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Court Publishes Decision in Contractor Fee Dispute Involving “The Mother of all DFAC Drug Deals”

NEIL GORDON – (POGO) – May 10, 2012 – The U.S. Court of Federal Claims recently unsealed its opinion and order in the nearly four-year fight by KBR to recoup the $41 million it claims the U.S. Army owes under the LOGCAP III contract in Iraq. The government, in return, filed a countersuit claiming kickbacks two KBR contract managers took from a LOGCAP III subcontractor invalidates KBR’s claim.

KBR filed a lawsuit in the Court of Federal Claims seeking $41 million in unpaid costs and fees incurred under LOGCAP III for dining facility (DFAC) services at Camp Anaconda, Iraq from July through December 2004. The government filed a counterclaim alleging that the thousands of dollars in kickbacks KBR managers Terry Hall and Luther Holmes accepted from DFAC subcontractor Tamimi Global Company, Ltd. should cause KBR to forfeit its claims against the government under various fraud theories and the Anti-Kickback Act.

The case went to trial in late 2011. Two weeks ago, the court issued its judgment, awarding KBR $11,792,505 plus interest but also awarding the government $38,000 in civil penalties on its Anti-Kickback Act counterclaim. Interestingly, KBR’s statement about the judgment filed with the U.S. Securities and Exchange Commission (SEC) last week does not mention the latter.

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Tamimi, the unlucky “13th defendant” settles with the U.S.

Saudi Arabia-Based Tamimi Global Company to Pay U.S. $13 Million to Resolve Criminal and Civil Allegations of Kickbacks and Illegal Gratuities

KBR Subcontractor Provided Dining Services in Iraq and Kuwait

(DoJ) – WASHINGTON – September 16, 2011 – Saudi Arabia-based Tamimi Global Company Ltd (TAFGA) has agreed to pay the United States $13 million to resolve criminal and civil allegations that the company paid kickbacks to a Kellogg Brown & Root Inc. (KBR) employee and illegal gratuities to a former U.S. Army sergeant, in connection with contracts in support of the Army’s operations in Iraq and Kuwait. The civil matter was handled by the Justice Department’s Civil Division, and the criminal matter was handled by the U.S. Attorney’s Office for the Central District of Illinois.

The U.S. alleges that employees of TAFGA paid kickbacks to KBR to obtain subcontracts awarded under LOGCAP (Logistics Civil Augmentation Program) III – KBR’s prime contract with the U.S. Army to provide logistical support to the military in conflicts abroad, including Iraq and Afghanistan. LOGCAP III is the third generation of contracts under the program. KBR performs its obligations under the contract largely through subcontractors such as TAFGA.

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United States Files Counterclaims Against KBR Alleging False Claims and Kickbacks (Updated 3/17/11)

UPDATED – Click HERE to read the DoJ’s Amended Answer And Counterclaims

In the e-mail, Mr. Petsche stated that he had previously referred to the Anaconda DFAC as, “the mother of all DFAC drug deals” because of all of the irregularities surrounding it. In Mr. Petsche’s words, the Anaconda DFAC was “predestined and out of control from the start.” – Excerpt from paragraph 124

KBR Managers Allegedly Received Kickbacks from Dining Facility Subcontractor

WASHINGTON – March 16, 2011 – In response to a pending lawsuit from Kellogg Brown & Root Services Inc. (KBR) in the U.S. Court of Federal Claims, the Department of Justice has filed counterclaims alleging that KBR managers had received kickbacks from a dining facility subcontractor in violation of the False Claims Act and the Anti-Kickback Act.  The subcontractor was retained in connection with KBR’s contract with the U.S. Army to provide logistical support to the military in Iraq and elsewhere.  The counterclaims also allege that the kickbacks should cause KBR to forfeit its claims against the United States and to return money paid by the United States as reimbursement to KBR upon the tainted subcontract.

The counterclaims assert that, from late 2002 through 2003, Terry Hall, who was KBR’s regional food services manager for Iraq and Kuwait, and his deputy, Luther Holmes, received more than $45,000 in kickbacks from Mohammad Shabbir Khan, vice president of Tamimi Global Company.  Khan provided the kickbacks to ensure that Tamimi was treated favorably by KBR.  Hall and Holmes used their positions to advocate on behalf of Tamimi, and, during the time that they received the kickbacks, KBR awarded Tamimi subcontracts worth more than $400 million.  Other KBR managers knew of apparent irregularities involving the Tamimi subcontracts, but approved them anyway. 

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Tamimi wins round one against mega giant KBR

Tamimi 1, KBR 0

David IsenbergThe PMSC Observer & Huffington Post
Author, Shadow Force: Private Security Contractors in Iraq (Praeger Security International)

I couldn’t let 2010 end without having one last look at one of the major U.S.-based PMCs; the one which, according to one leading PMC trade association, plays a significant role in keeping U.S. troops the best supported military operation in human history.

In case you couldn’t guess that would be KBR. Today’s news informs us that a KBR subcontractor, Tamimi Global Co., based in Saudi Arabia, has won a $35 million arbitration award in London against KBR for work it says it did in Iraq.

Tamimi provided dining and food services for U.S. troops. The company claims KBR withheld payments starting in 2008 because the US government withheld payments to KBR after an audit of an earlier contract. Tamimi continued to operate through 2009, when its contracts with KBR ended.

You can find the relevant legal documents on the ever watchful site of Ms. Sparky at:

The background is a bit complicated, so read the procedural history in the Final Award document if you are interested. But basically it comes down to the fact that in 2006 the U.S. government audited certain costs submitted by KBR to the U.S. government for which the government had reimbursed KBR, to determine if the costs claimed by KBR were reasonable.. The Defense Contract Audit Agency issued a report that determined that KBR’s costs resulting from Tamimi invoices from July through December 2004 were unreasonably high and thus KBR breached it fiduciary responsibility to the U.S. government.

KBR notified Tamimi that the government was withholding about $41 million from KBR and, in turn, KBR would withhold about $35 million from Tamimi.

Note that KBR did not assert Tamimi did anything wrong. It simply says that if the U.S. government does not pay it then it has no obligation to pay its subcontractors. This is known as the Pay-When-Paid clause. Specifically:

“Notwithstanding any other provision hereof, payment by [Government] to [KBR] is a condition precedent to any obligation of [KBR] to make payment hereunder; [KBR] shall have no obligation to make payment to [Tamimi] for any portion of sublet work for which [KBR] has not received payment from the [Government].”

Obviously, judging by the decision the arbitrators did not agree with KBR. But the important point I take away from this is that the relationship between a prime contractor and its subcontractors, is often, to quote Winston Churchill, “a riddle, wrapped in a mystery, inside an enigma.” (read original article HERE)

Head on over to Amazon.com and take a look at David’s book  Shadow Force: Private Security Contractors in Iraq (Praeger Security International)

Saudi firm won’t turn over records to Pentagon in bribery probe

WASHINGTON — A Saudi subcontractor has refused to cooperate with a U.S. investigation of bribery in Iraq.  The Al Tamimi Group, a Saudi subcontractor in Iraq, has rejected demands by the Defense Department to inspect the company’s records. The Pentagon’s Defense Contract Audit Agency has sought to trace the relay of hundreds of thousands of dollars in bribes by Al Tamimi to U.S. contractors, including KBR.

“Problems can arise when either the U.S. government or the prime contractor conducts a review or audit based on an inconsistent approach or what we would respectfully suggest is an improper interpretation of the generally accepted government standards,” Tamimi general manager Perry Dalby said.

Officials said the U.S. government investigated Tamimi for four years on charges that executives relayed bribes to win American military subcontracts in Iraq and Kuwait. One Tamimi manager, Mohammad Khan, has pleaded guilty to 14 counts and confessed to paying $133,000 to KBR. In 2009, Khan, sentenced to 51 months in prison, said the money helped win $21.8 million in KBR contracts.

The Wartime Contracting Commission has also been investigating Al Tamimi in the alleged kickback scheme. Members of the government panel said Al Tamimi could have won $49 million in contracts from a range of U.S. companies.

So far, Al Tamimi has refused demands by the Pentagon and KBR to examine Saudi company records. The investigation has sought to determine how Khan obtained the bribes for KBR and other U.S. contractors.

Dalby, also ethics director of Al Tamimi, said his company was not required to supply its records. He maintained that Al Tamimi did not benefit from Khan’s bribes and could not find the $133,000.

“The company itself did not profit or did not gain any awards as a result,” Dalby said.

Officials said Al Tamimi represented the tip of the iceberg in what they asserted was massive corruption and bribery to win subcontracts in Iraq and Kuwait. Al Tamimi, with 30 divisions, operates in Bahrain, Kuwait, Qatar and the United Arab Emirates and maintains partnerships with General Electric and ITT.

“Up to $300 million in subcontracts in Iraq and Kuwait were allegedly tainted by a Saudi-based subcontractor employee’s kickback scheme,” the Washington-based Center for Public Integrity said.

The center cited testimony from former contractors in Iraq that local companies provided prostitutes to win projects for the U.S. government and military. Subcontractors were said to have played a major role in Iraq and regional countries for such services as translation, logistics and security.

But officials acknowledged that U.S. investigations of Al Tamimi and other subcontract bribery have been hampered by foreign governments. They said Middle East governments often failed to take bribery seriously.

“Without good subcontract control by prime contractors and good oversight by the government, we risk not only wasting money, but also depriving our troops of support they need, overlooking misconduct that alienates local populations, and even handing funds to violent insurgents,” Michael Thibault, co-chair of the Wartime Contracting Commission, said. (Click HERE for original article)