Breakout Session #608 David C. Hammond, Attorney, Crowell & Moring LLP

2. Contractors on the Battlefield:The Challenge of Managing Risksin a War Zone: Lessons Learned Breakout Session #608 David C. Hammond, Attorney, Crowell & Moring LLP Date: Wednesday, April 25, 2007 Time: 10:40 am – 11:40 am

3. Contractors on the Battlefield “The Department’s Total Force – its active and reserve military components, its civil servants, and its contractors – constitutes its warfighting capability and capacity.” Quadrennial Defense Review Report at 75 (Feb. 6, 2006) (emphasis added)

4. Contractors on the Battlefield • Government vs. Contractor Personnel • Performing the same tasks, but with different risk exposure • In general, contractors assume risk of a civil lawsuit alleging loss or damage to property or injury or death • Government has immunity from lawsuit and damages

5. Contractors on the Battlefield • Contractors Are Subject to Potential Civil Liability with Certain Exceptions • The Defense Base Act’s (“DBA”) “exclusive liability” provision: • Applies only to contractor “employees” • Claimants are claiming/receiving DBA benefits while suing contractors seeking tort damages • The DBA Does Not Provide Immunity From Civil Lawsuits Brought by Third Parties

6. Contractors on the Battlefield • Summary of Defenses and Immunities Available to Contractors under Federal Jurisprudence • Government Contractor Defense - Boyle v. United Technologies Corp., 487 U.S. 500 (1988) • Derivative immunity under the “combatant activities” exception to the FTCA - Koohi v. United States, 976 F.2d 1328 (9th Cir. 1992) • Dismissal of the case under the “political question” doctrine - Bentzlin v. Hughes Aircraft Co., 833 F. Supp. 1486 (C.D. Cal. 1993); Whitaker v. Kellogg Brown & Root, 2006 WL 1876922 (M.D. Ga 2006) • Dismissal of the case under the “state secrets” doctrine - Bareford v. Gen. Dynamics Corp., 973 F.2d 1138 (5th Cir. 1992)

7. Contractors on the Battlefield • Recent Federal Court Decisions Regarding Lawsuits Against Battlefield Contractors For Wrongful Death • DBA-Covered Cases – death of employee • Fisher v. Halliburton, 390 F. Supp. 2d 610 (S.D. Tex. 2005) • Nordan v. Blackwater Security Consulting LLC, 382 F. Supp. 2d 801 (E.D.N.C. 2005) • Non-DBA Case – death of U.S. soldiers • McMahon v. Presidential Airways, 410 F. Supp. 2d 1189 (M.D. Fla. 2006) • Whitaker v. Kellogg Brown & Root, 44 F. Supp. 2d 1277 (M.D. Ga. 2006) • Smith v. Halliburton Co., 2006 WL 1342823 (S.D. Tex. 2006) • Ibrahim v. Titan Corp., 391 F. Supp. 2d 10 (D.C. 2005)

8. Contractors on the Battlefield • The Executive Branch Can Play a Larger Role • The Commander-in-Chief, acting through DoD and its contracting officers, can influence judicial decisions by structuring contracts to support government contractor and immunity defenses, where appropriate • The Judicial Branch need not decide these cases in a vacuum or without contemporaneous input from the Executive Branch

9. Contractors on the Battlefield • Possible Contract Provisions • Contractors act under overall direction, control and authority of military • Identify and cite relevant federal regulations, orders, directives and instructions that regulate conduct or performance

10. Contractors on the Battlefield • Possible Contract Provisions (con’t.) • Have military member participate in any discretionary decision and provide approval • Contractor is an agent if government controls (where appropriate)

11. Contractors on the Battlefield • Possible Contract Provisions (con’t.) • Identify “reasonably precise specifications” and describe them as such in the contract • Requiring and documenting discussions with the contracting officer regarding known dangers

12. DFARS Interim and FAR Proposed Rules • Rules Address a Variety of Issues Arising From Contractors Performing In the Theater of Operations • DFARS 252.225-7040, Contractor Personnel Authorized to Accompany U.S. Armed Forces, (71 Fed. Reg 34826-31 (2006)) • FAR 52.225-XX, Contractor Personnel in a Theater of Operations or at a Diplomatic or Consular Mission Outside the United States, Authorized to Accompany U.S. Armed Forces, (71 Fed. Reg. 40681 (2006))

13. DFARS Interim and FAR Proposed Rules • DFARS Clauses Contain Broadly-Worded Provisions Shifting Risk to the Contractors • “Contract performance in support of U.S. Armed Forces deployed outside the United States may require work in dangerous or austere conditions. The Contractor accepts the risk associated with the required contract performance in such operations” (emphasis added) • Proposed FAR Clause Contains Almost Identical Language

14. DFARS Interim and FAR Proposed Rules • Contractors Do Not Accept All Risks in All Circumstances • Government controls contractors actions to varying degrees through: • Statutes, regulations, instructions, policies, and procedures • Orders, directives and instructions issued by the Combatant Commander • Orders, directives, and instructions from the Contracting Officer • Statements of work and other contractual provisions

15. DFARS Interim and FAR Proposed Rules • Regulatory History of DFARS Rule: • Acknowledges that “the risk associated with inherently governmental functions will remain with the Government” • DoD stated, “Contractors should resolve concerns about a specific contract during pre-award negotiations”

16. DFARS Interim and FAR Proposed Rules • Recommendation: • Review the contract and properly allocate risk in the contract’s terms – be proactive • Add a provision stating that the DFARS/FAR clause shall not affect or diminish other rights the Contractor may have under this contract or otherwise provided under law, including any defense to third party claims

17. DFARS Interim and FAR Proposed Rules • Indemnification • Insurance – Liability to Third Persons (FAR 52.228-7) • Provides indemnification for certain losses that exceed amount of required insurance • However, Interim DFARS clause states: • “Contractor shall not be reimbursed for liabilities (and expenses incidental to such liabilities) . . . [f]or which the Contractor is otherwise responsible under the express terms of any clause specified in the Schedule or elsewhere in the contract . . .” (emphasis added) • Risk-shifting clauses in DFARS 252.225-7040 could fall within the above language and negate indemnification

18. DFARS Interim and FAR Proposed Rules • Additional Point • Insurance – Liability to Third Persons (FAR 52.228-7) • Used in cost reimbursement contracts (other than construction and A/E services) (FAR 28.311-1) • “The [Insurance-Liability to Third Persons] clause . . . is subject to tailoring for fixed price contracts . . . .” Air Force General Counsel Guidance Document Deploying with Contractors: Contracting Considerations, November 2003 at 9

19. DFARS Interim and FAR Proposed Rules • Indemnification • Public Law 85-804 Indemnification • Government can argue that contractor entered contract with full knowledge of the risks involved (see Boeing Airplane Co. on Behalf of the Standard-Thompson Co.,1 ERC ¶ 132 (Aug. 13, 1962))

20. Contractors on the Battlefield • Other Challenges • Export Controls • Direction of military to place export-controlled equipment on military aircraft without obtaining export license • Demands for expediency – the short period between award and performance may not allow sufficient time to obtain export license

21. Contractors on the Battlefield • Other Challenges (con’t.) • Lack of trained contracting officers in host country • Turn over of contracting officers • Post-award audits and standards for performance in a war zone

22. Contractors on the Battlefield • Other Challenges (con’t.) • Tempo of mission and contracting needs vs. compliance • Compliance in a war zone • DBA insurance and claims

23. Contractors on the Battlefield • Other Challenges (con’t.) • Implications of utilizing contractors and the law of armed conflict • Status as a prisoner of war under Geneva Conventions

24. Contractors on the Battlefield • Application of the Uniform Code of Military Justice • 2007 Department of Defense Authorization Act amended the Uniform Code of Military Justice (“UCMJ”) to make it applicable "[i]n time of declared war or a contingency operation, [to] persons serving with or accompanying an armed force in the field." 10 U.S.C. § 802(a)(10) (emphasis added)

25. Contractors on the Battlefield • Application of the Uniform Code of Military Justice (con’t.) • A “contingency operation” includes an operation that is “designated by the Secretary of Defense as an operation in which members of the armed forces are or may become involved in military actions, operations, or hostilities against an enemy of the United States or against an opposing military force.” 10 U.S.C. § 101(a)(13)

26. Contractors on the Battlefield • Application of the Uniform Code of Military Justice (con’t.) • This military justice system is separate from and, in some ways, more restrictive than its civilian counterpart • Persons subject to the UCMJ are subject to a court-martial which may result in any penalty that is authorized by the UCMJ as punishment for the offense

27. Contractors on the Battlefield • Application of the Uniform Code of Military Justice (con’t.) • Concerns include: • Constitutional issues implicated by prosecuting civilians under the UCMJ • Failure to Obey an Order or Regulation • What if an order requires performance outside the scope of the contract? • Disrespect Toward a Superior Officer • Abandoning Post

28. Contractors on the Battlefield • Application of the Uniform Code of Military Justice (con’t.) • Contractors need to inform employees deployed overseas of the potential application of the UCMJ

29. Contractors on the Battlefield • Military Extraterritorial Jurisdiction Act of 2000 (“MEJA”) (18 U.S.C. § 3261) • Extends U.S. jurisdiction for certain felonies committed outside the United States • Applies to persons “employed by or accompanying the Armed Forces outside the United States”

30. Contractors on the Battlefield • Military Extraterritorial Jurisdiction Act of 2000 (“MEJA”) (18 U.S.C. § 3261) (con’t.) • Does not apply to contractor personnel under civilian contracts • Pending legislation to expand MEJA to all agencies • Expanding MEJA is a better approach than applying the UCMJ

31. Contractors on the Battlefield • Congressional Oversight • Pendulum has swung in the opposite direction since new majority in Congress • Congress has conducted over 100 oversight hearings on many topics, but Iraq contracting will continue to be a focus

32. Contractors on the Battlefield • Proposed legislation includes: • The War Profiteering Prevention Act of 2007 (Sen. Leahy) • Transparency and Accountability in Military and Security Contracting Act of 2007 (Sen. Obama) • Accountability in Contracting Act (Rep. Waxman)

33. Contractors on the Battlefield • Executive Branch Oversight • Increased scrutiny by Inspector Generals, DCAA, and Department of Justice • Special Inspector General for Iraq Reconstruction (“SIGIR”) • Opened over 300 criminal and civil investigations leading to 10 arrests, 5 indictments, and 5 convictions • SIGIR investigations have resulted in 23 cases currently under prosecution at the Department of Justice • SIGIR is currently working on 79 ongoing investigations

34. Contractors on the Battlefield • Summary • Manage risk on an up-front basis • Terms of the contract are key to risk management • Have strong internal compliance for overseas activities • Build unexpected costs of doing business in a war zone into your contracts • Expect and prepare for increased oversight