US Embassy Iraq Contractor Gets $62 Million in @StateDept Contract Dispute Settlement

Updated 10/19/20 4:12 pm PST with the potential value for the design build construction contracts in Thailand and in Namibia. See below.

In October 2009, State/OIG issued its Audit of the Design and Construction of the New Embassy Compound in Baghdad, Iraq (PDF):

“…[W]e found that although the construction of the approximately $600 million NEC in a war zone in 34 months was a significant accomplishment, consid­erable construction deficiencies remained because designs for the facilities had not been completed and approved and quality control and commissioning procedures were inadequate.
[…]
We recommend the Department attempt to recover an estimated $43.2 million from First Kuwaiti to bring construction deficiencies to contract standards.
[…]
we estimated that approximately $33 million should attempt to be recovered from First Kuwaiti for incomplete and undocumented design work. Also, we identified that as a result of First Kuwaiti’s inadequate quality control program, it should be held accountable for additional maintenance charges of approximately $38 million that could carry over into future years. Further, we estimated recovering ap­proximately $3.8 million from First Kuwaiti because commissioning activities either were not performed or were performed incorrectly.

In it’s response, the State Department’s Bureau of Administration said:

“The Contracting Officer will prepare a letter to the Contractor, detailing each of [the OIG] recommendations and request consideration from the Contractor in each amount recommended by the OIG.” The A Bureau requested that OIG provide the Contracting Officer infor­mation detailing the basis for computing the $132 million in costs recommended for recovery from First Kuwaiti. The A Bureau also stated, “The formal process to recover any funds from the contractor will be assessed in terms of overall benefit to the government.”

At that time, State/OIG said:

“The A Bureau’s response meets the intent of OIG’s recommendations to recover $132 million from the contractor attributable to construction deficiencies; incom­plete and undocumented work; additional maintenance charges incurred because of inadequate quality control and commissioning procedures; and contract noncompli­ance, including liquidated damages and interest for an unauthorized advance. OIG and USACE will provide the contracting officer the requested support for the $132 million in questioned contract costs.”

We don’t know what happened to that recommendation for recovery of funds in 2009.
Fast forward to April 23, 2013, the Civilian Board of Contract Appeals (CBCA) issued a decision in First Kuwaiti Trading & Contracting W.L.L. v. Department of State contract dispute (CBCA 3069):
“Appellant, First Kuwaiti Trading & Contracting W.L.L. (First Kuwaiti), filed the instant appeal from a decision of a Department of State (State) contracting officer dated August 10, 2012, denying a claim by First Kuwaiti relating to two unpaid invoices for work performed for State under two contracts at the United States New Embassy Compound in Baghdad, Iraq, contract number SALMEC-06-0049, and its modifications, and contract number SALMEC-05-0020, and its modifications. The parties entered into a settlement agreement with respect to the appeal and filed with the Board a stipulation of settlement, reflecting their amicable resolution of the issues that are the subject of the appeal. The parties have jointly moved the Board to issue a judgment in favor of First Kuwaiti in the amount of $2,547,745.20, to be paid from the permanent indefinite judgment fund, 31 U.S.C. § 1304 (2006). Under their settlement agreement and stipulation, they have agreed that Contract Disputes Act (CDA) interest shall accrue on said judgment amount, beginning on March 23, 2012, and continuing until payment of the judgment is made, and that such interest shall be paid to First Kuwaiti together with payment of the judgment amount.
First Kuwaiti has waived any other claim to interest and/or for any attorney fees and expenses incurred in connection with the appeal. The parties, in their joint motion and under the terms of the stipulation, have agreed that neither party will seek reconsideration of, or relief from, this Board’s decision under Board Rules 26 and 27, respectively, and that neither party will appeal this Board’s decision.”
See the April 23, 2013 full decision (CBCA 3069) here.
Below are the New Embassy Compound Baghdad Contracts that the OIG audited in 2009. Note that the contract numbers cited by the CBCA decision are SALMEC-06-0049 and SALMEC-05-0020 for the New Embassy Compound in Baghdad. In the 2009 OIG audit, the two contracts are listed as SALMEC-06-C0049 and SALMEC-05-C0020; we note the appearance of the letter “C” in the two contracts listed in the 2009 OIG audit  of the New Embassy Compound in Baghdad. (If you know what that means, do let us know).
So that was 2013. For more litigative payments, see @StateDept’s Litigative Payments FY2018-FY2020 Via Judgment Fund-$72,634,701.57.
Five years later, on December 3, 2018, the CBCA issued a “Motion for Partial Summary Judgment Granted In Part” in the First Kuwaiti Trading & Contracting, W.L.L. v. Department of State new contract disputes  marked “CBCA 3506, 6167”:

“First Kuwaiti Trading & Contracting, W.L.L. (FKTC) appealed the denial of its claims by the Department of State (DOS) arising from the construction of the embassy compound in Baghdad, Iraq. FKTC presented approximately 200 cost claims that totaled $270 million. DOS moved for summary judgment on thirteen of those cost claims, challenging FKTC’s reliance upon the War Risks clause, the superior knowledge doctrine, the Changes clause, and the implied duty of good faith and fair dealing as the basis for these claims. DOS also asserts that actions underlying FKTC’s changes claims constitute sovereign acts, precluding liability pursuant to the sovereign acts doctrine.

We grant DOS’s motion regarding the scope of the War Risks clause and superior knowledge doctrine, thereby denying seven of FKTC’s claims that are premised solely upon these bases. We deny DOS’s motion regarding the claims that are also based upon the Changes clause or the implied duty of good faith and fair dealing, finding that there are disputed issues of fact. We also deny DOS’s motion regarding the sovereign acts doctrine, finding that DOS has not established the applicability of that doctrine on the current record. Six of the thirteen claims subject to the motion survive DOS’s challenge on this basis.”

The “Statement of Facts” include:
  • A. Contract Price and Provisions Allowing for Adjustment of Contract Price
  • B. War Risks Clause
  • C. Security Requirements and Warnings
II. FKTC’s Claims Challenged by DOS (it’s quite a read):
  • A. Duck and Cover Alarms
  • B. Rocket Attacks—Three claims
  • C. Equipment Repositioning
  • D. Extra Security
  • E. Retention Bonuses and Danger Pay
  • F. Air Transport—Labor Hours
  • G. Sand and Gravel Double-Handling
  • H. Truck Convoy Delays, Truck and Driver Protection Requirements, and Truck Convoy Support Requirements
  • I. Superior Knowledge Claims
The CBCA’s discussion includes:
  • I. War Risks Clause Does Not Provide for Recovery on the Thirteen Challenged Claims
  • II. FKTC Has Failed To Identify a Sufficient Basis for Its Superior Knowledge Claim
  • III. Disputed Issues of Fact Preclude Summary Judgment on FKTC’s Changes Claims

A. FKTC Has Shown Disputed Issues of Fact with Regard to Changes Clause on Six Claims

B. DOS Has Not Provided Evidence to Support a Sovereign Acts Defense

  • IV. Disputed Issues of Fact Preclude Summary Judgment on FKTC’s Implied Duty of Good Faith and Fair Dealing Claim
  • V. Purported Lack of Contemporaneous Documentation is not Grounds for Summary Judgment
The Board’s decision is that “Respondent’s motion for partial summary judgment is GRANTED IN PART. Appellant’s claims based solely upon the War Risks clause and the superior knowledge doctrine challenged by Respondent are denied. The hearing in this matter will commence on January 22, 2019.”
See the December 3, 2018 decision (CBCA 3506, 6167 ) here.
HOLD ON. We’re just getting to the best part.
On Monday, April 1, 2019. the Civilian Board of Contract Appeals issued “GRANTED IN PART: April 1, 2019” judgement in First Kuwaiti Trading & Contracting, W.L.L. v. Department of State (CBCA 3506, 6167) dispute:

“On March 28, 2019, the parties submitted to the Board a joint motion for judgment on a stipulated settlement. The parties requested that the Board enter judgment in the amount of $62,500,000, with payment to be made through the permanent indefinite judgment fund in accordance with 31 U.S.C. § 1304 (2012). The amount includes all the interest to which appellant is entitled under the Contract Disputes Act. 41 U.S.C. § 7109. The parties have agreed that they will not seek appeal of, reconsideration of, or relief from the Board’s decision.

Decision: The Board GRANTS IN PART these appeals. In accordance with the parties’ joint motion, the Board awards appellant, First Kuwaiti Trading & Contracting W.L.L., the stipulated judgment amount of $62,500,000.”

See the April 1, 2019 decision (CBCA 3506, 6167) here.
So the CBCA document says the contractor presented approximately 200 cost claims that totaled $270 million. It got $62,500,000.
We’re sure the government would argue that this is a win, yeah? On the other hand, $62.5 million is more than the expected US investment in the local economy for the construction of US Consulate General Chiang Mai in Thailand at $45 million plus change. Or three times the USG investment in the local economy for the construction of the US Embassy in Namibia at $17 million.
(Correction: The US Embassy Namibia design build construction contract has a potential value of $173.4million; the New Consulate Compound (NCC) design build construction contract in Chiang Mai, Thailand has a potential value of $156.8 million. Thanks A!).
Oh … what’s that?

 


New Embassy Digs Debut in Baghdad

U.S. Amb. Ryan Crocker, Iraqi President Jalal Talabani, and Deputy Secretary of State John D. Negroponte at dedication ceremony for new U.S. Embassy in Baghdad, Iraq (photo from state.gov)

Yesterday, U.S. Ambassador Ryan C. Crocker officially dedicated the new American Embassy in Baghdad in the presence of Iraqi President Jalal Talabani and U.S. Deputy Secretary of State John D. Negroponte. Iraqi dignitaries and close to 1,000 invited guests witnessed the U.S. Marine Security Guard detachment ceremonially raise the American flag in front of the Embassy’s main Chancery Building. This was accompanied by a rendition of the U.S. National Anthem and music from the U.S. Army 4th Infantry Division Band.

According to the official news release from Foggy Bottom, this is the largest American Embassy structure to date, and its scale reflects the importance of the U.S.-Iraq bilateral relationship. Construction began in 2005 and was completed in 2008 at a total cost of $592 million. More than 1,200 U.S. diplomats, service members and government officials and staff from 14 federal agencies work and live on the Embassy compound.

We’ve never had an embassy quite like this ever. In fact when I read the open source description of this compound, it reminds me a lot more of the military base where I used to shop back in Virginia than any diplomatic compound. Well, it’s a diplomatic compound in a war zone, so what can you expect? Some vital stats are in order, I think:

Construction work – 2005-2008

Claim to fame: Most expensive diplomatic outpost in the world

Total cost – $592 million
(VOA is reporting more than $600million, USAToday is reporting $700million)

Operating cost – reportedly $1.2 billion annually
(One US official said the cost of running the new complex is expected to be so exorbitant that the US will be forced to rent out part of the space)

Buildings: 21 buildings

Embassy compound size: 104 acres
(For comparison, the Vatican City covers 108.7 acres, the United Nations compound in New York is 17 acres and the Washington’s National Mall covers 309.2 acres; and new embassy compound projects elsewhere typically cover 10 acres)

Blast-resistant apartments: 619

Helipad: 1

Morale Welfare Recreation Facilities (a military term but I don’t think DOS has yet come up with a name that corresponds to MWR; definitely can’t call these CLO facilities). According to press reports, the following facilities are available inside the compound:

Tennis courts (read about tennis and other courts at the NEC from Ed in Brigantine here)

Landscaped swimming pool

Pool house

Recreation Center (bomb-resistant with well-equipped gym; see pictures here)

Department store

Community Center

Beauty Salon

Movie theater

American Club

It sounds to me like the only things missing are: a chapel, a school (it reportedly is in the plans) and a playground. William Langewiesche in The Mega-Bunker of Baghdad (Vanity Fair, November 2007) writes:

“[…] compound is largely self-sustaining, and contains its own power generators, water wells, drinking-water treatment plant, sewage plant, fire station, irrigation system, Internet uplink, secure intranet, telephone center (Virginia area code), cell-phone network (New York area code), mail service, fuel depot, food and supply warehouses, vehicle-repair garage, and workshops. At the core stands the embassy itself, a massive exercise in the New American Bunker style, with recessed slits for windows, a filtered and pressurized air-conditioning system against chemical or biological attack, and sufficient office space for hundreds of staff. Both the ambassador and deputy ambassador have been awarded fortified residences grand enough to allow for elegant diplomatic receptions even with the possibility of mortar rounds dropping in from above. “

Wouldn’t you want to be in an embassy like this during a pandemic when official Americans overseas will be ordered to “shelter in place?

Anyway, Ed in Brigantine posted something about the new embassy compound last year and I thought this would be a good time to revisit his post:

“did a tour of the new embassy compound. you can read much about it in a vanity fair article of some months ago, but ed’s scoop: nice apartments, good office space, lots of creature comforts unheard of at most embassies (indoor pool, gyms, weight/exercise room, concession space for burger king, etc., etc..) but, as we cannot go out and shop on the local economy [a]s we would normally do, well, everything must be provided inside the hardened structures where we’ll live and work. sucha shame – most people in the foreign service like to get out with the locals – shopping in the souk, buying brochettes from street vendors in conakry, water from vendors in the djma il fna in marrakesh, etc. but, to keep us safe, we’ll here be behind the walls and isolated away from the populace – rather self-defeating of public diplomacy efforts.

still, it is a nice complex, though the line of site babyon hotel and nearby apartment complex will give snipers a great opportunity – though they’d likely get to do that only once, and not live to regret it.”


Ed in Brigantine
(occasional comments about living and working in Beautiful Baghdad, the Mesopotamian Metropolis between the Rivers) has not posted anything after May 30, 2008. I am presuming that he has now rotated out of Iraq. He has some photos of the NEC from May 2008 here . Meanwhile Mike in Baghdad, who is currently hosted by BaghdadAnne’s website has also some new pictures of the new embassy compound taken some three weeks ago here .