Justice joins lawsuit against Defense contractor KBR

The Justice Department has intervened in a false claims lawsuit against KBR Inc., one of the Defense Department's largest contractors, claiming the goliath logistics firm made illegal payments to a Turkish subcontractor.

On Friday, the government joined a lawsuit first filed in February 2007 by a KBR whistleblower who claimed the former Halliburton subsidiary violated the False Claims Act in connection with the Army's third-generation Logistics Civil Augmentation Program contract.

"Contractors hired to provide support to our men and women in uniform must play by the rules," said Tony West, assistant attorney general for the civil division of the Justice Department. "As we've done today, the Justice Department will take action against those whom we believe charge the taxpayers for goods and services that were not provided to American troops."

Under the mammoth LOGCAP III contract, KBR provides a host of logistics and support services to troops in Iraq, Kuwait and Afghanistan, including meals, water, mail, sanitation, fuel and showers. KBR performs the LOGCAP III contract largely through subcontractors.

In February 2007, former KBR worker James A. Brady III filed a whistleblower lawsuit against his former employer. According to the complaint, KBR entered into a subcontract with the Turkish firm Yuksel-Reysas to perform operations and maintenance work at Army camps near Mosul, Iraq.

Brady alleged in his suit, which is pending in the U.S. District Court for the Central District of Illinois, that KBR violated the False Claims Act when it was unable to account for materials paid for under the Yuksel-Reysas subcontract.

"We've decided to pursue the allegation that money that was intended to support the troops was instead used to pay claims that were false," said Jim Lewis, a U.S. attorney for the Central District of Illinois.

Under the qui tam provisions of the False Claims Act, private individuals can sue on behalf of the U.S. government if they believe that defendants submitted bogus claims for federal funds. Under the statute, the whistleblowers are eligible to receive a share of any funds recovered through the lawsuit.

In a statement, Houston-based KBR said it had not yet been served with the government's complaint and therefore could not comment on the specific allegations. But, the company noted it has cooperated with the government's review.

"KBR is not aware of any evidence of fraud, or other misconduct, relating to this subcontractor, and the government has not provided any such evidence to KBR," according to the statement. "Accordingly, this appears simply to be a contractual dispute, which the government has chosen to bring under the False Claims Act, rather than address their concerns properly under the procedures in the LOGCAP contract for adjudicating such disputes."

The contractor said that in 2007 it hired an outside consultant to perform an audit of the costs incurred by the subcontractor. That audit was shared with federal officials.

KBR "withheld $5.6 million in costs relating to this subcontractor based on this review, and credited the same amount to the government," the statement said. "KBR also vetted these issues with government auditors in 2008, and, at that time, the government took no action to withhold or otherwise question the subcontractor's costs on these issues."

The False Claims Act allows the government to recover three times its damages plus civil penalties. Justice has asked the court for 60 days to file its own complaint stating the government's allegations against KBR.

This is not the first time the Obama administration has clashed in court with KBR, the largest contractor operating in Iraq.

Last April, Justice filed a False Claims Act lawsuit against KBR, alleging the firm and 33 of its subcontractors charged the government for impermissible private security costs. The expenses, along with other associated fees, were billed to the Army indirectly through an overhead account, Justice said. The suit did not detail the costs of the private security, or the damages the government was seeking; the case is ongoing.

And, in February 2009, KBR agreed to pay a $579 million fine to resolve criminal and regulatory charges that it had bribed Nigerian officials to win more than $6 billion in contracts to build a liquefied natural gas project. Last week, KBR agreed to pay an additional $11 million to the United Kingdom's Serious Fraud Office fine in connection with the same investigation.