Suit claims KBR billed for unauthorized security costs

Justice argues the firm did not have permission to obtain private security; company says Army failed to provide adequate protection.

The Obama administration has filed a False Claims Act lawsuit against its largest contractor in Iraq, alleging that Kellogg Brown & Root Services charged the government for impermissible private security costs.

The suit, filed in the U.S. District Court in Washington on Thursday, alleges that Houston-based KBR and 33 of its subcontractors knew they were not authorized to bill for private armed security in Iraq but did so anyway. The contract states the Army would provide security protection.

KBR is the prime contractor on the Army's massive Logistics Civil Augmentation Program III contract in Iraq, which provides soldiers with food, transportation, laundry and mail services.

"Defense contractors cannot ignore their contractual obligations to the military and pass along improper charges to the United States," said Tony West, assistant attorney general for the Justice Department's civil division. "We are committed to ensuring that the Department of Defense's rules are enforced and that funds so vital to the war effort are not misused."

The expenses, along with other associated fees, were billed to the Army indirectly through an overhead account, Justice said. The suit does not detail the costs of the private security or the damages the government is seeking.

According to Justice, KBR violated the terms of the LOGCAP III contract repeatedly from 2003 through 2006 by failing to secure the Army's authorization before hiring armed subcontractors. The former Halliburton subsidiary also is accused of using security contractors that were not registered with the Iraqi Ministry of the Interior.

KBR awarded subcontracts to three private security companies -- Triple Canopy, Omega Risk Solutions and al Dhahir -- to provide armed security details for its executives and awarded additional subcontracts to more than 30 other companies that employed their own private armed security, the suit claims. KBR also used four of its own employees as armed security to protect some of its executives, the government alleged.

"KBR and its subcontractors are absolutely prohibited from possessing or using privately owned weapons unless explicitly authorized by the appropriate military command," the suit states.

But KBR claims the Army was aware it had hired private security and the costs were allowable.

"KBR believes the costs incurred and actions taken by the company and its subcontractors to provide support and to protect its employees and subcontractors were reasonable, necessary and appropriate under the contractual arrangement between KBR and the Army," the company said in a statement. The firm added, "nothing in KBR's contract with the Army prohibits KBR or its subcontractors from using private security to fulfill its mission to support America's troops."

Some of the firm's subcontractors also violated contractual regulations requiring travel only in military convoys, the suit claims.

For example, ESS Support Services Worldwide, a dining facilities subcontractor, "routinely hired private armed security companies to shuttle managers, personnel and payroll around Iraq rather than arrange to travel with military convoys."

Documents indicate KBR managers expressed concern the Army would prohibit the security charges.

In an Aug. 30 2004, e-mail, Mary L. Wade, KBR's senior contract manager for LOGCAP III, acknowledged that if subcontractors were using their own personal security details "then the cost could be considered unallowable by both [the Army] and the [Defense Contract Audit Agency] as the government has the responsibility to provide force protection."

KBR, however, alleges the Army never fulfilled its security requirements.

"The government fails to acknowledge that the Army breached the contract by repeatedly failing to provide the necessary force protection and, in fact, frequently left KBR, its employees and its subcontractors unprotected," the firm said. "The absence of security provided by the U.S. Army made it more difficult and costly for KBR to fulfill its obligations."

In 2008, KBR filed its own claim to recover security expenditures that the Army refused to pay. The dispute has been pending before the Armed Services Board of Contract Appeals.

The Army is beginning to transition from the LOGCAP III contract to a new structure in which three firms, including KBR, bid for the work in Iraq. In March, the Army announced it had awarded KBR a task order under the new LOGCAP IV contract that could potentially be worth $2.8 billion.