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Army, KBR Contract Dispute Creates Uncertainty, Warns DOJ

According to the Justice Department, the outcome of an Army and KBR lawsuit over the final stages of LOGCAP III , the largest government services contract in U.S. History, may affect many thousands of federal contracts while creating “enormous uncertainty” for vendors and the government, reports the Federal Times.

A reminder to practitioners and law students: pay attention to footnotes.

The Justice Department's warning was delivered in a recent U.S. Court of Federal Claims pleading -- in a footnote. The pleading is the latest development in the Army and KBR dispute over how to close out the 12-year-old, $38 billion military logistics contract supporting military operations in Iraq.

The Logistics Civil Augmentation Program III (LOGCAP III) was awarded to KBR in 2001. It has resulted in 160 task orders for everything from dining services for U.S. troops, to in-theater delivery of housing, reports the Federal Times.

The LOGCAP III Closeout Contract Dispute

The Army wants to change the LOGCAP III pricing structure to a firm, fixed-price basis, meaning the Army wanted KBR to provide a fixed dollar figure for the remaining work and absorb any excess costs beyond that. But KBR has sued to keep the existing cost-reimbursable agreement, arguing that neither party would be able to estimate the scope or duration of closeout work.

While cost reimbursement style contracts may have been historically used by the Army for this type of work, fixed-price contracts and task orders are seen as less risky and less expensive than cost-reimbursable contracts, reports Federal Times.

The main government contract question here: When the Army requested a proposal for closeout activities under a firm fixed-price basis, was the request a solicitation for a new contract?

Essentially, the court's decision will largely depend on how it views the closeout activities. The court must figure out whether the closeout with a fixed-price is already part of the contract, or a new solicitation.

If it's considered a new service, it's a win for KBR. If it's already part of the contract, KBR's out of luck.

Who It Affects

If KBR gets its way in court and closeout activities must be performed during the performance period of a contract, the impact would be felt in contracting offices across government, said attorneys for the Justice Department, who are representing the Army in the contract dispute.

"KBR does not deign to address the implication of its position: if the Court accepts KBR's novel theory, literally tens of thousands of government contracts will be affected, creating enormous uncertainty for the government and contractors alike," Justice Department lawyers wrote.

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