KBR Nailed for Workers Who Took Kickbacks

(CN) - Defense contractor KBR is liable for the $38,000 in kickbacks its workers took from an operator of U.S. Army dining halls in Iraq, the Federal Circuit ruled.

Before the invasion of Iraq, the U.S. Army contracted with KBR, the former Halliburton subsidiary then known as Kellogg Brown & Root, to provide dining facilities at Army bases in Iraq. KBR subcontracted with Tamimi Global Company to run the dining hall at Camp Anaconda, one of the largest bases in Iraq during the war.

The Army found in an audit, however, that KBR recovered $41.1 million in unreasonable costs for services at Camp Anaconda between July and December 2004.

After Uncle Sam refused to pay, KBR filed suit in the Court of Federal Claims, alleging that the government wrongly withheld payment.

The government counterclaimed under the Anti-Kickback Act (AKA), with evidence that KBR employees Terry Hall and Luther Holmes received $38,000 in cash from Tamimi's Vice President, Shabbir Khan, as well as plane tickets

The court found that KBR was entitled to $11.5 million of the $41.1 million bill. It also awarded the government $38,000 on its AKA claim, the amount taken by Hall and Holmes, but refused to award punitive damages, finding the two men were not high enough in KBR's corporate hierarchy for their actions to be imputed to the company.

A three-judge panel of the Federal Circuit Court affirmed the reasonable cost findings last week, but said the lower court erred in failing to hold KBR responsible for the actions of its employees.

"The Court of Federal Claims was within its discretion in finding that KBR failed to prove that its costs were reasonable," Judge Evan Wallach wrote for the panel. "KBR declined to present independent evidence of the reasonableness of the facilities costs (or any other component of the challenged costs)." (Parentheses in original.)

KBR should have also been held responsible for the kickbacks accepted by Hall and Holmes, according to the ruling.

"Corporations act through their employees; the general rule is that an agent's knowledge is imputed to the principal when employees are acting with the scope of their authority or employment, absent special circumstances," Wallach wrote.

In this case, the employees' actions were not solely for their own financial gain, the court found.

"Whatever motivation Hall and Holmes had to accept kickbacks from Tamimi, KBR received a benefit," Wallach wrote. "As the trial court put it: 'KBR in fact benefitted by Messrs. Hall and Holmes's selection of Tamimi in that Tamimi did provide necessary services to KBR - operating DFACs [dining facilities].'"

In July, the 5th Circuit also ruled that KBR can be held liable for its corrupt employees. Under the Anti-Kickback Act, the government may penalize the guilty company $11,000 for each kickback.

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