicality unrelated to the liability verdict.)
The ASBCA ruling has emboldened KBR. Just four days later, the company filed a Freedom of Information Act (FOIA) lawsuit [PDF] against the Department of Defense seeking documents relating to the RIO contract and the Logistics Civil Augmentation Program (LOGCAP) III contract. KBR claims that it is also entitled to indemnification under the LOGCAP III. If true, that means taxpayers will have to cough up millions more to cover the costs of litigation involving KBR’s work in Iraq, Afghanistan, and elsewhere, including the Ryan Maseth shower electrocution lawsuit and lawsuits alleging toxic exposure from open-air burn pits and contaminated water in Iraq and Afghanistan.
http://www.pogo.org/blog/2015/08/army-must-pay-kbr-legal-expenses.html?referrer=https://www.reddit.com/r/Military/
Army
KBR
Law
Posted 9 y ago
Responses: 10
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A couple of things leap out at me. A contracting officer has to get permission from the Secretariat level to put an indemnification clause into a contract and that means the whole chain of command on the contracting side bought off on it. The only reason that these get done is if you don't have it, there will be no contract with anyone. In my contracting experience, I've never pursued one but would presume it was the only way to get a lot of stuff right now into the badlands. The next piece will be how good was the contract clause in doing what was intended. If the powers decide (Monday Morning Quarterback) that the clauses were poorly crafted, there will be fallout with the goal of moving it far away from their desk as possible. The other thing is the last paragraph. A lawsuit would likely relate to a previous FOIA request that was most likely denied (typically predecisional stuff). Indemnification either is or isn't in the contract a Prime has so I'd suspect they're going after some theory that a clause should have been it but wasn't, hence a Government error, or the post award Government actions constructively caused the contractor to perform like they have to have it. We'll have to wait and see. Of course my musings may be the furthest from reality but this sure caught my eye.
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CAPT Kevin B.
Been there done that SGT Efaw (Mick) G. I put a cork in a large cost plus contract by getting a DCAA headquarters auditor loaned out to do real time number crunching while tied to the ACO's hip. She was great and saved us a lot of grief. On the side, she was also the Chair of State Board of CPAs which had the contractor in no real position to bad mouth her on the outside either. She also took Chuck E Cheese to the Gambling Commission for not putting enough tickets out on the Whack A Mole machine. Really miss her. There's too few of the great ones and too much to do.
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Talk about a bad contract. Don't get me wrong we need to protect our contractors in some instances and sometimes that means financially, but how the heck did the government end up on the hook to pay these legal expenses :(
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CAPT Kevin B.
Pretty simple. If you indemnify someone, that means you pay whatever damages against them and their fees in having to mess with it. The Government has a choice. Step in and fight the fight which DoJ won't mess with or let the contractor deal with it and seek reimbursement later. There's some case law out there which slapped the Government for taking the position that the contractor didn't fight hard enough so doesn't have to pay. That doesn't go far either.
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