Federal Circuit Court Denies Breach of Contract Claim in Kellogg Brown & Root Services, Inc. v. Secretary of the Army

In Kellogg Brown & Root Services, Inc. v. Secretary of the Army, 2019-1683 (Fed. Cir. September 1, 2020), the Court of Appeals for the Federal Circuit addressed Kellogg Brown and Root Services, Inc.'s (KBR) claim for cost overruns incurred on a contract to provide trailers to house personnel at military camps in Iraq. KBR claimed that the Government breached the contract by failing to provide "force protection" to the trucks delivering the trailers, and sought to recover payments made to its subcontractor.

Rather than addressing whether the Government breached the "force protection" provision of the contract, the court focused on whether the Board of Contract Appeals (BCA) had properly determined that KBR's costs had not been shown to be reasonable.

Initially, the court rejected the Government's argument that KBR was required to provide its subcontractor cost records to establish that the payments KBR made to the subcontractor were reasonable. The court noted that such records would be a factor to consider in determining whether KBR's payments were reasonable costs, but they were not a condition to seeking relief.

The court then noted KBR did have the burden of proving cost reasonableness and held that KBR failed to do so in this instance. In denying KBR's claims, the court determined the following:

• First, the model KBR utilized to estimate delay costs did not approximate the actual events that occurred in several ways which the court described in detail.
• Second, for its double-handling claim, KBR failed to support the reasonableness of its claimed costs with any record evidence: KBR only submitted spreadsheets summarizing monthly costs and, in several instances, those spreadsheets lacked the necessary detail to establish reasonableness.
• Finally, the court rejected KBR's request to apply a "jury verdict" method of determining damages, noting that such method does not relieve KBR from FAR Part 31's limitation of its recovery to costs that are reasonable.

The key takeaway here is that in order to avoid dismissal before the BCA or Federal Circuit Court, contractors must ensure that their records showing cost overruns are detailed enough to demonstrate reasonableness.