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U.S. drops case against KBR over Iraq private security costs

(Reuters) - The United States has dropped its case against the engineering and military contractor KBR Inc over the costs of KBR's private armed security in Iraq.

U.S. District Judge Royce Lamberth, in an order posted on Thursday, granted the Justice Department's petition from Wednesday to have its lawsuit dismissed without prejudice, a move that would leave it free to possibly refile the case at a later date.

A Justice Department spokesman declined to comment.

The Justice Department had launched the lawsuit against the Houston-based company in April 2010 for alleged False Claims Act violations for impermissible security costs in billings to the U.S. Army from 2003 to 2006.

"The use of armed private security contractors was both reasonable and necessary given the dangerous, life-threatening conditions under which KBR and its subcontractors were asked to perform in Iraq," KBR said in a statement.

The contract at issue provided for logistical support, such as food services, transportation, laundry and mail, for military operations. The lawsuit involved KBR and 33 subcontractors.

The lawsuit filed in federal court in Washington, D.C., alleged that KBR violated the contract by failing to obtain Army authorization for arming subcontractors and by allowing the use of private security contractors who were not registered with the Iraqi Ministry of the Interior.

But KBR countered that it had to hire private security to protect workers in Iraq because the U.S. Army failed to do so.

The case was only one of many legal battles for KBR related to work in Iraq. KBR also faces a lawsuit by soldiers who say they were exposed to toxic chemicals at an Iraqi oil industry water treatment plant where KBR ran security.

Earlier this month, a jury awarded the 12 plaintiffs in that case $10.2 million in actual damages and $75 million in punitive damages. KBR said it was deciding whether to appeal.

The case is United States of America v. Kellogg Brown & Root, U.S. District Court for the District of Columbia, No. 1:10-cv-00530

(Reporting by Braden Reddall in San Francisco; Editing by Tim Dobbyn)

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