In a recent Board decision dated December 13, 2023, the United States Army Corps of Engineers sought to amend its answer in the case of APPEALS OF – KELLOGG BROWN & ROOT SERVICES, INC., under Contract No. W912GB-13-C-0011. The proposed amendment introduces an affirmative defense, contending that Kellogg Brown & Root Services, Inc. (KBR) made material misrepresentations in its proposal, rendering the fully-performed contract void ab initio.
Background: The contract in question, executed on July 9, 2013, was for the construction of an Aegis Ashore Missile Defense System site in Deveselu, Romania, with a firm, fixed-price amount of $134,211,592. The Corps moved to amend its answer to allege that KBR’s material misrepresentations induced the Corps to enter the contract, justifying the voiding of the contract. The alleged misrepresentations include issues related to subcontractor quotes, firm fixed prices, subcontracting plans, and more.
Motion to Amend and Legal Defense: The Corps, despite delays in formally amending its answer, argued that KBR was aware of the potential affirmative defense before the conclusion of fact discovery. The proposed affirmative defense asserts that KBR made eight material misrepresentations in its proposal, upon which the Corps relied in awarding the contract and defending against a GAO protest.
The alleged misrepresentations included:
- Inaccurate subcontractor quotes in KBR’s proposal.
- Misrepresentation of firm fixed prices and acceptance of subcontract terms.
- Misrepresentation of the scope and value of work subcontracted to a key subcontractor.
- Failure to self-perform 25% of the total work as required.
- Falsely claiming to have submitted a Technical Assistance Agreement to the Directorate of Defense Trade Controls.
- Inaccurate calculation of average Romanian labor costs.
- Misrepresentation regarding the availability of a Quality Control Manager.
- False statements about the small business subcontracting plan.
The Board granted the Corps’ motion to amend its answer to include the material misrepresentation affirmative defense, indicating that this legal defense will be considered on its merits.
- Background Knowledge: The decision highlights that the Corps knew about seven of the eight alleged material misrepresentations in 2013 and 2014 while performance was ongoing and became aware of the eighth by 2017.
- Jurisdiction and Futility: The decision refutes KBR’s arguments regarding jurisdiction, futility, and the Board’s authority to make findings of fact regarding material misrepresentations. The Board asserts its jurisdiction to hear the material misrepresentation defense without a contracting officer’s final decision.
- Undue Delay and Prejudice: While acknowledging the Corps’ significant delay in raising the defense since obtaining knowledge, the decision states that the delay did not rise to the level of extreme delay necessary to deny the motion to amend.
- Authority to Make Findings: The decision asserts the Board’s authority to make factual findings regarding material misrepresentation, differentiating it from certain fraud claims beyond the Board’s jurisdiction.
- Potential Waiver: The decision leaves open the question of whether the alleged misrepresentations render the contract void ab initio (no waiver) or voidable, which would allow KBR to assert that the Corps waived the defense by accepting performance.
Lessons Learned: This Board decision sheds light on the complexity of legal issues in government contracts, particularly when affirmative defenses such as material misrepresentation are introduced. The Corps ‘ motion to amend its answer opened the door to a thorough examination of KBR’s actions during contract formation and performance, emphasizing the importance of transparency and accuracy in government contract proposals. As the case unfolds, it will be intriguing to see how the alleged misrepresentations impact the overall validity of the contract and whether the defense holds water in legal proceedings.