So what’s the deal with KBR and its government customer, the United States Army?

Regardless of one’s position on the use of contractors to support overseas military forces, it’s hard to argue that those military forces can go to war without lots and lots of contractors to build the camps, run the mess halls, and ensure that food, water, and fuel get where they’re needed. Pete Singer (of the Brookings Institution) has made a nice career writing about the quandary of having private military contractors in a war zone; and even he admits we “can’t go to war without ‘em” (though he argues that “we can’t win with ‘em” as well).

Even a professional Army logistician writing a fairly academic article in a professional bulletin acknowledges that “a significant amount of the logistics support in today’s combat zone is provided by contractors.” (Though in fairness he also express some serious concerns about that practice.)

Given the essentially inarguable fact that logistics support contractors (such as KBR) are absolutely necessary to a successful deployment, then why are KBR and the Army at such loggerheads regarding aspects of KBR’s LOGCAP contract?

That strained relationship should be no secret to readers of this blog. Just so a site search on “KBR” and see the many articles we’ve written about that firm. You will see that KBR has been enmeshed in multiple legal battles with many plaintiffs—including the U.S. Government. Another blogger has compiled an archive dedicated to KBR LOGCAP litigation. More to this article’s point, early in the summer the Federal Times carried an article that discussed “the sharply fractured relationship between the Army and one of its biggest contractors.” The two parties just weren’t getting along.

At the heart of the dispute was the government’s desire to have KBR propose its LOGCAP III demobilization and contract close-out efforts on a firm, fixed-price basis—as opposed to every other task order on that contract, which were proposed and awarded on a cost-reimbursement basis. According to the article, KBR felt forced to file its own lawsuit (as plaintiff instead of defendant) “seeking to keep to the existing cost-reimbursable terms” of its contract, and arguing that “closeout tasks can’t be estimated, citing costs stemming from litigation with subcontractors and tort cases filed against KBR by military and civilian personnel as well as future unresolved audits.”

After searching at the Court of Federal Claims (COFC) website, we were unable to find any decision regarding KBR’s suit, likely because it’s too soon.

But we did notice that the DOD has fdecided to close any regulatory loophole that support contractors might be able to exploit, just in case the lawsuit doesn’t go its way. On August 30, 2013, the Directorate of Defense Procurement and Acquisition Policy (DPAP) issued a DFARS Class Deviation, clarifying that the contractor is responsible for its own demobilization activities, and mandating submission of a “demobilization plan” to the cognizant Contracting Officer prior to the end of the contract period of performance.

There are several interesting aspects of the clause that accompanied the Class Deviation, among them the requirement that the Contractor become “liable for all cleanup, clearing, and/or environmental remediation expenses incurred by the Government in returning a Government facility to its original condition.” Talk about an inestimable scope of work! Fortunately, KBR did not have such a clause in its contract, though the DPAP letter of transmission is curiously ambiguous as to whether the clause is to be retroactively incorporated in existing contracts, such as the LOGCAP III contract held by KBR since 2001.

Meanwhile, over at the Court of Appeals, Federal Circuit, we found a very recent decision affecting KBR. It concerned KBR’s appeal of the COFC decision that cost the company some $30 million because of ineffective subcontractor management. We wrote about the original decision right here (note: that link goes to Part 4 of a four-part series of articles on the case). Both parties appealed aspects of the original decision. KBR argued that it was entitled to the full amount of payments to its subcontractor, which had been determined to be “unreasonable” in amount and, thus, unallowable.

Suffice it to say that KBR’s arguments were unavailing and it lost its appeal.

Unfortunately (for KBR), the government’s appeal was not dismissed in its entirety. In particular, the Appellate Court found that KBR was “vicariously liable” under the Anti-Kickback Act for kickbacks received by two of its Food Service Managers. (Judge Newman dissented from that portion of the ruling.)

That is going to cost KBR some more money when the COFC Judge calculates damages, which will be added to the roughly $30 million in shareholder funds that have already been lost. But the foregone funds do not resolve the relationship problems between KBR and its Army customer(s), nor does this decision resolve the numerous lawsuits still awaiting decision.

Former Secretary of Defense Rumsfeld famously said, “You go to war with the army you have, not the army you might want or wish to have at a later time.” It has become apparent that KBR went to the field with the management team it had, not the management team it may have wanted or wished to have at a later time. In particular, we can (with 20/20 hindsight) see that KBR’s management of its subcontractors was particularly weak, and its anti-corruption controls were similarly weak.

As we’ve written before (many times), effective subcontractor management is the key to effective program execution. KBR keeps proving our assertion, over and over.