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With civilian contractors in Iraq facing increasing peril, the Department of Defense is pushing a proposal that would shift the risks associated with working in a combat zone onto private companies. Just days before the March 31 murder and mutilation of four American security workers in Fallujah, the Pentagon quietly released a proposed amendment to DOD acquisition rules that would require companies to accept “the risks associated with required contract performance” in inherently dangerous areas. If the proposal is adopted, a new clause would be added to all defense contracts that require work to be performed outside the United States in support of humanitarian, peacekeeping, and combat missions. Among other things, contractors would assume responsibility for notifying next of kin in the event of death or injury, and for flying the bodies of deceased workers back to the United States. At the same time, the proposal specifies that civilian contractors serving U.S. troops should not generally rely on the government for security, food, lodging, transportation, telephone service, or even medical treatment. The rule also gives military commanders the authority to make contractual changes in the field. Government contract attorneys applaud that provision, saying it reduces red tape for companies working under increasingly dangerous conditions. But lawyers with clients operating in Iraq say they are troubled by the broad language that requires contractors to accept risk, saying it seems to stick private companies with potentially huge liabilities. “The Pentagon appears to be pushing an enormous amount of risk borne by the government onto the contractor,” says Wiley Rein & Fielding partner William Roberts III, who represents a number of companies involved in Iraqi reconstruction. “If that is indeed what they’re trying to do, it’s of significant concern to me and my clients.” If adopted, Roberts says, the DOD proposal could make it more difficult for companies to recoup unexpected costs associated with working under dangerous conditions or to defend themselves against charges that they have not satisfied a contract. Alan Chvotkin, senior vice president of the Professional Services Council, a government contractors’ trade association, says the proposed language is intended to “put contractors on notice.” He says the group plans to submit comments to the proposed rule before the May 24 deadline. “It’s real exculpatory language the Defense Department is trying to impose,” Chvotkin says. “It tells the contractor, ‘You’re going into an area where there is risk, and you can’t just walk away from that.’ “ Meanwhile, military lawyers say companies need to accept certain burdens if they want to do business with the U.S. government. “I don’t think this represents a big shift,” says Col. David Howlett, a senior lawyer to the Army Materiel Command. “What this [proposal] does is bring together and standardize requirements already imposed on contractors.” Bruce Shirk, co-chair of the homeland security practice in the D.C. office of Powell, Goldstein, Frazer & Murphy, says that the Pentagon seems to be assigning greater risk to contractors and at the same time reducing its own obligations to provide support. As a consequence, Shirk says, contractors may demand higher payments. “The concepts in the proposal may be nothing new,” Shirk says. “What the government has done is explicitly laid down a marker that provides the contractor accepts the risk.” He adds, “It’s a hell of a lot different when the government says, ‘You’re going to build a road in Des Moines, Iowa, and you’re going to assume all the risks,’ and doing the same thing in Baghdad.” The number of civilian contractors supporting U.S. efforts in Iraq is estimated at 10,000 — approximately one for every 10 troops. The risks facing such workers have never been more apparent. On April 10, the Houston-based Halliburton Co., a major defense contractor, reported that 30 individuals working for the company and its subcontractors had been killed in Iraq. The announcement came after seven civilians working for Halliburton subsidiary Kellogg, Brown & Root were kidnapped when their convoy was ambushed outside Baghdad. By law, all defense contractors sending workers outside the United States must provide workers’ compensation insurance under which defined benefits are provided to workers or their beneficiaries in exchange for an agreement not to sue the company. If death or injury occurs as a result of war-related events, the U.S. government covers claims under the War Hazards Compensation Act. The same framework generally applies to subcontractors. Many other legal issues associated with the execution of contracts in the field remain unsettled. Among them: the contractor’s responsibility to respond to military orders; the application of the Uniform Code of Military Justice to civilians in the field; and the status of contractors under the law of war. Over the past few years, the Pentagon and individual DOD agencies have stepped up efforts to address gray areas of the law related to civilians supporting the troops. The Air Force recently released the second of three policy memos on the issue. The final installment on applications of the law of war to civilian contractors is expected later this month. The Pentagon’s proposal attempts to address murky legal issues and turn them into binding contractual terms and conditions, says Crowell & Moring partner David Hammond, who represents contractors and security firms in Iraq. One of the most significant changes included in the DOD plan answers the enduring question of whether military commanders can change the terms of contracts in the field. Technically, only a designated contracting officer can approve changes to a contract. Contractors who respond instead to the instructions of military authorities, even in an emergency, often have to fight for payment. In a war zone, the impracticality of the system becomes a burden to both parties. “You may have a situation in the field where there is an urgent need for something to get done. Contractors, because they are good citizens, usually do what a commander asks them to,” says government contracts attorney Louis Victorino, special counsel in the D.C. office of Sheppard, Mullin, Richter & Hampton. “The problem is a commander is not a contracting officer, so contractors find themselves arguing and pleading for payment.” Under the new proposal, contractors would be obligated to comply with military commanders’ instructions that take precedence over the terms of the existing contract. The contractor would then submit a request for payment. Chvotkin says his coalition of government contractors strongly supports the provision. “This still leaves the contractor to work out the pay issue, but it at least guarantees that a contractor’s actions will be ratified,” Chvotkin says. The proposed contract clause also requires companies to develop plans for replacing essential employees if necessary and specifies that, in the event of a nonmandatory evacuation, essential workers must remain behind. Still, lawyers predict that in a volatile environment like Iraq, such issues will continue to raise sticky problems whether or not the Pentagon’s proposal is adopted. “If you’re in an inherently dangerous situation, actions will be taken, and no one is going to be able to check the terms and conditions of the contract,” says Crowell & Moring’s Hammond. “What the Defense Department seems to be doing is establishing rules for people to argue about after the fact.”

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