Third Time’s A Charm: Government Must Reimburse Triple Canopy for Afghan Taxes

In Triple Canopy, Inc., ASBCA Nos. 61415, et al. (March 23, 2023), the Armed Services Board of Contract Appeals (ASBCA) resolved a long-running dispute in favor of the contractor over reimbursement of fees imposed by the Afghan government on large security firms operating in the country. The ASBCA found the fees were akin to after-imposed taxes, reimbursable by the U.S. government, and not penalties for illegal conduct. 

Triple Canopy had six fixed-price contracts with the U.S. Department of Defense (DoD) to provide private security services to military bases in Afghanistan. These contracts, awarded between March 2009 and September 2010, required Triple Canopy to comply with local laws. The contracts also included FAR 52.229-6, Taxes-Foreign Fixed Price Contracts, which states that the contract price shall be increased by the amount of any after-imposed tax the contractor is required to pay. In March 2011, the Afghan government issued a directive limiting the number of employees of any private security company to 500, imposing a fee for each employee over the cap. Triple Canopy was assessed a fee in March 2011, with the right to appeal, and that same month, the DoD issued a memo to the Afghan government requesting that Triple Canopy be exempted from the 500-employee limit. Triple Canopy appealed the assessment, which the Afghan government reduced, and Triple Canopy paid the reduced amount in July 2011. Triple Canopy submitted claims to the Contracting Officer (CO) for reimbursement of the fees, and then appealed to the ASBCA on the basis of the CO’s deemed denials. The ASBCA initially found Triple Canopy’s claims were barred by the Contract Dispute Act’s six-year statute of limitations and denied the appeals, which the Federal Circuit reversed and remanded in Triple Canopy, Inc. v. Sec’y of Air Force, 14 F.4th 1332 (Fed. Cir. 2021). 

The Government argued that Triple Canopy provided no evidence the assessment was a tax, as opposed to the payment of a penalty imposed by the Afghan government to deter large security contractors from operating in the country. The Government also alleged that Triple Canopy did not provide the CO with a written statement that the assessment amount was not included in its contract prices, as required under FAR 52.229-6. 

The ASBCA rejected both arguments and held the fee was like a tax because the Afghan government allowed contractors to continue operations if they paid the assessment. Once the assessment was paid, contractors were considered compliant with Afghan law. The ASBCA also held that Triple Canopy’s failure to provide the CO with a statement that the assessment was not included in the contract prices was moot, as the fee did not exist until after the contracts were signed and the DoD was actively working for an exemption, and the Government was therefore on notice of the imposed assessment. 

Contractors with fixed-price contracts are reminded that when foreign governments impose an unanticipated surcharge on doing business in the country during the performance of a contract, those costs may be reimbursed under FAR 52.229-6.