Kellogg Brown & Root Services, Inc. v. Murphy

United States Court of Appeals

for the Federal Circuit

______________________

KELLOGG BROWN & ROOT SERVICES, INC.,

Appellant

v.

PATRICK J. MURPHY,

ACTING SECRETARY OF THE ARMY,

Appellee

______________________

2015-1148

______________________

Appeal from the Armed Services Board of Contract

Appeals in No. 58492, Administrative Judge Alexander

Younger, Administrative Judge Mark N. Stempler, Ad-

ministrative Judge Richard Shackleford.

______________________

Decided: May 18, 2016

______________________

THOMAS PARKER MCLISH, Akin, Gump, Strauss,

Hauer & Feld, LLP, Washington, DC, argued for appel-

lant. Also represented by SCOTT MICHAEL HEIMBERG;

TIRZAH S. LOLLAR, Vinson & Elkins LLP, Washington,

DC; JOHN M. FAUST, Law Office of John M. Faust, PLLC,

Washington, DC.

ELLEN MARY LYNCH, Commercial Litigation Branch,

Civil Division, United States Department of Justice

Washington, DC, argued for appellee. Also represented by

2 KELLOGG BROWN & ROOT SERVICES v. ARMY

BENJAMIN C. MIZER, ROBERT E. KIRSCHMAN, JR., BRYANT

G. SNEE.

______________________

Before NEWMAN, O’MALLEY, and CHEN, Circuit Judges.

NEWMAN, Circuit Judge.

The only issue on this appeal is whether the six-year

statute of limitations of the Contract Disputes Act had

run for this claim. The claim was filed by Kellogg Brown

& Root Services, Inc. (KBR) for costs incurred by KBR for

work done by its subcontractor in performing a contract

with the Army to construct dining facilities and to provide

meal and related services for troops in Iraq. On the

Army’s motion, the Armed Services Board of Contract

Appeals (ASBCA or Board) dismissed KBR’s claim for

lack of subject matter jurisdiction, holding that the period

of limitations had run before KBR filed this claim. 1 The

claim was filed on May 2, 2012; thus, the critical date of

accrual for limitations purposes is May 2, 2006.

On review of the premises and the applicable law, we

conclude that the Board erred in law and on the applica-

tion of law to the undisputed facts. We conclude that the

KBR claim had not accrued, for limitation purposes,

before May 2, 2006. The Board’s dismissal is reversed; we

remand for determination of the merits of the claim.

BACKGROUND

In summary: on December 14, 2001, the Army and

KBR entered into a cost-plus-award-fee contract under

the Logistics Civil Augmentation Program. KBR subcon-

1 Kellogg Brown & Root Servs., Inc. v. Dep’t of the

Army, ASBCA No. 58492, 14-1 BCA ¶35,713 (“Board

Op.”).

KELLOGG BROWN & ROOT SERVICES v. ARMY 3

tracted with a joint venture between The Kuwait Compa-

ny for Process Plant Construction & Contracting K.S.C.

and Morris Corporation (AUST) PTY Ltd. (KCPC/Morris),

to implement certain work release orders for construction

of dining facilities and provision of food services at two

locations in Iraq. On July 31, 2003, KBR terminated the

subcontract for “fail[ure] to bring conditions to full con-

tract performance as of 31 July, 2003,” as required by the

subcontract. Army Br. at 4. KCPC/Morris disputed the

termination, and, at KBR’s request, also continued per-

formance until transition to a new subcontractor on

September 12, 2003.

The ensuing determination of reimbursable costs and

termination conditions included a suit filed in 2004 by

KCPC/Morris against KBR in the United States District

Court for the Eastern District of Virginia, in which

KCPC/Morris stated (and KBR disputed) that an oral

settlement had been reached and sought its enforcement.

On January 24, 2005, KBR and KCPC/Morris entered into

a written agreement, described by the Board as follows:

[T]he parties divided KCPC/Morris’ costs into two

groups: (a) the “Settlement Amount” of

$17,400,000; and (b) KCPC/Morris’ costs incurred

and profit related to its performance under the

Master Agreement and the termination of the

Work Releases . . . including overhead, G&A, prof-

it and certain costs incurred in preparing requests

for payment to the U.S. Government.

Board Op. at 3. This agreement also converted the de-

fault termination into a termination for convenience. Id.

The group (a) “Settlement Amount” of $17,400,000

was paid, and is not at issue. This CDA action concerns

only the group (b) component. For the group (b) costs, the

agreement stated that KBR and KCPC/Morris would

cooperate “to prepare a well-supported invoice or invoices

to the U.S. Government,” the agreement also stating that

4 KELLOGG BROWN & ROOT SERVICES v. ARMY

“[i]n no event shall KBR submit an invoice to the Gov-

ernment for any portion of the JOINT VENTURE’s costs

that KBR does not believe is supportable.” 2005 Settle-

ment Agreement at 4.

On August 26, 2006, KCPC/Morris submitted to KBR

a certified claim for the “outstanding payments, costs and

lost profit associated with the termination for convenience

by [KBR] of the [] contract.” Army Br. at 5. On November

3, 2006, KBR forwarded KCPC/Morris’ claim to the Army,

with a letter stating that KBR “does not certify or com-

ment to the validity of these costs and does not have any

other supporting documentation for validation.” Letter

from Senior Manager, Contracts, KBR, to Chief, LOGCAP

Branch, Department of the Army (Nov. 3, 2006) (“KBR

Letter”).

The Army responded to KBR on May 30, 2007, stating

that “it is KBR’s management responsibility to negotiate

or discuss claims with its subcontractors and the Army

does not comment in advance as to whether a claim or

certain costs are appropriate. Therefore, the Army will

not meet with, or correspond directly with KBR’s subcon-

tractors.” See Board Op. at 5 (quoting Army Sustainment

Command Letter to KBR (May 30, 2007)). The Army

refused to consider the submitted information, and di-

rected KBR to “settle a claim by its sub with the sub, then

bill the government.” E-mail from Chief, Contracting

Division, Logistics Civil Augmentation Program, Army

Sustainment Command, to Senior Manager, Contracts,

Kellogg Brown and Root, “RE: Request for additional

information regarding draft settlement” (July 19, 2007)

(“Army Email”).

On October 10, 2007, KBR “sponsored” the

KCPC/Morris claim, followed by certification of the claim

by letter dated January 10, 2008. On September 8, 2010,

KBR withdrew the claim, stating that “[u]pon further

review of the data provided by KCPC/Morris, KBR has

KELLOGG BROWN & ROOT SERVICES v. ARMY 5

determined that this constitutes a business dispute

between KBR and KCPC/Morris and should be resolved in

accordance with KBR’s subcontract with KCPC/Morris.”

Letter from Senior Manager, Contracts, Kellogg Brown

and Root, to Army Contracting Command, “Subject:

DAAA09-02-D-0007: Subcontractor Claim KCPC/Morris.”

The record before us does not provide details, but KBR

states that the asserted costs were eventually reduced by

about $2.1 million. KBR Br. 20.

On August 4, 2011, KCPC/Morris filed suit against

KBR in the United States District Court for the Eastern

District of Virginia, stating in its complaint that “KBR

allowed [KCPC/Morris’ claim] to languish with the Gov-

ernment, . . . and then inexplicably withdrew the entire

claim in September 2010 without consulting

KCPC/Morris. . . . KBR has failed to submit and pursue

the portions of the claim it concedes are well support-

ed . . . .” Compl. at 2, Kuwait Co. for Process Plant Const.

& Contr. v. Kellogg, Brown & Root Servs., Inc., 1:11-cv-

824-CMH/TRJ, (E.D. Va. August 4, 2011). This suit was

withdrawn after KBR and KCPC/Morris entered into an

agreement dated February 17, 2012, for payment to

KCPC/Morris of $10,464,493, which the Board summa-

rized as for “construction costs, equipment, expenses such

as medical care and travel, meals served, overhead and

G&A, profit, and termination settlement costs.” Board

Op. at 4–5. On May 2, 2012, KBR filed a certified claim

with the Army for this amount. The contracting officer

did not act on the claim, thereby placing it in “deemed

denied” status. KBR then appealed to the Board.

The Army moved to dismiss, stating that the six-year

CDA statute of limitations had run. The Board granted

the motion, finding alternative dates for the accrual of the

claim, both dates before the critical limitations date of

May 2, 2006. The Board found, first, that the claim

accrued on September 12, 2003, the date when

KCPC/Morris ended its work under the subcontract; and

6 KELLOGG BROWN & ROOT SERVICES v. ARMY

alternatively on January 24, 2005, when KBR and

KCPC/Morris agreed to cooperate to present an invoice to

the Army for costs above the “Settlement Amount” of

$17.4 million. The Board held that there was no basis for

equitable tolling of the limitations period. Board Op. at

10–11 (“With a record that reflects such lengthy time gaps

as this . . . , we cannot say that KBR has actively pursued

its remedies. In addition, [the record] does not support

any conclusion of trickery or other misconduct.”) (internal

quotations marks omitted). This appeal followed.

DISCUSSION

The limitations period is determined in accordance

with the Contract Disputes Act (CDA), which provides

that a claim “shall be submitted within 6 years after the

accrual of the claim.” 41 U.S.C. § 7103(a)(4)(A). We start

with the Board’s ruling that the claim accrued on the date

the subcontractor ended its work.

“Accrual” When Subcontractor Work Ended On

September 12, 2003

The FAR defines “accrual” of a contract claim as:

the date when all events, that fix the alleged lia-

bility of either the Government or the contractor

and permit assertion of the claim, were known or

should have been known. For liability to be fixed,

some injury must have occurred. However, mone-

tary damages need not have been incurred.

48 C.F.R. § 33.201. Precedent elaborates that whether

and when a CDA claim accrued is determined in accord-

ance with the FAR, the conditions of the contract, and the

facts of the particular case. Parsons Global Servs. v.

McHugh, 677 F.3d 1166, 1170 (Fed. Cir. 2012) (“we evalu-

ate whether a particular request for payment amounts to

a claim based on the FAR implementing the CDA, the

language of the contract in dispute, and the facts of each

case.”); James M. Ellett Constr. Co. v. United States, 93

KELLOGG BROWN & ROOT SERVICES v. ARMY 7

F.3d 1537, 1542 (Fed. Cir. 1996) (the existence of a CDA

claim “is based on the FAR definition of a claim, the

contract language, and the facts of the case”); Reflectone,

Inc. v. Dalton, 60 F.3d 1572, 1575 (Fed. Cir. 1995) (en

banc) (“we must assess whether a particular demand for

payment constitutes a claim, based on the FAR imple-

menting the CDA, the language of the contract in dispute,

and the facts of the case.”).

The Board reasoned that “liability was fixed” on Sep-

tember 12, 2003, because the claim was for the “alleged

entitlement to the net costs of performance of the termi-

nated KCPC/Morris subcontract, including costs for

construction of sites C-1 and C-2, meals served, overhead,

G&A and profit (statement 19).” Board Op. at 7. KBR

responds that until the amount of payment to be request-

ed of the Army was determined, the claim had not come

into existence and thus could not accrue. KBR points to

the Army’s requirement that KBR resolve all subcontrac-

tor issues in order to “permit assertion of the claim.” FAR

§ 33.201. “Claim” is defined as:

“Claim” means a written demand or written as-

sertion by one of the contracting parties seeking,

as a matter of right, the payment of money in a

sum certain, the adjustment or interpretation of

contract terms, or other relief arising under or re-

lating to the contract. However, a written de-

mand or written assertion by the contractor

seeking the payment of money exceeding $100,000

is not a claim under 41 U.S.C. chapter 71, Con-

tract Disputes, until certified as required by the

statute. . . .

48 C.F.R. § 2.101; see also id. § 52.233-1(c)(same).

Fixing the date of accrual of a claim requires first that

there is a “claim” as defined in the Contract Disputes Act

and associated Regulations. KBR states that “a sum

certain” could not have been demanded or asserted on

8 KELLOGG BROWN & ROOT SERVICES v. ARMY

September 12, 2003, because the reimbursable costs and

profit entitlements were not then known, and in view of

disputes including termination conditions, could not

reasonably have been known. KBR states that until

KCPC/Morris sent KBR its documented and certified

claim on August 26, 2006 (after the critical date of May 2,

2006), there was not a basis for determining the “sum

certain” that is required for a CDA claim. KBR points out

that the Army refused to consider the KCPC/Morris

certified claim when forwarded by KBR, and that the

Army required KBR to resolve all issues with the subcon-

tractor: “KBR is required to settle a claim with the sub-

contractor, then bill the government.” See Army Email.

The Army does not state that the amount of the claim

was reasonably known in 2003 or 2005; the Army’s argu-

ment is that liability was “fixed” by KBR’s cost-reimbursal

contract with the Army, although the amount of the

liability was not established. Army Br. at 12–15 (“Even

though the exact amount of money that KBR owed

KCPC/Morris had not yet been established . . .[,] KBR’s

liability to KCPC/Morris was fixed because KBR knew

that it owed KCPC/Morris money. . . . When

KCPC/Morris’ claim accrued against KBR, so too did

KBR’s claim accrue against the government.”). However,

by FAR definition, a “claim” for “the payment of money”

does not “accrue” until the amount of the claim, “a sum

certain,” FAR § 2.101, is “known or should have been

known,” id. § 33.201.

In Parsons Global, this court observed that determi-

nation of whether a claim accrued is based on the particu-

lar circumstances. 677 F.3d at 1170 (“we evaluate

whether a particular request for payment amounts to a

claim based on . . . the facts of each case.”). KBR states

that it did not have sufficient information to request a

sum certain until KCPC/Morris first presented its claim

to KBR on August 26, 2006, after the critical date. The

KELLOGG BROWN & ROOT SERVICES v. ARMY 9

Board did not find otherwise, and the Army does not

argue otherwise.

Instead, the Board adopted the theory, presented by

the Army, that the payment of the remaining subcontrac-

tor costs was a “non-routine” request for payment, and

thus accrued as of the date the subcontractor ended its

work, on September 12, 2003. Reflectone, explains the

distinction between routine and non-routine requests for

payment in CDA matters: “A routine request for payment

is made under the contract, not outside it,” 60 F.3d. at

1575, while a non-routine request seeks “compensation

because of unforeseen or unintended circumstances,” id.

at 1577. The Board held that any termination of a sub-

contract is unforeseen or unintended, and therefore

produces the immediate accrual of any compensation

owed. Board Op. at 10.

The Board’s holding is a misapplication of so-called

“non-routine” requests. The origin of this rule, as ex-

plained in James M. Ellett, 93 F.3d at 1543, is to permit a

contractor that has been injured by “some unexpected or

unforeseen action on the government’s part that ties it to

the demanded costs,” in the words of Parsons Global, 677

F.3d at 1171, to seek immediate payment of any damages

flowing from the government’s action. Termination of a

subcontractor by the prime contractor is not a per se

“unexpected or unforeseen government action” that per-

mits and requires an immediate claim by the prime

contractor. The Army does not argue otherwise.

Whether a request for payment is deemed routine or

non-routine in the context of accrual of a CDA claim

against the government is “dependent on the circum-

stances in which the requested costs arose.” Id. at 1170.

KBR states that the group (b) costs for which payment is

requested are the routine costs of performance and termi-

nation, and did not arise from unexpected government

10 KELLOGG BROWN & ROOT SERVICES v. ARMY

action, but from subcontractor inadequacy in performance

of its obligations under the subcontract.

The Army argues that KBR’s November 3, 2006 letter

to the Army (after the critical date) was a “non-routine”

request for payment, for this letter states that KBR “does

not certify or comment to the validity of these costs and

does not have any other supporting documentation for

validation.” See KBR Letter. However, the Army refused

to accept this letter as a “claim,” either routine or non-

routine.

KBR states that whether its November 3, 2006, letter

forwarding the KCPC/Morris claim is viewed as a “rou-

tine” or “non-routine” request is irrelevant to the limita-

tions issue, for it occurred after the critical date of May 2,

2006. We agree that this letter did not retrospectively

convert the termination date of September 12, 2003, into

the “accrual” of a “claim” that was not even arguably

presented until after the critical limitations date.

In other, related situations, precedent illustrates that

the limitations period does not begin to run if a claim

cannot be filed because mandatory pre-claim procedures

have not been completed. See Crown Coat Front Co. v.

United States, 386 U.S. 503, 510-12 (1967) (pre-CDA case,

finding that the government contractor’s claim “first

accrued . . . upon the completion of the administrative

proceedings contemplated and required by the provisions

of the contract”). Here, the Army required that KBR

resolve disputed costs with the subcontractor before KBR

could present a claim for reimbursement of those costs.

See Bay Area Laundry and Dry Cleaning Pension Trust

Fund v. Ferbar Corp. of Calf., Inc., 522 U.S. 192, 200–01

(1997) (rejecting as “inconsistent with basic limitations

principles” the position that a limitations period can

commence when the claimant’s suit would be premature

because required pre-suit procedures had not taken

place).

KELLOGG BROWN & ROOT SERVICES v. ARMY 11

The Army also states that the Severin Doctrine re-

quires that this claim accrued on September 12, 2003.

That is not an apt application of Severin v. United States,

99 Ct. Cl. 435 (1943), where the court held that “if plain-

tiffs had proved that they, in performance of their con-

tract with the government[,] become liable to their

subcontractor for damages which the latter suffered, that

liability, though not yet satisfied by payment, might well

constitute actual damages to plaintiffs and sustain their

suit.” Id. at 443. The Army states that “Severin describes

precisely the situation that we have here—KBR became

liable to its subcontractor for damages that the subcon-

tractor suffered because of KBR’s default termination

decision.” Army Br. 13.

The Army argues, “When KCPC/Morris’ claim accrued

against KBR, so too did KBR’s claim accrue against the

government.” Id. at 14. Severin does not so hold. The

prime contractor may indeed be liable for damages that

the prime inflicts on the subcontractor. However, Severin

does not hold that the date of “accrual” of the prime’s

claim against the government is the date of termination of

the subcontractor. Accrual in accordance with FAR

§ 33.201 does not occur until KBR requests, or reasonably

could have requested, a sum certain from the government.

As the Army repeatedly told KBR here, it would not

consider any of KBR’s submissions until after resolution

of the subcontractor issues.

The Army also argues that the government’s exposure

in “pass-through” suits for subcontractor claims is limited

to the amount of the prime contractor’s liability for the

subcontractor’s costs. Accepting this position for this

case, it does not follow that KBR’s claim against the

government accrued before the subcontractor submitted

its certified claim to KBR. Severin is concerned with

liability among government, contractor, and subcontrac-

tor, see 99 Ct. Cl. at 443, not with dates of “accrual” of

“claims” as defined by the FAR. And the Severin Doctrine

12 KELLOGG BROWN & ROOT SERVICES v. ARMY

is directed to liability resulting from government action

harming the subcontractor.

KBR criticizes the Army’s position that prime contrac-

tors have ripe CDA claims against the government at the

moment that dispute arises with a subcontractor, even if

the government is not involved in the dispute; even if, as

here, the Army required KBR to resolve its subcontractor

issues before the Army would consider the claim. KBR

states that the Board’s ruling and the Army’s position

would require cost-reimbursement contractors to request

payment of subcontractor costs while those costs are

under dispute, lest the prime contractor lose the right to

recover those costs. KBR correctly observes that the CDA

does not require the filing of protective claims related to

subcontractors while those claims are being resolved

between the prime and sub.

We conclude that the Board erred in holding that be-

cause subcontract activity by KCPC/Morris ended on

September 12, 2003, the KBR claim for group (b) costs

accrued on that date.

Alternate Accrual in January 2005

The Board held alternatively that KBR’s claim ac-

crued when, “in January 2005, KBR had sufficient actual

knowledge to enter into a written settlement agreement

segregating subcontract costs into a ‘Settlement Amount’

and other costs above that amount.” Board Op. at 8.

This appeal relates only to the “other costs” above the

Settlement Amount. The January 2005 agreement also

established conversion from termination for default to

termination for convenience, adding the need for KBR and

the subcontractor to resolve the issue of lost profits.

Indeed, the Army does not argue that “a sum certain” was

known at the time the January 2005 agreement was

entered.

KELLOGG BROWN & ROOT SERVICES v. ARMY 13

In accordance with the FAR, KBR’s claim for the “oth-

er costs” did not alternatively accrue when KBR and the

subcontractor agreed to resolve these costs and cooperate

to present a claim when the costs were resolved. We

conclude that the Board erred in holding that KBR’s claim

accrued with the January 24, 2005 agreement.

Other Arguments

We have considered the other issues and arguments.

We agree with the Board that KBR’s withdrawn 2008

claim did not toll the limitations period, although this is

irrelevant in view of our holding that this claim did not

accrue before the critical date.

We take note of the Board’s concern for the lengthy

pendency of this claim, and the Board’s suggestion that a

contractor could indefinitely delay the accrual of its claim.

KBR responds that the Allowable Cost and Payment

clause of the Contract Disputes Act limits the time in

which a contractor may seek reimbursement after a

“physically complete contract” has been performed, citing

48 C.F.R. § 52.216-7(d)(5). KBR states that the FAR

requires it to submit a “completion invoice or voucher,”

including “settled subcontract amounts,” within 120 days

after indirect cost rates are determined for all years of the

contract, id., and KBR must then release the government

from further liabilities and claims under the contract,

except for specified claims and unknown claims,

id. § 52.216-7(h). KBR points out that a contractor cannot

postpone a request for payment either unilaterally or

indefinitely. The Army does not argue otherwise. Nor

does the Army argue that the cost-plus-award-fee contract

between KBR and the government became a physically

complete contract at any time prior to the filing of the

claim.

The court has confirmed that the limitations period of

the Contract Disputes Act is not jurisdictional. See Sikor-

sky Aircraft Corp. v. United States, 773 F.3d 1315 (Fed.

14 KELLOGG BROWN & ROOT SERVICES v. ARMY

Cir. 2014). However, in view of our decision that the

statute of limitations does not bar this claim, equitable

tolling need not be considered.

CONCLUSION

The Board’s dismissal on statute of limitations

grounds is reversed. The case is remanded to the Board

for determination of the merits of the claim.

REVERSED AND REMANDED