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Army Ordered to Pay KBR’s Legal Expenses

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.