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KBR May Be Abusing Indemnification Provision in Iraq Contract

U.S. Senator Ron Wyden (D–OR) wants to know if defense contractor KBR is wasting taxpayer money in an effort to drag out lawsuits seeking to hold KBR accountable for exposing American soldiers to toxic chemicals in Iraq. This week, he sent a letter to Secretary of Defense Leon Panetta to find out what steps the Department of Defense is taking to ensure KBR is not taking advantage of taxpayers while unnecessarily prolonging the litigation.

Members of the National Guard were assigned to the Qarmat Ali water treatment plant in the early months of the Iraq war to protect KBR employees restoring the plant under the U.S. Army Corps of Engineers’ Restore Iraqi Oil (RIO) contract. While stationed there, the soldiers were allegedly exposed to dangerous levels of a highly carcinogenic chemical called hexavalent chromium (the same chemical at the center of the legal battle documented in the movie Erin Brockovich). The soldiers claim KBR was aware of the presence of the chemical but failed to warn or take steps to protect them.

When POGO first blogged about the case almost two years ago, we focused on a classified provision in the contract that requires the government to indemnify KBR for all property damage, injury or death occurring at Qarmat Ali, and all related legal expenses, even if KBR had acted with willful misconduct or lack of good faith. (After much urging from Congress, the Department of Defense finally declassified the provision in December.) As we explained in a follow-up blog post, taxpayers could potentially be on the hook for more than $150 million in damages and legal costs.

POGO believes that such a broad grant of indemnity could provide contractors an incentive to behave more recklessly. In KBR’s case, however, Senator Wyden thinks it is motivating KBR to run up outrageous legal bills while deliberately dragging out the Qarmat Ali lawsuits, which have been pending for almost four years.

Wyden refers to a sworn declaration of one of the attorneys representing KBR stating that senior attorneys are billing as much as $750 per hour, while junior associates are billing $300 and $400 per hour. This list of attorneys in the Oregon lawsuit shows KBR is currently being represented by 11 attorneys from four different firms. Keep in mind that KBR is fighting these lawsuits in Oregon and Texas, which means expenses for airfare, transportation, hotels, and meals. Wyden claims KBR’s attorneys and consultants are flying first-class to hearings and depositions, some of which take place outside the country. Wyden also claims that KBR has billed more than $500,000 for the services of expert witnesses, including the time one expert spent sleeping at a deposition (see photos above).

Taxpayers shouldn’t pull out their wallets just yet, however. KBR must meet certain conditions to get indemnification. First of all, the provision only applies to damages that are not covered by insurance and are the result of an “unusually hazardous” risk. Second, the provision states that the government will not foot the bill unless it first determines the amount is “just and reasonable.” (Recall from POGO’s December 2010 blog post that in one of the few times the Department of Defense indemnified a contractor, the Army paid Emergent BioDefense Operations Lansing, Inc. $646,000 after determining the rest of the company’s $1.5 million claim for litigation expenses was not just and reasonable.)

Senator Wyden is particularly concerned with the contract provision stating the government may “direct, control, or assist in settling or defending any claim or action that may involve indemnification.” POGO shares his concern that only by exercising greater oversight and control over the Qarmat Ali litigation process can DoD stop this outrageous waste and unjustifiable delay.

We eagerly await Secretary Panetta’s response to the Senator’s letter.