IAP Worldwide Services, Inc.

Material Facts

• IAP and Kuwaiti national Adel Y. Al Ghanem entered into a February 10, 2003 agreement titled “Joint Venture Contract” under which they agreed to establish a joint venture company with limited liability to undertake supply, support, and services work for the U.S. Army and others in Kuwait and Iraq, with IAP managing and contracting and Al Ghanem providing local business, administrative, and logistical support.
• The Joint Venture Contract provided that all U.S. Government contracts would be issued in IAP’s name, that payments from the Government would be paid to IAP and then credited to the joint venture, and that profits, after reimbursement of operational expenses and IAP’s G&A and management fees, would be distributed 51 percent to Al Ghanem and 49 percent to IAP, with a jointly controlled joint venture bank account.
• A May 2, 2004 amendment to the Joint Venture Contract converted IAP’s 5 percent net profit entitlement into a 5 percent of cost G&A fee, added a management fee for IAP, clarified profit-sharing percentages, and required both parties to sign any amendments and to execute conforming amendments to a yet-unexecuted Memorandum of Association for a limited liability company, with the agreement governed by Kuwaiti law.
• On September 30, 2005, IAP sent Al Ghanem a “Notice of Termination for Joint Venture Contract” stating it was terminating the contract effective that date and asserting IAP was not a shareholder in any entity owned by Al Ghanem, and provided but never executed a proposed Transition and Termination Agreement stating the JVC company identified in the Contract “never formed.”
• Effective October 1, 2005, IAP entered into a separate “Service Agency Agreement” with Abdulredha A. Khoursheed to act as its local service agent in Kuwait in exchange for specified percentages of gross revenues from cost-plus contracts, expressly characterizing Khoursheed as an independent contractor who could not bind IAP.
• On March 26, 2006, Al Ghanem initiated litigation against IAP in the Kuwait Court of First Instance for breach of contract; Kuwaiti courts ultimately found that the parties had agreed to form a joint venture partnership under Kuwaiti law and that, although no separate limited liability company was formed, they had a joint venture partnership agreement, and the Kuwait Court of Appeal held IAP liable to Al Ghanem for $78,779,449 plus expenses, attorney fees, and post-judgment interest.
• On January 24, 2018, Al Ghanem filed an action in Florida state court to recognize the Kuwaiti judgment, and the Florida court concluded the Kuwait judgment should be recognized, resulting in IAP defending litigation in both Kuwait and the United States.
• In 2017 DCMA, upon reviewing IAP’s consolidated financial report, stated that legal costs associated with Al Ghanem were unallowable under FAR 31.205-47(f)(5) and adjusted IAP’s provisional billing rate pool costs, and in February 2018 DCAA advised the contracting officer that the Kuwait litigation costs were expressly unallowable because the IAP–Al Ghanem agreement was a joint venture arrangement.
• Although in August 2018 the contracting officer initially stated the Al Ghanem legal costs were not expressly unallowable, by October 2018 DCMA and the contracting officer had reversed position and asserted that litigation and any potential settlement costs arising from the Joint Venture Contract were expressly unallowable under FAR 31.205-47(f)(5)(i).
• On November 19, 2019, IAP submitted a certified claim seeking payment of $4,610,092 in legal defense costs incurred in FYs 2016–2019 and a contract interpretation that potential settlement payments to Al Ghanem would be allowable, arguing the litigation costs were reasonable, allocable G&A costs consistent with CAS and not unallowable because the agreement was not a joint venture, teaming arrangement, or similar shared-interest arrangement and, alternatively, fell within the exception for costs incurred to comply with contract clauses and Kuwaiti law requiring a local partner.
• On January 30, 2024, IAP submitted a second certified claim seeking $8,408,395.82 as the allocated share to its cost-type contracts of $12,357,732 in legal defense costs incurred in FYs 2020–2023 in the Kuwait and Florida litigations, again asserting the same legal basis for allowability.
• The contracting officer’s May 18, 2020 and March 12, 2024 final decisions denied both claims, concluding that the Joint Venture Contract constituted a joint venture or similar arrangement of shared interest making the litigation costs expressly unallowable under FAR 31.205-47 and also unreasonable under FAR 31.201-2 and 31.201-3, and IAP appealed both decisions resulting in consolidated ASBCA Nos. 62638 and 63879.

Parties

Appellant

IAP Worldwide Services, Inc.

Respondent Agency

Defense Contract Management Agency

Contract Number

W912D1-05-D-0011