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Tamimi 1, KBR 0

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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::

Petition to Confirm Foreign Arbitration Award

Work Release Change Order

Final Award

Order on Tamimi Global Company Limited's Petition to Confirm Foreign Arbitration Award and Final Judgment

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."