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KBR November Litigation Round-Up

November has been a very bad month for defense contractor KBR.

KBR is the federal government’s primary logistics support contractor in Iraq, receiving tens of billions of dollars in business from the Department of Defense over the last decade, much of that under the U.S. Army’s monopolistic Logistics Civil Augmentation Program (LOGCAP) III contract.

In early November, an Oregon federal jury returned an $85.2 million verdict against KBR for exposing military personnel to toxic chemicals at an Iraqi water treatment facility in 2003. The jury found that KBR had “acted with reckless and outrageous indifference to a highly unreasonable risk of harm and conscious indifference to the health, safety, and welfare” of the plaintiffs. A case raising similar claims pending in KBR’s hometown of Houston, Texas, will soon go to trial.

KBR will probably appeal the Oregon verdict. The company is also seeking to enforce a provision in its contract that requires the government to indemnify KBR’s legal costs and damages. As POGO blog readers may remember, the U.S. Army Corps of Engineers (USACE) turned down KBR’s request for indemnification in the toxic exposure lawsuits. KBR filed a breach of contract lawsuit claiming that the USACE directed KBR to begin working at the site without first conducting a safety assessment and should therefore reimburse KBR for the $85.2 million damage award plus the more than $15 million it claims to have incurred in legal fees and expenses (including, we presume, its fees for a napping expert witness).

Then last week, just days after the federal government voluntarily dismissed one False Claims Act lawsuit alleging fraud by KBR in Iraq (which the government has the option of re-filing), the government filed another Iraq contract fraud lawsuit against the company. According to the complaint, KBR and a subcontractor, construction firm First Kuwaiti General Trading & Contracting, overbilled the government more than $48 million for trailers used to house U.S. troops.

First Kuwaiti is a name that keeps popping up in the news. The company gained notoriety several years ago for its shoddy work and shady labor practices while building the U.S. Embassy in Baghdad. It was also at the center of a kickback scandal which resulted in the 2007 conviction of KBR employee Anthony J. Martin. The government alleges that KBR was aware of this kickback scheme at the time First Kuwaiti was performing the troop trailer subcontract. The government also accuses KBR of knowing as long ago as July 2004 that First Kuwaiti’s billing practices were, in the words of internal company emails, “absolute highway robbery.” Yet for six more years, according to the lawsuit, KBR continued to pass along First Kuwaiti’s invoices to the government for payment without verifying their accuracy.

Despite a seemingly endless parade of legal troubles for KBR—civil lawsuits, criminal investigations, administrative enforcement actions, investigative audits, and congressional hearings—the company remains a favored supplier of services to the federal government. Every once in a while, we at POGO stop and shake our heads in amazement at how this can be.