UPDATE 2-US Justice sues KBR for improper costs in Iraq

Thu Apr 1, 2010 7:40pm EDT

Related Topics

* Covers 2003-06 time period, KBR and 33 subcontractors

* KBR has been criticized for Iraq cost overruns

(Updates with KBR comment, paragraphs 4, 9-13)

By James Vicini

WASHINGTON, April 1 (Reuters) - The U.S. Justice Department said on Thursday it sued the Houston-based military contractor KBR Inc (KBR.N) for alleged false claims act violations over improper costs for private security in Iraq.

The lawsuit, filed in federal court in Washington, D.C., alleged that KBR knowingly included impermissible costs for private armed security in billings to the U.S. Army covering the 2003-2006 time period, the department said.

KBR has been the U.S. military's largest private contractor in Iraq and Afghanistan. It has been criticized for cost overruns in Iraq, and lawmakers in Congress last month questioned the Army's continued use of KBR for logistics work.

The company said it had to hire private security because the government failed to protect its employees, and added that it believed the government filed the lawsuit to avoid reimbursing it for security costs.

The Justice Department said the case, which seeks unspecified damages, was brought as part of an initiative to crack down on procurement fraud.

The contract at issue in the lawsuit provided for logistical support, such as food services, transportation, laundry and mail, for military operations in Iraq. The lawsuit involved the company and 33 KBR subcontractors.

The lawsuit said KBR violated the contract by failing to obtain Army authorization for arming subcontractors and by allowing the use of private security contractors who were not registered with the Iraqi Ministry of the Interior.

The subcontractors also are alleged to have violated the terms that required travel only in military convoys, the department said.

The lawsuit alleged that KBR managers considered the use of private security unacceptable and were concerned the Army would disallow costs for such services. But KBR still charged for the costs of the unauthorized services, the suit said.

KBR said in a statement late on Thursday that it had to hire private security to protect its workers in Iraq because the U.S. Army failed to do so.

"The government fails to acknowledge that the Army breached the contract by repeatedly failing to provide the necessary force protection and, in fact, frequently left KBR, its employees and its subcontractors unprotected," KBR said.

The company said it considers the Justice Department lawsuit an attempt to avoid paying the company's security costs. KBR has been attempting to recover the funds through the Armed Services Board of Contract Appeals.

"The government's recent filing of a new complaint in another forum appears to be an attempt to avoid a decision in that proceeding," KBR said.

(additional reporting by Erwin Seba in Houston; Editing by Robert MacMillan, Leslie Gevirtz and David Gregorio)

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