CBCA 6659 GRANTED IN PART; CBCA 7422 GRANTED:

CBCA 6659 GRANTED IN PART; CBCA 7422 GRANTED:

February 19, 2025

CBCA 6659, 7422

WISE DEVELOPMENTS, LLC,

Appellant,

v.

GENERAL SERVICES ADMINISTRATION,

Respondent.

Diana Parks Curran, Hadeel N. Masseoud, and Aseil Abu-Baker of Curran Legal

Services Group, Inc., Marietta, GA, counsel for Appellant.

Justin S. Hawkins, Office of General Counsel, General Services Administration,

Washington, DC, counsel for Respondent.

Before Board Judges LESTER, O’ROURKE, and NEWSOM.

O’ROURKE, Board Judge.

These consolidated appeals concern the lease of a building designed and constructed

for the Social Security Administration (SSA), the tenant agency. Shortly after SSA moved

in, personnel perceived an unpleasant odor in the building. Despite exhaustive efforts, no

one was ever able to identify the source of the odor. Eventually, SSA vacated the building,

and the leasing agency, the General Services Administration (GSA or agency), terminated

the lease for default. Appellant, Wise Developments LLC (lessor or Wise), did not challenge

the termination at that time. Five years later, however, Wise submitted a claim for damages

based on the GSA’s wrongful termination of the lease.

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In a prior decision in these appeals, the Board determined that, although Wise did not

appeal the termination for default within the required ninety-day period, the termination

decision remained vulnerable to dispute because it lacked a notice of appeal rights. Wise

Developments, LLC v. General Services Administration, CBCA 6659, 21-1 BCA ¶ 37,774.

Attempts to resolve the surviving dispute through mediation were unsuccessful. The agency

then asserted a claim for excess reprocurement costs against Wise, which Wise timely

appealed before moving to dismiss the claim through summary judgment. The Board

suspended consideration of the summary judgment motion, among other motions, and

conducted a merits hearing focused on the propriety of the default termination.

Currently before the Board are (a) Wise’s claim for unpaid rent and other damages

and (b) the agency’s claim for excess reprocurement costs. Implicit in both of these appeals

is the question of whether the termination for default was proper. For the reasons explained

below, we find that the agency has failed to establish the validity of the default termination.

Accordingly, we grant a portion of Wise’s requested damages. We also grant Wise’s appeal

of the agency’s claim for excess reprocurement costs and deny as moot Wise’s motions for

summary judgment, declaratory judgment, and sanctions.

Findings of Fact

Contract and Build-out Requirements for the Tenant Agency

On May 26, 2011, GSA awarded Wise lease number LNC61075 (the contract) for

leased facilities in Hickory, North Carolina. The contract specified a ten-year term, the first

five of which were firm (the firm term), which meant that the contract could not be

terminated during the first five years. Appeal File, Exhibit 11 at 1-2.1 Rent was initially

established at $36,241.29 per month for the firm term, then amended to $37,252.96 per

month. Id.; Exhibit 13 at 1. The contract involved a “build to suit” project, designed and

constructed specifically for the mission of the tenant agency, SSA. The facility, a customer

service center for the local community, was a brand new, LEED certified,2 single-story office

building, with the SSA as the sole tenant. Specifications for constructing “build to suit”

facilities for the SSA were detailed and extensive due to the high customer volume and

public-facing nature of its day-to-day mission. For these reasons, it can take several years

to complete a new SSA office. Transcript, Vol. 1 at 263-65.

1

2

All exhibits are found in the appeal file, unless otherwise indicated.

Transcript, Vol. 2 at 46-47. LEED stands for Leadership in Energy and

Environmental Design.

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The contract required Wise to lease to GSA “[a] total of 14,950 rentable square feet

(RSF) of space on the first floor of a building to be constructed on Parcel Number

370213144561 in Southgate Corporate Park” and “seventy-eight (78) onsite, surface parking

spaces for the exclusive use of Government employees and patrons.” Exhibit 11 at 1. In

addition to providing office space and parking spaces for the tenant agency, the terms of the

contract required Wise to furnish to the Government, as part of the rental consideration, the

following:

All labor, materials, equipment, design, professional fees, permit fees,

inspection fees, utilities, construction drawings (including, without limitation,

plans and specifications), construction costs and services and all other similar

costs and expenses associated with making the space, common areas, and

related facilities ready for occupancy in accordance with the requirements of

this lease and the Government’s final construction drawings.

Id. at 2.

Contract Requirements Related to Air Quality and Material Safety

The solicitation was expressly incorporated into the contract and contained multiple

provisions relevant to this dispute. Exhibit 11 at 2. Paragraph 3.7(B)(1) required the lessor

to submit to the contracting officer product information for “floor coverings, paints and wall

coverings, ceiling materials, all adhesives, wood products, suite and interior doors,

subdividing partitions, wall base, door hardware finishes, window coverings, millwork

substrate and millwork finishes, lighting and lighting controls, and insulation.” Id. at 17.

Paragraph 4.9 addressed janitorial services for which the lessor was responsible. This

provision required the lessor to perform janitorial services during tenant working hours and

to “minimize the use of harsh chemicals and the release of irritating fumes.” Id. at 22.

The contract contained detailed specifications related to air quality in the facility.

Paragraph 5.12, entitled “Indoor Air Quality During Construction,” which required the lessor

to:

provide to the Government Material Safety Data Sheets (MSDS) . . . prior to

installation or use, for the following products: adhesives, caulking, sealants,

insulating materials, fire proofing or fire stopping materials, paints, carpets,

floor and wall patching or leveling materials, lubricants, clear finishes for

wood surfaces, janitorial cleaning products, and pest control products. . . . All

MSDS shall comply with all Occupational, Safety and Health Administration

(OSHA) requirements. The Lessor and its agents shall comply with all

recommended measures in the MSDS to protect the health and safety of

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personnel. To the greatest extent possible, the Lessor shall sequence the

installation of finish materials, so that materials that are high emitters of

volatile organic compounds (VOC) are installed and allowed to cure before

installing interior finish materials, especially soft materials that are woven,

fibrous, or porous in nature that may absorb contaminants and release them

over time.

Exhibit 11 at 32.

To maximize air quality prior to occupancy, the contract also called for “a final flush

out period,” lasting at least seventy-two hours “after installation of all interior finishes and

before the tenant agency’s occupancy of the space.” Id. During the flush-out period, the

lessor was required to “ventilate 24 hours a day, with new filtration media at 100% outdoor

air (or maximum outdoor air while achieving a relative humidity not greater than 60%).” Id.

After the three-day flush out period concluded, the tenant agency could occupy the space.

However, the contract required the flush-out to continue “for 30 days using the maximum

percentage of outdoor air consistent with achieving thermal comfort and humidity control”

and directed the lessor to provide “regularly occupied areas of the tenant space with new air

filtration media before occupancy that provides a Minimum Efficiency Reporting Value

(MERV) of 13 or better.” Id. at 32-33.

The contract also contained a number of other directives related to the selection and

use of materials in construction and landscaping, such as avoiding toxic materials, using

products that are extracted and manufactured locally, minimizing fertilizers and pesticides,

using native plants, ensuring that any particle wood, strawboard, and plywood materials

comply with applicable standards for formaldehyde emission controls, treating all

combustible materials with fire retardant chemicals “by a pressure impregnation process or

other methods that treat the materials throughout, as opposed to surface treatment,” and

priming surfaces for painting the building shell with a low VOC primer. Exhibit 11 at 37-41.

Paragraph 7.5 specifically addressed the use of adhesives and sealants, instructing the

contractor that:

all adhesives employed on this project (including, but not limited to, adhesives

for carpet, carpet tile, plastic laminate, wall coverings, adhesives for wood, or

sealants) shall be those with the lowest possible VOC content below 20 grams

per liter and which meet the requirements of the manufacturer of the products

adhered or involved. The Lessor shall use adhesives or sealants with no

formaldehyde or heavy metals. Adhesives and other materials used for the

installation of carpets shall be limited to those having a flashpoint of 140

degrees F or higher.

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Id. at 40. Paragraph 7.12(B)(2) pertained to painting and required the lessor to provide

interior paints and coatings that met specified standards for VOC off-gassing. Id. at 41. The

provision for carpet tiles, paragraph 7.15, contained twelve individual specifications.

Subparagraphs 2 and 5, entitled “Environmental Requirements” and “Secondary Back,”

required carpet tiles to meet the “Green Labels Plus requirements of the Carpet and Rug

Institute” and “be PVC free.” Id. at 43. The specification for insulation in paragraph 8.5

required that insulation comply with EPA recommendations on recycled content, be free of

chlorofluorocarbons (CFC), and be “low emitting with not greater than .05 ppm

formaldehyde emissions.” Id. at 45.

Paragraph 8.9 required janitor closets to provide a “containment drain[] plumbed for

appropriate disposal of liquid wastes in spaces where water and chemical concentrate mixing

occurs for maintenance purposes.” Exhibit 11 at 47. Ventilation of the building shell and

restrooms was addressed in paragraph 8.11. The contract specified compliance with

particular industry standards for ventilation system design and acceptable indoor air quality,

as well as methods for testing ventilation, and efficiency ratings for all air filtration media.

For example, exhaust systems for restrooms required a “minimum of 10 air changes per

hour.” Id. at 48.

In addition to the specifications listed above, paragraph 9.4 of the contract, entitled

“OSHA Requirements,” instructed the lessor to “maintain [the] buildings and space in a safe

and healthful condition according to OSHA standards.” Exhibit 11 at 52. A second

specification for indoor air quality, paragraph 9.6, required the lessor to “control

contaminants at the source and/or operate the space in such a manner that the GSA indicator

levels for carbon monoxide (CO), carbon dioxide (CO2), and formaldehyde (HCHO) [were]

not exceeded.” Id. at 53. Further, the contract required the lessor to “make a reasonable

attempt to apply insecticides, paints, glues, adhesives, and [heating, ventilation, and air

conditioning (HVAC)] system cleaning compounds with highly volatile or irritating organic

compounds, outside of working hours.” Id. The lessor had to notify the Government

seventy-two hours in advance “before applying noxious chemicals in occupied spaces” and

had to “adequately ventilate those spaces during and after application.” Id. This provision

also permitted the Government to conduct random air quality inspections and repeated the

mandate that the lessor provide the Government with the MSDS for the following products

prior to their application: “adhesives, caulking, sealants, insulating materials, fireproofing

or firestopping materials, paints, carpets, floor and wall patching or leveling materials,

lubricants, clear finishes for wood surfaces, janitorial cleaning products, pesticides,

rodenticides, and herbicides.” Exhibit 11 at 53. And, “where hazardous gasses or chemicals

. . . [were] present or used, including large-scale copying and printing rooms,” the lessor was

required to “segregate areas with deck-to-deck partitions with separate outside exhausting

at a rate of at least 0.5 cubic feet per minute per square foot, no air recirculation.” Id.

CBCA 6659, 7422

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Finally, the contract contained detailed specifications to ensure the lessor provided a work

space that was free from hazardous materials, mold, and radon. Id. at 53-55.

Site-Specific Requirements for the SSA Office

Paragraph 11 of the contract, entitled “Special Requirements,” referenced an

attachment for “SSA - Atlanta Region Office Space Specifications and Requirements dated

10/3/08, revised 3/23/09 and 3/1/10.” Exhibit 11 at 59. This thirteen-page attachment

contained specific requirements for the Hickory, North Carolina, SSA office (Hickory SSA

office), including indoor specifications for an office space layout that accommodated

forty-two personnel. Id. at 60-73. The specifications provided the build-out requirements

for the reception area, workstations, management offices, the local area network (LAN)

room, a multi-purpose room, private interview room, training room, automatic data

processing (ADP) room, restrooms, storage room, and a video conference room to conduct

hearings. Id.

Some of the information in the site-specific attachment is relevant to this dispute. The

250 square foot (sq. ft.) ADP room contained computer, electronic, and various

telecommunications equipment, such as LAN racks, modems, printers, telephone controllers,

and battery backup systems. Exhibit 11 at 70. Because of the heat generated by the

equipment, the ADP room required a separate HVAC thermostat to regulate temperature and

humidity twenty-four hours a day, seven days per week. The room also required acoustic

ceiling and smooth vinyl floor tiles, as well as two sheets of exposed plywood treated with

a minimum of “two coats of fire retarding paint/sealant,” one for mounting the telephone

control system and the other to be installed behind the LAN rack. Id. at 70.

The interactive video training (IVT) room was a 460-square-foot space located in the

inner area of the office, away from noisy areas like the elevator shafts, restroom plumbing

walls, and high traffic areas. Exhibit 11 at 66. Additional noise-reducing specifications for

this room included acoustic tiles, carpet squares, low velocity equipment, walls with a sound

transfer class (STC) rating of 45, and baffled duct penetrations for the separately zoned

HVAC “so as not to compromise the STC requirement.” Id. at 67.

Specifications for the office reception and interviewing areas included no-slip ceramic

tile floors, plastic-laminate covered shelves and plexiglass at each reception window. Exhibit

11 at 68. Those areas also had a separately zoned HVAC system “designed to supply six

complex air changes per hour” and a thermostat with a lock case. Id. at 69. New office

furniture was not part of the contract and was procured separately by SSA. Transcript, Vol. 2

at 83. There is no information in the record about how the office furniture was made or what

materials were used in the manufacturing process.

CBCA 6659, 7422

7

Construction Completion and Building Occupancy

Construction and build-out of the facility were completed in late September

2012—sixteen months after contract award. Nothing in the record indicates any challenges

with the agency’s inspection and acceptance of the building or its systems. The HVAC

system was tested, adjusted, balanced, and certified as meeting or exceeding the Associated

Air Balance Council National Standards on September 27, 2012. Exhibit 219 at 10-11. The

facility also underwent radon testing, as required by the contract, from October 2 to 5, 2012.

Exhibit 224 at 62.3 The report, dated October 8, 2012, reflected levels below EPA action

levels. Id. at 2.

The SSA occupied the building on October 5, 2012. Exhibit 66 at 9. After opening

its doors to the public on October 10, 2012, the facility served an average of 2800 customers

per month. Transcript, Vol. 1 at 254.

Complaints About an Odor in the Office

In February 2013—four months after moving into their new office—SSA employees

raised concerns about an odor in the building. The record is not clear how many employees

raised concerns. Over the next twelve months, the odor would come and go with no

discernable pattern. It was described as “a chemical odor,” “a burning wire smell,” “a new

plastic odor,” and “a new vinyl smell, like when you first open a shower curtain.” Exhibits

17, 31, 36, 83, 90 at 3-4, 95,153 at 2, 282 at 295. Other descriptions of the odor included

comparisons to “dusty filters,” “dirty filters,” “a sanitized doctor’s office,” “drying concrete,”

“pepper,” “cosmoline,”4 “toner cartridges,” and “a gas grille when it’s first fired up.”

Exhibits 23, 31, 88, 102, 104; Transcript, Vol. 2 at 76. The onset of the odor was sudden and

sporadic. Most of the time, it was a fleeting phenomenon, lasting for a few minutes before

dissipating quickly, but sometimes it would linger for an hour or more.

During the seventeen months that the SSA occupied the building, SSA personnel

contacted the Hickory Fire Department eight times due to concerns about the odor. In each

instance, fire department personnel inspected the facility and tested for noxious chemicals

3

In the appeal file index, the radon testing report is marked as exhibit 222, but

in the appeal file, it is exhibit 224. It appears that two exhibit numbers (220, 221) were

inadvertently skipped in the file, rendering the remaining count off by two.

4

Cosmoline is a common class of wax-like petroleum-based corrosion

inhibitors. Exhibit 66 at 13.

CBCA 6659, 7422

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using specialized equipment, but no harmful chemicals were ever detected.5 Exhibits 81, 95,

99, 282 at 287-99. Hickory Fire Department reports primarily contained descriptions of the

odor given by others. One report, however, provided a firsthand account of the smell. The

report, dated April 23, 2013, stated that “upon discovering the smell for ourselves, we

advised the occupant that the smell was more of a dirty HVAC filter or mold in their system,

and that they may want to contact their HVAC maintenance representative and have them

come out and check the system.” Exhibit 81. Employees were routinely permitted to return

to work after the fire department completed its checks. Nonetheless, on multiple occasions,

SSA employees were temporarily released or released early by management out of an

abundance of caution. Exhibits 26, 162; Transcript, Vol. 1 at 251-52, 277-78. Sometimes,

the building was closed due to the odor, frustrating the parties and members of the

community conducting official business at the facility. Transcript, Vol. 1 at 253-54.

SSA personnel initially thought the odor was weather dependent, coinciding with

rainy days or on days when the heat was turned on, but multiple incidents occurred on

non-rainy days, and HVAC technicians could not replicate the odor when they ran heating

tests. Exhibit 88. During the first full year of SSA’s occupancy, the parties cooperated in

their efforts to identify the source of the odor and resolve it. In addition to the air quality

inspections permitted by the contract, experts from private industry and from the

Occupational Health and Safety Administration (OSHA) conducted more sophisticated

testing at the request of the agency and the lessor. None of the tests showed anything

harmful or provided any insights regarding the cause of the odor. SSA personnel continued

to experience the odor and remained concerned that the source eluded identification and,

therefore, would persist.

It is not clear how many people—employees or visitors—detected the odor or found

it to be anything beyond a nuisance when it occurred. No comprehensive data exists in the

record that shows the number and frequency of SSA personnel who experienced adverse

symptoms when the odor materialized in the building. There are only two firsthand accounts

in the record of personnel who experienced adverse symptoms as a result of the odor, one

from a GSA engineer and the other from a certified industrial hygienist. Neither person

worked in the building, but both had visible reactions to the odor on one occasion, though

they had visited the building multiple times. Their symptoms included burning watery eyes,

an itchy throat, and reddening of the face and neck. Exhibits 21, 100, 153.

5

During one response, a monitor detected a brief fluctuation in hydrogen sulfide

but did not indicate unstable levels. Exhibit 282 at 288. The building’s design engineers

confirmed that none of the materials used in constructing the facility created hydrogen

sulfide. Exhibit 104; see also Transcript, Vol. 2 at 72, Vol. 1 at 282-310 (explaining how an

employee sold farm fresh eggs in the break room, which can be a source of hydrogen sulfide

when they rot).

CBCA 6659, 7422

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The record also contains two OSHA complaints, received months apart, describing

a long list of physical symptoms experienced by “SSA staff,” including headaches, nausea,

nosebleeds, dizziness, stomach cramps, inability to breathe normally or deeply, bad taste in

the mouth, and sinus pain, among other symptoms. Exhibits 21, 82. We do not know

whether a single employee filed both complaints, two different employees filed separate

complaints, or a supervisor filed the complaint on behalf of several employees. When the

odor materialized, some people were much more affected by it than others. Because OSHA

complaints are confidential, and no SSA employees testified at the hearing (or otherwise

provided statements), there is sparse evidence regarding the scope of the impact on SSA

employees. Id.; Exhibit 250.

The on-site SSA manager eventually developed an incident log to track occurrences

of the odor and any resulting office closures. Exhibit 26. According to the log, the odor was

detected thirty-two times during a seventeen-month period, twenty-nine of which were

detected by SSA staff. Id. As noted above, however, there are no contemporaneous

statements from affected employees in the record, and no one from the tenant agency who

worked in the building testified at the hearing. Additionally, email messages from SSA

managers indicate that visiting members of the public complained of the odor, but the record

is devoid of any customer complaints or incident reports to that effect, and no one from the

community testified about the odor. The contracting officer (CO) testified that he detected

the odor on each of his five visits to the facility but clarified that he experienced no physical

symptoms from the odor. Transcript, Vol. 1 at 67. The City’s risk manager said the same

thing of his visits—he detected the odor but experienced no symptoms. Exhibit 102.

Not everyone could detect the odor. The on-site SSA property manager was never

able to detect it nor were various technicians who serviced the building. Exhibit 279;

Transcript, Vol. 1 at 296. Neither the lessor nor his property manager ever detected the odor.

Transcript, Vol. 2 at 77-78. The lessor’s main office was located about an hour-and-a-half’s

drive from Hickory. By the time that they arrived at the building after being notified of an

occurrence, the odor had dissipated. The lessor directed one of his employees to work

full-time in the building for a week in an effort to identify the cause of the odor and fix it.

Id. The employee did not smell the odor once during that week. Id.

Testing Conducted to Identify and Remedy the Cause of the Odor

Due to the contract’s strict requirements for indoor air quality, as well as the

disruption to the SSA’s mission, the parties began an intense course of investigating, testing,

measuring, cleaning, inspecting, and analyzing all key aspects in and around the building to

identify the cause of the odor and fix it—from the quality of the air and functioning of the

HVAC and sewer systems to the carpet, break room appliances, soil, and cleaning products.

None of these efforts identified the source of the odor or showed the presence of noxious

CBCA 6659, 7422

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chemicals in the air. On the contrary, testing reports consistently showed that the air quality

in the building met contract and OSHA standards—including air samples obtained while the

odor was present. Summaries of these efforts and the results follow.

HVAC Work. On at least nine occasions, beginning on February 26, 2013, Wise

engaged Stanley Heating and Air Conditioning (SHAC), the company that installed the

HVAC system in the building, to determine whether the HVAC system was the source of the

reported odor. Work performed by SHAC to address the odor included: fixing units that had

a lack of fresh air flowing into them; installing a drain hub with an air gap at the elbow of the

condensation drain; spraying down the Valent unit with water to replicate the smell, which

they could not do; replacing an exhaust motor and cleaning a blower wheel in a restroom;

cleaning, drying, and reinstalling all aluminum coils; and changing out air filters that were

overdue for new filters. None of the technicians detected the odor on any of these occasions,

nor did they find the HVAC system to be the source of the odor. Exhibits 72-80.

Hickory Fire Department Testing. The fire department was called eight times to the

Hickory SSA office on the following dates: April 13, 2013, November 7, 2013,

November 21, 2013, December 4, 2013, December 16, 2013, December 20, 2013,

February 19, 2014, and March 14, 2014. Exhibits 81, 95, 139, 256, 279, 282 at 287-99.

During these response visits, fire personnel tested the air in the office to assess the presence

and quantity of any noxious chemicals, such as carbon monoxide, carbon dioxide, sulfide,

and low oxygen levels. Id. None of the test results revealed any harmful odors or chemicals

in the office. Id.6

Risk Management Inspection. The risk manager for the City of Hickory visited the

facility at the property manager’s request to ascertain whether the odor was attributable to

anything for which the City was responsible. Exhibit 102. After arriving on-site on

November 22, 2013, the City’s risk manager noted “a faint odor in the building” and initially

thought it smelled like the “rubber backing on carpet.” Id. In a memorandum summarizing

his observations and conclusions, he compared the odor to what he experienced in his own

office when printer cartridges were heavily used. Id. “If a copier or printer is used

frequently, they heat up and give off a similar odor to the one that I smelled at the Social

Security Office.” Id. The risk manager returned to the Hickory SSA office and spoke with

an SSA manager and other personnel about the possibility that the toner and copiers were the

source of the odor. He also suggested that SSA consult an outside air monitoring company.

According to his memorandum, even though he could detect the odor, he did not experience

any adverse symptoms while he was in the building. Id.

6

At least three fire department reports appear twice in the record. Duplicates

include exhibits 81 and 233, exhibits 98 and 99, and exhibits 95 and 256.

CBCA 6659, 7422

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Air Quality Testing. Wise hired IBS Environmental Services (IBS) to conduct air

quality testing on December 13, 2013, and November 18, 2014. Exhibits 23, 25. Both tests

utilized “[Toxic Organics (TO)]-15 canisters” to capture the air samples. Id. IBS issued

separate reports based on the results of the testing. Id. For the first test, two air samples

were collected, one from the multipurpose room and one from the hallway. Exhibit 23 at 1.

On the date of the collection, investigators said they did not detect any odors that matched

previously-provided descriptions, including “new grill smell, chemical grill smell, burnt

wiring, dusty filters, and chlorine.” Id. Also, both samples were analyzed by optical

microscopy. Id. IBS’s January 6, 2014, report not only concluded that no fungal anomalies

were produced from the samples but also documented other notably absent items, including:

1) no ozone or VOCs near computer equipment or copiers; 2) no vehicle exhaust around the

loading docks or from the closest highway; 3) no chemical emissions from outdoor

construction activities; 4) no elevated levels of carbon monoxide; and 5) no anomalies due

to emissions from building carpet, furnishings, and other building components such as VOCs

(including formaldehyde from glues, fabric treatments, stains and varnishes). Id. The report

noted, however, that a foul smell was emanating from the refrigerator and that cooking odors

and residue were also detected in the suspect area. Id. Finally, the report revealed that

“acetone, bug spray, and cleaning supplies were found in this area. Id. at 2. These chemicals

could be identified as suspect for this investigation and should be removed or stored in

another location.” Id.

During the second test, one air sample was collected and analyzed from the

multipurpose room. The sampling duration was one hour per canister to ensure detection of

any VOCs that may be responsible for the reported odors. The IBS report, dated January 30,

2014, concluded: “The analysis for this area did not reveal concentrations above established

limits set by NCDENR [North Carolina Department of Environment and Natural

Resources].” Exhibit 25 at 1.

Air Flow Analysis. In addition to collecting air samples on the first test described

above (December 13, 2013), IBS conducted a “simple test” to help identify the origins of the

odor and understand its pathway into the office. Exhibit 23. Apple-scented air freshener was

injected into one of the return air ducts located in the multi-purpose room. Id. The scent was

then traced out and into the office hallway. Id. The same scent was detected in the office

area. IBS’s January 6, 2014, report concluded that “[t]his return air vent was acting as a

vacuum and drawing any odors derived in the multi-purpose room and discharging the odors

into the office area.” Id.

Engineering Evaluation. On December 18, 2013, professional engineers from Killian

Engineering drafted a list of recommendations for identifying and eliminating the odor

problem at the Hickory SSA office. Exhibit 3. The list was provided to Blue Ridge

Enterprises, the builder and property management company, and to GSA. The initial

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paragraphs of the list explained that “no one has, as yet, identified the source of the odor,”

but “it is fairly certain that the rooftop outside air unit is the mechanism for spreading the

odor, as all reports of the odor coincide with locations where supply air from the unit is

introduced into the space.” Id.

The report contained six recommended actions, summarized as follows: 1) changing

all filters in the unit and organizing them in ascending order of MERV rating; 2) changing

the control sequence of the unit to eliminate the morning purge cycle; 3) adding ultraviolet

lights to the rooftop system to eliminate possible biological sources of odor; 4) adjusting the

control sequence to reduce or eliminate the recirculation of air from the space; 5) adding

points to the “Trane Trace controller” to pull from the outside air unit and then enable trend

logging of the additional points to find possible correlations between how the unit is

operating and the presence of the odor; and 6) hiring an outside consultant that specializes

in identifying the causes of reoccurring building odors. Exhibit 3.

Indoor Air Quality Survey. From December 20, 2013, through January 11, 2014,

OSHA conducted an indoor air quality survey in response to an employee complaint filed

with OSHA. Exhibit 16. Three air samples were taken: one on December 20, 2013, when

no odor was detected, one on January 10, 2014, during “an odor event,” and one on

January 11, 2014, the day after the odor event. Id. According to the report summary, “[t]he

air sampling events were not successful in providing guidance as to the cause of the odor.

There was nothing unusual about concentrations of tentative identified compounds,” and the

concentrations were “very low compared to OSHA Permissible Exposure Limits (PELs).”

Id.

SSA’s Decision to Exercise a Redeployment Plan and Vacate the Facility

The contract permitted GSA to terminate the lease for any reason after the first

five-year term (the firm term). Exhibit 11 at 2. It also contained a vacation of premises

clause (GSAR 552.270-16) that required the agency to notify the lessor within thirty days of

any plan to vacate the premises. Id. at 25. In February 2014, a year after the odor was first

detected in the office, the contracting officer sent Wise a letter stating that “the Government

[was] exercising a redeployment plan and vacating the majority of the premises effective

February 24, 2014, due to continuing problems with noxious odors.” The letter also stated

that a limited staff of two personnel and one security guard would remain on-site. The

contracting officer stated that once the vacant square footage was measured, the agency

planned to reduce operating costs consistent with its “downsizing.” Exhibit 27.

When the SSA vacated the majority of the facility, the employees were assigned and

bused to other SSA offices in the region to continue serving the public. At that time, the

parties had not given up on identifying the source of the odor and resolving it. As soon as

CBCA 6659, 7422

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most of the SSA vacated and only three employees remained on-site, Wise’s project manager

performed a walkthrough inspection of the office. During that inspection, he noted that the

office housed multiple copy machines, printers, fax machines, and other typical office

equipment such as shredders, computers, toner cartridges, and coffee machines. He also

observed and photographed approximately fifteen space heaters in the employees’ personal

work spaces, which were prohibited. Exhibits 145, 146.7 A toner cartridge, among other

things, was found in close proximity to a space heater. The lessor’s project manager

informed the contracting officer of his findings in an email and suggested to the contracting

officer that all of the office equipment be inspected and tested by SSA to ascertain whether

the office equipment or space heaters could be the source of the odor. Exhibit 29; Transcript,

Vol. 2 at 80-82. Around that same time, a GSA employee inquired about this very issue in

an email to colleagues asking “Did SSA get us verification that their equipment is not the

cause?” One employee recommended that OSHA revisit the office with a list of the

equipment in hand just to be sure. Exhibit 142 at 2. It is unclear whether the office

equipment was the focus of any subsequent testing.

Wise responded to the contracting officer’s notice of redeployment on March 4, 2014,

taking issue with the contracting officer’s reference to “noxious odors.” Wise reminded the

contracting officer that multiple air quality tests and fire department inspections had been

conducted, none of which produced any evidence of noxious odors. Wise also referenced

the work performed, to date, to inspect, service, and clean the HVAC system by technicians

and engineers to determine if the HVAC system was causing the odor and said, “No entity

ha[d] found any evidence that the HVAC, building, or any building components, [were]

causing the ‘odor.’” Wise further noted that the building was “built on a site that underwent

not only a Phase 1, but a LEED environmental investigation, both of which were negative

for any harmful factors.” Wise shared its observation that “the first reports of an ‘odor’ only

occurred after the SSA had scaled their operations and fully occupied the building for several

months.” Exhibit 31. Wise recommended that GSA and SSA review possible causes

resulting “from tenant occupancy or tenant supplied environmental factors.” Id.

Parties’ Continued Efforts to Investigate and Remedy the Odor Issue

Despite their mutual frustration, the parties continued to perform due diligence on

various systems, equipment, and materials in the building to identify or eliminate them as

possible odor sources. Wise hired Caldwell Appliance to investigate and resolve any

potential odor coming from the refrigerator in the multi-purpose room, since that room, also

referred to as the break room, was identified as a location where the smell had been detected.

This investigation took place on February 28, 2014. Caldwell checked the refrigerator and

7

Exhibits 145 and 146 appear to be identical with the exception of the font type.

CBCA 6659, 7422

14

other appliances in that room (e.g., the microwave) and found no standing water in the drain

pans, no mold, and no foul odors coming from inside of the refrigerator. Exhibit 30.

All Country Plumbing conducted a smoke test around March 7, 2014, to check for

possible sewer leaks. The vents were plugged while smoke was injected into the plumbing

system under pressure. Any leaks in the sewer system could be identified by bright-colored

smoke seeping through cracks or holes. The invoice from the plumbing company concluded

that “no leaks were found in the plumbing system.” Exhibit 32.

At the request of GSA, the Federal Occupational Health (FOH) office, a division of

OSHA, conducted indoor air quality investigations at the facility on March 6 and 21, 2014,

due to “recurring unpleasant odors.” The investigation also included a visual inspection of

the office and office equipment. FOH’s April 4, 2014, report (FOH report) contained sixteen

items or findings. Most relevant to this case are the findings related to the carpet tiles and

the carpet adhesive. With regard to those items, the report stated, “There is a chemical, new

vinyl odor in the building, which is strongest near vinyl backed carpet tiles and below the

carpet tiles. Two carpet adhesives, both different in appearance from what was specified,

were used to install the carpet tiles and the adhesives may not be compatible with the carpet

tiles.” Exhibit 36 at 1. FOH noticed that the MSDS for the carpet tile adhesive, “Chapco

SS2,” stated that the adhesive would appear off-white in color when applied, whereas FOH

noted both blue and tan adhesive residue on the carpet tiles at the Hickory office.

As part of its investigation, FOH compared the carpet tiles and adhesives found in the

Hickory SSA office with the carpet tiles and adhesive used in the SSA office in Goldsboro,

North Carolina. Wise owned both properties and hired the same contractor to build the two

offices. The offices were constructed nearly simultaneously and followed the same general

specifications and materials. When the FOH representative visited the Goldsboro office, no

odor was found in the carpet tiles or the adhesive below the tiles. The Goldsboro carpet tiles

were exactly the same as the Hickory carpet tiles, “but the carpet adhesive was very

different.” Exhibit 36 at 4. The carpet adhesive used in Goldsboro matched the description

of the MSDS for Chapco SS2 (off-white). The report advised that “chemical odors can

potentially be caused by high moisture content in the concrete slab that is degrading the vinyl

backing on the carpet tiles. It was indicated that the concrete slab has not been tested for

moisture content.” Id. at 5. FOH recommended that the carpet tile manufacturer evaluate

the flooring in Hickory and that the carpet tiles be replaced if necessary. Id. at 9. In the

more detailed section of the report, FOH noted, “The carpeted floor is suspected to be the

source of the new vinyl odor.” Id. at 4.

We do not know when, if at all, GSA provided a copy of this report to Wise.

However, evidence in the record indicates that in mid-April 2014, the parties were

coordinating testing of the carpet tiles, adhesive, and concrete slab with a flooring

CBCA 6659, 7422

15

representative from Foothills Flooring, the company that installed the carpet. Exhibit 161.

The remaining items in the report concerned the Valent outside air unit, which brought in

fresh outdoor air when carbon dioxide levels inside the office exceeded certain thresholds.

Other observations and recommendations in the FOH report pertained to the carbon dioxide

sensor in the reception area, as well as standing water in an indoor drain line, cracks and

moisture in the concrete slab, water-stained ceiling tiles, and elevated dust levels on

computer cooling fans and on the air vents of the printers and fax machine. The copy

machines were not evaluated. The report noted that a commercial company tested the copy

machines separately, but the results of any test were not included in the record. Exhibit 36.

As a result of the FOH investigation, the parties began addressing the list of

recommendations from the FOH report. On April 30, 2014, a soil conservation technician

from Catawba County’s Soil and Water Conservation District performed a visual inspection

of the exterior grade and drains around the building. The objective of the visit was to

investigate standing water as a possible odor source. The technician observed that along the

south side of the building the grade sloped toward the building, which could allow water to

pond against the building on that side. The technician did not report any ponding of water

but did note that a drain on the southwest corner of the building had been “blocked off.” The

technician captured his observations in a one-page memorandum addressed to an OSHA

representative. Exhibit 39. The technician did not establish any connection between the

drains and the odor.

On June 6, 2014, Wise and representatives from GSA and SSA were on-site to

manage and observe “AdvantaClean” perform duct cleaning on the premises. The task

included a moisture inspection using an imaging camera in the areas of concern. No elevated

moisture levels were found. The company cleaned five items located above the drop ceiling,

including the air handler unit, supply duct work, return duct work, and diffusers. They also

cleaned the Valent system on the roof. According to the work order, all duct cleaning was

performed to NADCA Standard 2013. There were no findings with the exception of light

dust in the systems.8 Exhibit 49 at 328.

On June 20, 2014, an addendum to FOH’s April 4, 2014, indoor air quality survey was

completed. The initial report did not provide information related to the air sampling

activities that took place on March 21 or the results of this testing. The finding, as

8

Twenty-four pictures were attached to Exhibit 49, the duct cleaning report.

One of the pictures showed a green plastic Mountain Dew bottle with a small amount of a

dark substance in it, like a bottle used to chew and spit tobacco. Although the report

provided no explanation for the bottle, the FOH inspector noted in a separate report that it

was found above a ceiling tile outside of the ducts and was ruled out as the odor source.

Exhibit 56 at 3.

CBCA 6659, 7422

16

documented in the addendum stated, “The VOCs found on March 21st do not exceed any

published standards and do not raise any concerns for occupancy.” Exhibit 46 at 6

(emphasis added).

Events Preceding the Default Termination

GSA’s Initial Position on Termination. Although SSA management raised the

possibility of terminating the lease between GSA and Wise in February 2014, GSA personnel

had concerns about pursuing a default termination in light of the odor’s sporadic occurrence

and Wise’s willingness to do whatever was needed to resolve the issue. Exhibits 109, 130.

After SSA personnel vacated most of the facility that same month, GSA and SSA worked

together to identify alternate space while Wise continued to investigate the odor.

CO’s Letter to Wise About Rent Reduction. On June 17, 2014, the contracting officer

followed up with Wise on the issue of rent reduction now that the agency had vacated much

of the building. The letter informed Wise that, consistent with the terms of the lease, “the

operating rent is subject to a $5 [per sq. ft. (psf)] reduction in rent should the agency not use

a portion of the floor plan . . . SSA will not be using 10,416 [sq.ft.] . . . that works out to

$52,080 per annum, or $4,340 per month. This amount will be reduced from the operating

rent until such time as SSA re-occupies that area.” Exhibit 45 at 1 (emphasis added).

CO’s Open Items Letter to Wise. A week later, on June 24, 2014, the contracting

officer sent another letter to Wise under the subject: “Outstanding Items Needed.” The letter

listed ten “open items regarding the odor and general property management . . . that have

either not been closed out or have not received the needed follow-up.” Exhibit 48 at 1. These

included: a range of items such as janitorial and preventive maintenance schedules and

security clearances for contractor personnel; a second concrete moisture test due to

“procedural issues” with the first one; “identification of problem and correction of vinyl odor

in [the personal interview room (PIR)]”; sealing a crack outside of a window; producing a

mastic and carpet test report, as well as a report on the “south side grade clearance”; fixing

the two-toned paint interior office walls due to touch-up paint not matching; and determining

the cause of two stained ceiling tiles. Id. at 1-2. In the letter, the contracting officer

instructed the lessor to “address all these concerns with an action plan by [the] end of

business July 3, 2014,” and also requested “firm dates and times of when the open issues

w[ould] be closed and completed in accordance with the lease and appropriate procedures.”

Id. at 1. Correcting the “vinyl odor in the PIR” appeared fourth on the open items list.

CO’s Notice of Lease Overpayments. On July 8, 2014, the contracting officer sent

Wise a letter regarding “Notification of Pro-Rated Vacant Space Reduction - Hickory, NC,

LNC61074.” The contracting officer informed Wise that “[a]fter careful review of the Lease,

we have determined there was an overpayment for the months of March (pro-rated), April,

CBCA 6659, 7422

17

May, and June.” Exhibit 51 at 1. He asserted that, since he first notified Wise in

mid-February 2014 of the agency’s intent to exercise the vacant space provision under the

lease, the agency was entitled to an adjustment thirty days after notification. Id. He

recalculated the amount of the rental credit to account for the overpayments and stated that

a credit of $15,540 would be applied to the following month’s rental payment. Id.

CO’s Follow-up Letter to Wise on Open Items. On July 10, 2014, the contracting

officer issued Wise a follow-up letter on open items entitled “Outstanding Items Needed.”

Exhibit 54. In this letter, the contracting officer stated that “[w]e recently received your

response to the 10 open items outlined in a letter from this office June 24, 2014. After

review of your responses, we have the following comments and needs to address.” Id. at 1.

The letter acknowledged some progress and closed out one action item but also identified

items not yet completed and requested more specific information on other items.

The letter also cautioned Wise that if corrective action was not taken on the

outstanding items by July 31, 2014, GSA might exercise its right, pursuant to the terms of

the lease, to “correct the deficiencies and deduct the cost, including administrative costs,

from rental payments.” Exhibit 54 at 2. The letter included a copy of clause 552.270-10,

entitled “Failure in Performance,” which confirmed the aforementioned right. Notably, the

contracting officer did not style the letter as a “cure notice” yet subsequently referred to it

as exactly that. The only reference to “a cure notice” in the letter appeared in the middle of

a bullet under item number three, Concrete Moisture Test. The referenced phrase stated,

“GSA would not proceed with contracting a company [to perform the concrete moisture test]

without issuance of a cure notice per paragraph 15 of the 3517.”9 Exhibits 11 at 79, 54 at 1.

This part of the letter is confusing, not solely due to the wording, but also because the cited

clause does not mention a cure notice. Nor did the letter contain any warning of a possible

default termination should Wise fail to correct the open items by the deadline. Finally, the

letter permitted extensions to the deadline, but they had to be approved by the contracting

officer. Id. at 3.

Wise’s Continued Efforts to Identify and Remedy the Cause of the Odor. Wise

secured a representative from Blue Ridge Enterprises, the construction company that built

the facility, to assist with “the situation in Hickory.” By email dated July 15, 2014, Wise

introduced the GSA contracting officer and project manager to the representative and

explained: “He will be providing services and respon[d] to the ongoing issue surrounding

the building.” The Blue Ridge representative was copied on the email. Wise told the

representative that the contracting officer “can answer your questions about the list we

9

Paragraph 15 is the “Failure in Performance” clause (552.270-10), and “the

3517” is a reference to GSA Form 3517, which is the “General Clauses” section of the

contract.

CBCA 6659, 7422

18

provided to you.” Exhibit 55. The contracting officer replied to the email, directing his

response to the representative, and stated that “[w]hat we really need to know is the plan of

action going forward to address the lingering odor in the site.” Id. The contracting officer

asked the Blue Ridge representative for “a written outline of all the steps your group is

planning to take to solve the problem - as well as dates that you plan to complete each step.”

Id.

Wise’s Response to the Open Items Letter and Extension Request. By letter dated

July 21, 2014, Wise responded to the contracting officer’s “open items letter” of July 10. In

its response, Wise addressed all ten open items. Wise closed one item, established a deadline

of July 25 for six items, and requested an extension for two items (the concrete moisture test

and the report for the mastic and carpet test). With regard to item number four (the odor),

Wise stated that “[w]e continue to search for a cause, but have not found anything with the

building or any part that is under our control.” Exhibit 58.

Wise submitted a separate request for an extension of the deadline for item numbers

three and six. That request was also submitted in writing on July 21, 2014. Exhibit 57.

Although Wise did not request an extension to item number four (the odor), Wise provided

a status update on the issue, which stated, “As of today we still do not believe ‘the odor’ is

caused by the building or anything under our control.” Id. Wise acknowledged that certain

personnel may have smelled a localized odor for brief periods of time but continued to

express doubt that the odor was associated with anything beyond the normal smells of a

fairly new LEED certified construction project—especially in light of the many air quality

tests, inspections, and reports. Id.

Contracting Officer’s Representative Letter to Wise About Inspection Results. The

contracting officer’s representative (COR) issued Wise a letter dated July 22, 2014. No

subject line or topic was identified, just a reference to the lease number. In the letter, the

COR listed a number of deficiencies that she found during a recent facility inspection. The

deficiencies included the following: a lack of seasonal mulching; cove base molding loose

on a corner of the employee entrance; cracked brick along the exterior south side

window; debris on the employee entry doormat; stains on the break room floor; a loose toilet

seat in a handicap stall; three stained ceiling tiles and one broken ceiling tile; two-tone paint

where touch-ups were done; the Valent unit was not operational; and a vinyl odor was

present. Exhibit 47. The COR noted that some of the deficiencies have been ongoing

without being fixed and instructed the lessor to take corrective action by August 21, 2014,

in order to be in compliance with the lease. The letter also warned of enforcement actions

if the items were not corrected. Id.

Wise’s Response to COR’s Letter. Wise responded to the COR’s inspection report

by email on July 24, 2014. The response addressed all of the deficiencies identified in the

CBCA 6659, 7422

19

inspection. Specifically, Wise stated that it had replaced the cracked brick, secured the loose

molding, tightened all of the toilet seats, completed the painting, removed the debris on the

doormat, and scheduled the replacement of HVAC filters. Wise further stated that it

scheduled a visit from the HVAC manufacturer (Trane) to reactivate the Valent unit10 and

run the system through all of its cycles to make sure it was working correctly. With regard

to the vinyl odor, Wise’s property manager stated, “[S]till looking into a possible cause of

this. I feel that with the Valent unit being in service it will introduce more fresh air into the

building and remove this smell.” Exhibit 59.

Test Results for Carpet Tile and Concrete Slab. Wise hired LGM and Associates

(LGM) of Dalton, Georgia, to analyze the carpet from the Hickory SSA office. LGM

examined three carpet tiles. Two of the tiles were new and still in the original packaging.

The third tile had been removed from the floor of the office. The results of the technician’s

findings were communicated by email to Wise:

I examined each of the three samples on several occasions . . . I observed the

same type and level of odor from all three samples. I would characterize the

odor detected as the normal odor I would expect from a PVC backed carpet

tile. The odor was very slight and would not typically create an issue. I did

not observe or detect the characteristic bloom of organic alcohols that would

be indicative of the plasticizer hydrolysis . . . on any of the three samples.

In my opinion, this finding greatly reduces the probability that you might be

dealing with the plasticizer hydrolysis issue at the SSA there in Hickory.

Based on my observation, it would be my opinion that whatever odor is being

detected at this project is not originating with the carpet.

Exhibit 287 at 2.

In one of the air quality surveys conducted by FOH, the inspector—a certified

industrial hygienist—noticed some cracking of the concrete slab beneath the carpet tiles but

no evidence of moisture. Exhibit 36 at 8-9. As a result, a concrete moisture test was

performed, which reflected a higher than usual moisture level, the effect of which is usually

a loss of adhesion of carpet tiles to the concrete slab. At that time, however, there were no

issues with the carpet tiles sticking to the concrete slab. Exhibits 198, 287 at 1.

Wise’s Proposed Solutions for Carpet and Slab. Despite the results of the carpet test

and concrete slab inspection, Wise emailed GSA on July 30, 2014, and proposed the

10

The parties agreed to turn off the Valent unit earlier in the year to determine

whether it was introducing the odor into the space.

CBCA 6659, 7422

20

following two solutions to address the moisture in the concrete slab and any concerns with

carpet tile adhesion:

If you would like, we can seal the concrete with a penetrating concrete sealer.

This would require us to remove the carpet, scrap [sic] off the glue, apply the

sealer, and reinstall the carpet with new glue. We would be willing to install

new carpet at this time if this would meet the requirement of replacing the

carpet after 5 years.

Exhibit 287 at 1.

Wise’s Follow-up Inquiry Regarding Its Proposed Solutions. The agency did not

respond to Wise’s proposals. There is evidence in the record that GSA internally

acknowledged the options that Wise presented but rejected them for two reasons: 1) because

the solutions only applied to the carpeted area rather than to the whole slab, which also

consisted of tiled areas and 2) because the test lacked detailed information and was not

performed consistent with any identified industry standard.11 Exhibit 208 at 3-4. There is

no evidence that GSA shared these concerns with Wise. Wise followed up on its proposals

by email on August 22, 2014, asking the contracting officer if he had “heard any news or

responses to [Wise’s] options?” The contracting officer responded a few minutes later

stating that “yes, you will be getting our response via UPS Monday.” The response did not

address Wise’s proposals. The response turned out to be a termination for default letter.

GSA’s Termination of the Contract for Default

By letter dated August 22, 2014, GSA terminated the lease for default stating, “After

review of your responses to the deficiency letter . . . and the cure notice . . . the Government

has decided to pursue the default language in the lease and seeks to vacate the space as soon

as practical.” Exhibit 60 at 1. The contracting officer further stated, “This action is due to

the lack of a sufficient proposal and actions to correct the odor in the space—which was

verified as still present in the vast majority of the space on August 4, 2014.” Id. According

to the letter, the Government’s right to terminate the lease for default was outlined in lease

clause 552.270-22, “Default By Lessor During the Term,” which identified two categories

of default and found the following category applicable in these circumstances:

11

LGM did not provide any details about the tests it conducted beyond a visual

inspection and a simple smell test, and we have no information regarding the qualifications

of the technician who performed the analysis. It is not clear whether the email constituted

the report that was required by the contracting officer’s July 10 “Outstanding Items Needed”

letter.

CBCA 6659, 7422

21

[F]ailure to maintain, repair, operate, or service the premises as and when

specified in this lease, or failure to perform any other requirement of this lease

as and when required provided any such failure shall remain uncured for a

period of thirty (30) days next following Lessor’s receipt of notice thereof

from the Contracting Officer or any authorized representative.12

Id.; see Exhibit 11 at 103.

The contracting officer also described the impact that the odor occurrences had on

SSA’s operations and concluded by saying that “due to the repeated, persistent disturbances

and inability for the Government to enjoy the space as planned, I am hereby terminating the

lease under the default clause.” Exhibit 60 at 2. The letter, signed by the contracting officer,

did not identify itself as a contracting officer’s final decision, nor did it contain a notice of

appeal rights. Id.

Wise was surprised to receive a default termination letter. Wise had anticipated a

response to the carpet and slab offer since this aspect was an outstanding item identified by

the contracting officer and one of the few remaining possibilities to either identify the source

of the odor or rule it out. Wise had the flooring contractor standing by to perform the work.

Wise was waiting for a response to one of the two offers when the default letter arrived.

Transcript, Vol. 2 at 121-22. In mid-September 2014, Wise emailed the contracting officer

regarding whether SSA employees and office furniture remained in the building. Wise also

asked whether it should proceed with the concrete sealer. The contracting officer responded

that no personnel were in the building but that GSA was working to remove the furniture and

other items of SSA. The contracting officer also stated that no additional actions needed to

be taken regarding the facility since the lease was terminated. Wise then asked the

contracting officer “would you please forward to me the information for the person who will

be handling our appeal?” At that time, Wise was still well within the appeal period. Yet,

instead of providing Wise with the correct appeal information, the contracting

officer responded with contact information for GSA’s senior regional counsel. Exhibit 206.

Wise hired local counsel to assist with a response to the termination. Despite having

numerous leases with the government, Wise had never submitted a claim or been the

recipient of a government claim, including a default termination. Transcript, Vol. 2 at 41-44.

After reviewing the terms of the lease, counsel for Wise sent a letter to the contracting officer

and GSA counsel on September 30, 2014, regarding Wise’s “relentless efforts” to resolve the

odor, stating that, in light of those efforts and Wise’s compliance with the terms of the lease,

the termination was “unfounded and inequitable.” Counsel acknowledged Wise’s right to

12

This language falls under paragraph 16(a)(1) of the lease, not 16(a)(2), which

the contracting officer cited in the termination letter.

CBCA 6659, 7422

22

submit a certified claim under the lease but expressed Wise’s strong preference for an

informal resolution of the dispute. Exhibit 61. Though still within the appeal window,

neither the contracting officer nor agency counsel provided Wise with the information

required by the Federal Acquisition Regulation (FAR) to appeal the termination decision.

Wise never appealed the termination of its contract for default. 48 CFR 33.211(a)(4)(v)

(2013).

GSA’s Reprocurement of New Space for SSA and Wise’s Search for a New Tenant

The SSA completely vacated Wise’s facility on October 22, 2014, though GSA

continued to pay rent at a reduced rate through the end of 2014. The lessor testified that,

after termination, rent payments from GSA continued on and off for about four months.

While trying to make sense of the payments at that time, the lessor was advised that:

legally, they probably are still responsible for the lease for at least the firm

period, so we just went on with our business. We [kept] the units going. We

probably cleaned it once a month . . . and kept the lights and heat on low levels

. . . [t]hen the payments stopped and I talked to my attorney again . . . that’s

when we started having conversations with . . . their legal department.

Transcript, Vol. 2 at 128-29. After the SSA removed its furniture and equipment and handed

the keys back, Wise took the opportunity to conduct further air quality testing of the facility

in December 2014. The owner testified that he thought he would identify the problem—that

is, the cause of the odor—and that GSA would come back. Id. at 129. The facility was

empty of personnel as well as furniture and equipment, but the shell of the building was

exactly the same as it was during previous tests. Wise did not replace the carpet or make any

other changes to the building’s systems or structure. According to the air quality report

following the December 2014 testing, “[t]he analysis . . . did not reveal concentrations above

established limits set by OSHA or [the State].” Exhibit 13 at 1.13 While Wise was busy

testing the now-empty building, GSA leased temporary space in Hickory, North Carolina,

for SSA personnel to resume serving the public locally. Exhibit 3. SSA would remain in

temporary space until the renovations in another facility were completed. In March 2017,

SSA permanently relocated to the renovated facility in Hickory, where it continues to

operate. Exhibit 14.

The record contains little to no contemporaneous information regarding Wise’s efforts

to find a new tenant for the building. The only information known to the Board was provided

13

This exhibit appears twice in the appeal file, once as exhibit 25 and also as

exhibit 213. The only distinction between these reports is that exhibit 25 cites to NCDENR

only, whereas exhibit 213 cites to NCDENR and OSHA.

CBCA 6659, 7422

23

through hearing testimony. Wise’s owner, Mr. Dean Bray, testified that Wise continued to

keep the building in good condition with monthly cleaning and the systems running. In

response to questions from counsel, Mr. Bray testified that he had two real estate brokers in

Charlotte who “knew the area, knew the building, and had the specs on [the building]” but

did not have any prospective tenants in Hickory or elsewhere that needed a building in

Hickory. Transcript, Vol. 2 at 133. Between February 2015 and mid-2017, the property was

shown a few times but, according to Mr. Bray, securing a new tenant proved challenging for

multiple reasons, the biggest of which was the layout of the building. Mr. Bray explained

that the building was designed for a single tenant. There was one electrical service going

into the building and one HVAC system and, therefore, no cost-efficient way to split it up

to accommodate multiple tenants interested in smaller spaces. Mr. Bray testified that larger

tenants, such as furniture manufacturers, were closing down and moving overseas. Finally,

when asked whether the local press coverage about the odor hampered his ability to find a

new tenant for the space, he replied, “Yeah, there were a lot of people that knew about it and

shied away.” Id. at 29-133, 167-168.

The first tenant that was genuinely interested in renting the entire building was a

pediatric therapy practice that offered physical therapy, occupational therapy, and speech

therapy to children, some of whom were medically fragile or hypersensitive to sound, smells,

and light. Mr. Landry, who represented the new tenant, testified that he drove by the

building on multiple occasions and decided to check it out before moving forward with his

own plan to construct a new building nearby. He did not see a sign advertising that the

building was available for lease. He found the owner’s contact information through real

estate records and arranged to meet with Wise at the building.

Prior to leasing the space, Mr. Landry was aware of the odor complaints, and Wise

was transparent about what had happened with the previous tenant. Before making a final

decision, Mr. Landry spent time in the building to determine if there was an ongoing issue

that would prevent him from signing a lease. While in the building, he did not notice any

odors. At that point, the original paint, carpet, mechanical systems, and modular walls

remained in place. The only material difference was that SSA had removed its furniture and

equipment from the building. Mr. Landry invited several contractors and environmental

inspectors to visit the site, inspect the facility, and test the systems. “None of them actually

came back with anything negative that said it would be concerning for me to move forward

on the lease.” Transcript, Vol. 2 at 18-25. Mr. Landry also reviewed the previous air quality

reports which reflected no adverse air quality issues. On July 26, 2017, Wise signed a lease

with the pediatric practice. Exhibit 218.

With regard to the odor, Mr. Landry testified that during the five years that the

pediatric practice occupied the building, there was only one odor issue, which was when a

janitor closet backed up and caused an unpleasant odor. A plumbing company responded

CBCA 6659, 7422

24

and cleared it up, and “it was fine after that.” Transcript, Vol. 2 at 19. Mr. Landry further

testified that “the premises [was] so suitable for [its] medical practice” that the company

“exercised an option to purchase th[e] building” from Wise. Id. at 19-20.

Wise’s 2019 Claim Submission and GSA’s Response

On August 2, 2019—five years after the default termination—Wise, through new

counsel, submitted a request for equitable adjustment (REA) to the contracting officer in the

amount of $1,233,423.41. Exhibit 66 at 8. The REA stated that the termination was

wrongful and that Wise was entitled to costs that Wise incurred under the lease, including

the remaining balance for rent for the first five-year term (totaling $1,039,818.65), funds

expended to identify and remedy the odor ($51,744.42), and REA preparation costs

($141,860.34). Wise also invited the contracting officer to engage in settlement discussions

to address the REA rather than pursue formal litigation. Exhibit 67. The contracting officer

declined the offer and did not respond to the REA, so Wise resubmitted the REA as a

certified claim in late August 2019. Id.; Exhibit 217. Attached to the claim was an affidavit

by Wise’s Managing Member explaining that “[b]ecause the Termination Letter neither

identified itself as a contracting officer’s final decision, nor contained any language as to

appeal rights, I was unaware of the appeal rights of the Lessor, and relied upon this

uninformative Termination Letter on [sic] to the detriment of the Lessor.” Exhibit 71. The

affidavit also stated that, had the required notice of appeal rights been included, Wise would

have appealed the decision within ninety days. Id.

Six weeks later, on October 15, 2019, the contracting officer replied, “My August 22,

2014 notice of termination for default . . . was a contracting officer’s final decision. The

deadline for appeal of this action has passed and my termination for default stands.”

Exhibit 64. The contracting officer refused to consider the merits of Wise’s recent claim and

added, “I am not reconsidering my final decision to terminate the lease. This letter is not a

final decision.” Id. Wise again tried to engage the contracting officer in negotiations,

explaining why the termination for default notice was defective and asking the contracting

officer to reconsider. On November 12, 2019, the contracting officer declined to reconsider

the termination and reemphasized that their recent communications did not constitute a final

decision. Exhibit 65.

Wise’s Appeals to the Board

Wise appealed the deemed denial of its claim on November 21, 2019, which the Board

docketed as CBCA 6659. In early 2020, GSA filed a motion to dismiss the appeal, arguing

that Wise had constructive notice of its appeal rights but failed to timely exercise them. This

failure, GSA argued, divested the Board of jurisdiction to consider Wise’s monetary claim

because it depended upon the invalidation of the default termination, which Wise did not

CBCA 6659, 7422

25

appeal. In January 2021, the Board denied the motion after finding that the 2014 letter issued

to Wise “by the contracting officer was not a ‘final decision’ that would bar Wise from

challenging the merits of the default termination.” Wise Developments, 21-1 BCA at

184,344. After months of discovery and two separate attempts at mediating their dispute, the

parties resumed formal litigation.

On May 27, 2022, the contracting officer issued a final decision regarding a claim for

excess reprocurement costs against Wise, which GSA said it incurred as a result of Wise’s

2014 default. After SSA personnel completely vacated Wise’s facility on October 22, 2014,

GSA signed two replacement leases to accommodate SSA’s operations in Hickory—one for

temporary space commencing on January 27, 2015, and a second one for permanent space

beginning on March 8, 2017. The claim, which was a contracting officer’s final decision,

sought damages against Wise in the amount of $449,347.96.

Wise appealed the decision to the Board, which was docketed as CBCA 7422, and,

upon motion, the Board consolidated CBCA 7422 with CBCA 6659. Wise filed various

dispositive motions to address both appeals. The Board suspended consideration of the

motions and held the hearing as scheduled.

The Board’s decision herein is based on testimonial evidence from witnesses captured

in the hearing transcripts, documentary evidence in the appeal file, and the briefs from the

parties regarding Wise’s monetary claim, the agency’s claim for excess reprocurement costs,

and the three pending motions.

Discussion

In this case, the Board must decide two issues: first, Wise’s claim for unpaid rent and

other damages, and, second, the government’s claim for excess reprocurement costs. For

reasons already explained, these appeals now encompass the propriety of the default

termination. Since both monetary claims depend upon the validity of the termination, we

evaluate that issue first. See Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 764

(Fed. Cir. 1987) (“Only after the default issue is resolved, does the Board turn to any ‘claim’

by the government or the contractor for monetary compensation.”).

I.

The Validity of the Default Termination

A.

Standard of Review and Burden of Proof

“A default termination is a drastic sanction which should be imposed (or sustained)

only for good grounds and on solid evidence.” Lisbon Contractors, Inc., 828 F.2d at 765;

see Product Engineering Corp. v. General Services Administration, GSBCA 12503,

CBCA 6659, 7422

26

98-2 BCA ¶ 29,851, at 147,758. The Board reviews contracting officer decisions de novo

under the Contract Disputes Act (CDA), 41 U.S.C. §§ 7101–7109 (2018). Department of

Transportation v. Eagle Peak Rock & Paving, Inc., 69 F.4th 1367, 1377 (Fed. Cir. 2023).

“[O]nce an action is brought following a contracting officer’s decision, the parties start in

court or before the [B]oard with a clean slate.” Id. at 1376 (quoting Wilner v. United States,

24 F.3d 1397, 1402 (Fed. Cir. 1994)).

The question of which party bears the burden of proof in such matters is well settled.

“[I]t is long established government contract law . . . that the government bears the burden

of proof on the issue of the correctness of its actions in terminating a contractor for default.”

Lisbon Contractors, Inc., 828 F.2d at 764 (citing Air-O-Plastik Corp., GSBCA 4802, et al.,

81-2 BCA ¶ 15,338, at 75,965-68). A termination for default is a government claim. As

such, it falls to the Government to prove its own claim. Id. “If the Government is able to

establish a prima facie case to support the default termination, the contractor then bears the

burden of proof of establishing that its failure to perform should be excused.”

MLJ Brookside, LLC v. General Services Administration, CBCA 3041, 15-1 BCA ¶ 35,935,

at 175,623; see DCX, Inc. v. Perry, 79 F.3d 132, 134 (Fed. Cir. 1996). “[T]hese principles

apply with equal force where the Government has terminated a lease.” 5860 Chicago Ridge,

LLC v. United States, 104 Fed. Cl. 740, 755 (2012) (emphasis added) (quoting Moreland

Corp. v. United States, 76 Fed. Cl. 268, 284 (2007)).

B.

The Government Failed to Prove that Wise Violated a Term of the Contract

The default termination letter cited two reasons for terminating Wise’s contract. The

first reason was due to a “lack of a sufficient proposal and actions to correct the odor in the

space.” “[A] reasonable basis for termination must be both ‘contract-related’ and maintain

a close nexus to a ‘clear violation of contract terms.’” Schneider Electric Buildings Americas,

Inc. v. United States, 163 Fed. Cl. 708, 718 (2023) (quoting Keeter Trading Co. v. United

States, 79 Fed. Cl. 243, 253 (2007)). The agency terminated Wise’s contract under lease

clause 552.270-22, “Default By Lessor During the Term.” According to the clause, if the

lessor failed “to maintain, repair, operate or service the premises as and when specified in

th[e] lease, or [failed] to perform any other requirement of th[e] lease as and when required,

provided any such failure . . . remain[ed] uncured for a period of thirty (30) days next

following Lessor’s receipt of notice thereof from the Contracting Officer or an authorized

representative,” the lease can be terminated for default. 48 CFR 552.270-22 (2011)

(emphasis added). This clause compels the agency to identify the failure at issue to the

defaulting party—that is, the particular act or omission required by the lease, which the lessor

failed to perform. According to the cited clause, it is that failure which gives rise to the

Government’s right to terminate the lease for default. Yet, here, the agency failed to point

to any term of the contract that Wise failed to perform to justify its termination of the lease.

CBCA 6659, 7422

27

Our review of the record fares no better. The contract does not require an odor-free

building. It does, however, specify terms related to air quality, health, and safety which, if

breached, could substantiate a default termination. We scoured the record for any

information that Wise violated these terms but found none. For example, the lease’s

extensive requirements pertaining to indoor air quality fall under section 9.6 of the contract.

At various points during the term of the lease, air quality testing was performed as a result

of the odor complaints. All of the test results showed that Wise repeatedly met the contract’s

strict requirements for air quality—even for air sampled during an odor event. Indeed, the

results, over and over, demonstrated that the building was safe for occupancy. Therefore,

based on the thorough and contemporaneous documentation of air quality testing conducted

by representatives from Federal Occupational Health, private industry, and the local fire

department, we find no violation of the contract’s section 9.6 air quality standards.

Section 9.4 of the contract required Wise to “maintain [the] buildings and space in a

safe and healthful condition according to OSHA standards.” The agency presented two

OSHA complaints that described adverse symptoms experienced by employees due to the

odor. Even if we accept the statements in the complaints as true, there is no evidence linking

the odor to a requirement of the contract which Wise failed to perform. The agency attempts

to circumvent its burden of proof by presuming that Wise was responsible for the odor.

However, some of the evidence suggests that SSA activities may have caused the odor,

including the City Manager’s description of the odor similar to the smell of a toner cartridge

when it heats up during copying or printing activities.

There were also more than a dozen space heaters in the office, each of which was

placed in the personal spaces of the employees on the carpet and near other equipment and

personal items. Wise repeatedly asked the agency to test the equipment. The contracting

officer and other GSA personnel were also eager to test the equipment—to either identify the

carpet as the source of the odor or rule it out. Yet, there are no test results in the record

pertaining to the SSA’s equipment, only an email asserting that the equipment was tested and

disqualified as the cause of the odor. We reject this assertion as conclusory and accord it no

weight. This glaring deficiency, coupled with the fact that there was no evidence of an odor

in the building before the SSA fully scaled up its operations—or after the SSA vacated the

building—lends support to the argument that the agency’s equipment and the employee space

heaters could have caused the odor. The agency offered no evidence to the contrary,

although testing was allegedly conducted. Moreover, the fact that a pediatric practice moved

into the building without changing the carpet or modifying the shell and did not experience

the odors complained of by SSA staff further defeats any claim that Wise violated section

9.4 of the contract.

CBCA 6659, 7422

C.

28

Wise Did Not Constructively Evict The Agency

Turning to the second basis for default raised in the termination letter, which was the

“repeated, persistent disturbances and inability for the Government to enjoy the space as

planned,” we construe this as an assertion of “constructive eviction,” which can occur when

a tenant vacates a facility due to a lessor’s repeated failures to maintain the leased premises

in a tenantable condition. David Kwok, GSBCA 7933, 90-1 BCA ¶ 22,292, at 111,961

(1989), aff’d, 918 F.2d 187 (Fed. Cir. 1990) (table). Respondent argues that, even if there

was no default under the lease, GSA’s termination was proper under the common law

doctrine of constructive eviction.

One of our predecessor boards recognized the application of this common law

principle under the following two circumstances:

[W]here the conduct of a landlord has either (1) rendered the leased premises

unfit for the purposes leased or (2) has deprived the tenant of the beneficial

enjoyment of the premises. Similarly, a finding of constructive eviction may

also be predicated on a landlord’s failure to act whereby the leased premises

are rendered unfit for habitation.

David Kwok, 90-1 BCA at 111,961. To establish constructive eviction, the conduct must

demonstrate “something of a grave and permanent nature.” J.H. Millstein, GSBCA 7665,

et al., 86-3 BCA ¶ 19,025, at 96,084. When relying upon a theory of constructive eviction

to justify termination of a lease, the Government must show that the “living or operating

conditions were so egregious as to constitute substantial interference with the tenant’s

beneficial use and enjoyment of the leased premises.” Moreland Corp. v. United States,

76 Fed. Cl. 268, 288 (citing Oscar Narvaez Venegas, ASBCA 49291, 98-1 BCA ¶ 29,690,

at 147,142).

For example, in David Kwok, GSA negotiated a lease renewal that included a

requirement to replace the roof due to pervasive leaks that impacted all aspects of the

tenant’s operations. When it rained, personnel had to catch water in buckets and move desks

and files. Carpets were soaked and ceiling tiles were saturated and dripping with rainwater

from a faulty repair done by a contractor without a permit. Water puddled around electric

service equipment, which was dangerous to service and made the building unsafe to occupy.

In addition, a perilous gas leak occurred, which left the tenant without heat during the winter.

The agency had to close the building and cease operations until it was repaired. Tenants also

reported frequent toilet blockages “resulting in water with urine and fecal matter flowing

throughout the offices.” David Kwok, 90-1 BCA at 111,959. These conditions led to other

problems, including infestations of fleas, roaches, and vermin, resulting in a constructive

eviction.

CBCA 6659, 7422

29

In 5860 Chicago Ridge, LLC v. United States, 104 Fed. Cl. 740 (2012), water leaked

from the roof, ceiling, windows, walls, and building systems of a facility occupied by a

government tenant. The carpets were soaked, walls and ceiling tiles were wet and stained,

and the wallpaper was peeling off of the walls. Puddles formed on desks and equipment.

Problems with heating and cooling also plagued the building in the winter and summer, but

the leaks were the primary issue. The tenant agency’s work was continuously disrupted, yet

the lessor took a patchwork approach to repairing the defects and maintaining the facility.

Continuous years of this patchwork approach proved ineffective. When finally confronted

with the possibility of a default termination unless a complete remediation of the roof leaks

was conducted, the lessor responded that a new roof system was impossible to complete

before the GSA-established deadline. Ultimately, it was the contractor’s repudiation of the

required cure that resulted in its contract being terminated for default. Id. at 758-59.

In urging the Board to uphold the termination of Wise’s contract based on a theory

of constructive eviction, respondent argues that the situation in the Hickory SSA office bore

a striking resemblance to the conditions in the above cases. We disagree. In David Kwok,

the lessor completely and repeatedly failed to maintain the premises consistent with the terms

of the lease and admitted that he never planned to replace the roof. Here, the Government

has not established that Wise caused the building to be unfit for conducting SSA business or

that some action or inaction by Wise deprived the SSA of the beneficial enjoyment of the

premises.

Not only did the contracting officer testify that the building was

“well-maintained,” but the agency’s own inspectors also deemed the building safe for

occupancy—each separately vanquishing any charge that Wise rendered the building

uninhabitable. Moreover, the odor was an intermittent phenomenon that dissipated quickly,

did not violate any air quality standards in the contract, and could have been caused by the

tenant agency itself, all facts that undermine a theory of constructive eviction.

In 5860 Chicago Ridge, the lessor’s spotty repairs failed to address the leaks, and

when faced with the necessity of a new roof system, the lessor immediately rejected the

solution based on the timeline. There was no question that the lessor was responsible for

repairing the water leaks but refused to take the necessary steps to fix them. Wise, on the

other hand, offered to replace the adhesive and carpet tiles at its own expense in case either

(or both) ended up being the source of the odor. The agency did not pursue this option, even

though a government report suspected the carpet or adhesive to be the source of the odor.

Two additional facts upend the Government’s constructive eviction argument. The

first is that a handful of SSA employees agreed to remain in the building after the others

vacated. Those employees continued to work in the building for an additional six months,

a fact that belies any assertion that the facility was unsafe for continued SSA operations.

Second—and even more compelling—is that when the SSA fully vacated the facility, the

CBCA 6659, 7422

30

odor disappeared with it. These facts bear no resemblance to those in 5860 Chicago Ridge

or David Kwok.

Finally, we note that the agency failed to timely assert constructive eviction as a

defense and, therefore, has waived it. In fact, GSA raised this affirmative defense for the

first time in its response to appellant’s post-hearing brief. That is simply too late. The

Board’s rules required the agency to file an answer to Wise’s complaint and include in that

answer its defenses to the claims and “any affirmative defenses it cho[se] to assert.”

Rule 6(b) (48 CFR 6101.6(b) (2024)). The rationale behind the rule is that it puts the

opposing party on notice of the affirmative defenses being pursued and gives that party an

opportunity to respond to them. Ultra Precision Manufacturing, Ltd. v. Ford Motor Co.,

411 F.3d 1369, 1376 (Fed. Cir. 2005). Failure to timely plead an affirmative defense can

lead to a waiver of that defense. Systems Management & Research Technologies Corp. v.

Department of Energy, CBCA 4068, 15- BCA ¶ 35,976, at 175,789; see Charles Alan Wright

& Arthur Miller, Federal Practice & Procedure § 1278, at 644-45 (3d ed. 2004). Although

not an absolute bar, the Board has permitted a late assertion of an affirmative defense as long

as it presents no prejudice to the opposing party. A-Son’s Construction, Inc. v. Department

of Housing and Urban Development, CBCA 3491, 15-1 BCA ¶ 36,089, at 176,206 (citing

Ball, Ball & Brosamer, Inc., IBCA 2841, 97-1 BCA ¶ 28,897, at 144,088). For all of the

above reasons, we find that the agency’s defense of constructive eviction was procedurally

and substantively deficient.

Based on the evidence in the record, we also find that the agency failed to establish

a prima facie case for a default termination. In the event the cumulative odor incidents could

sustain a prima facie case, GSA’s justification for the termination is ultimately derailed

by (1) the results of extensive air quality testing and other investigative activities, and (2) the

agency’s failure to respond to Wise’s offer to replace the carpet or share any test results

relating to the office equipment as a possible odor source. GSA has identified no viable basis

for terminating this contract for default.

II.

Respondent’s Claim for Excess Reprocurement Costs (CBCA 7422)

Excess reprocurement costs provide the Government with a remedy when a contract

is properly terminated for default. Cascade Pacific International v. United States,

773 F.2d 287, 293-94 (Fed. Cir. 1985). However, the Government’s right to recover such

costs depends upon the validity of the default termination. There can be no assessment of

excess reprocurement costs where the underlying decision to terminate a contractor for

default was improper. “Following a proper termination for default, defendant is entitled to

reimbursement of the costs of completing the project from the defaulted contractor.” Mega

Construction Co. v. United States, 29 Fed. Cl. 396, 483 (1993). Since we determined that

CBCA 6659, 7422

31

the termination for default could not be sustained, the agency’s claim for excess

reprocurement costs must also fail.

III.

Wise’s Motions for Summary Judgment, Declaratory Judgment, and Sanctions

Appellant’s motion for summary judgment, which sought, as a matter of law, a

decision in its favor on respondent’s claim for excess reprocurement costs, is subsumed by

our decision on the merits of GSA’s default termination. Having found the termination for

default to be wrongful, we are granting Wise’s appeal of the agency’s claim for excess

reprocurement costs against Wise. As such, appellant’s motion for summary judgment,

which sought an inferior result, is denied as moot.

In connection with its summary judgment motion, Wise filed two additional

motions–one for declaratory relief and the other for sanctions. The motion for declaratory

relief seeks the Board’s judgment on the measure of damages that should be applied in

CBCA 6659 should it prevail in its appeal of the same. A declaratory judgment is

appropriate when a party requires an early resolution of a legal question. Alliant Tech

Systems, Inc. v. United States, 178 F.3d 1260, 1271 (Fed. Cir. 1999); Kiewit-Turner v.

Department of Veterans Affairs, CBCA 3450, 14-1 BCA ¶ 35,705, at 174,846. Here, we

have already resolved the merits of the issue raised in the motion, rendering it superfluous.

We deny the motion as moot.

In its third motion, Wise asked the Board to impose sanctions against the agency for

failing to timely supplement the appeal file with documents for CBCA 7422, which involved

documents wholly different from those in CBCA 6659. Despite multiple Board orders and

appellant’s email messages and phone calls to the respondent, Wise contends that the

respondent repeatedly failed to produce them. Wise argues that the respondent’s dilatory

conduct prejudiced Wise’s ability to meet the Board’s initial deadline for filing dispositive

motions. Wise further argues that the agency’s failures caused Wise to expend additional

resources to obtain documents and revise its statement of undisputed facts after receiving the

documents.

In its request for relief, Wise asked the Board to impose the following sanctions

against respondent pursuant to Rule 35: (1) accepting as true appellant’s statement of

undisputed facts in support of its motion for partial summary judgment; (2) granting

appellant’s motion for summary judgment and dismissing GSA’s claim for damages under

CBCA 7422; and (3) any other sanctions the Board deems appropriate.

As we previously noted, the Board ultimately suspended consideration of Wise’s

summary judgment motion since there was insufficient time to brief and decide it prior to the

hearing. Any harm to Wise as a result of that suspension is nullified by our decision in the

CBCA 6659, 7422

32

underlying appeal. See Tesco Corp. v. National Oilwell Varco, L.P., 804 F.3d 1367, 1376

(Fed. Cir. 2015) (where a dispute over sanctions persisted after resolution of a case, the Court

found that “an intervening settlement can abrogate . . . the controversy justifying appellate

jurisdiction.”). Here, any legal harm to appellant is extinguished by the Board’s decision to

grant the appeal, thus rendering the issue of the requested sanctions moot.

As to the matter of any financial harm brought to bear on Wise as a result of the

conduct alleged, the Board’s authority to sanction parties does not include the imposition of

monetary penalties. Brasfield & Gorrie, LLC, v. Department of Veterans Affairs,

CBCA 3300, et al., 14-1 BCA ¶ 35,806, at 175,117; A&B Limited Partnership v. General

Services Administration, GSBCA 15208, et al., 05-1 BCA ¶ 32,832, at 162,445 (2004).

To the extent that Wise expended additional resources due to respondent’s delays in

producing a compliant appeal file, Wise, if eligible, is free to pursue recovery of those costs,

as permitted, pursuant to Rule 30. For all of these reasons, we deny Wise’s motion for

sanctions as moot.

IV.

Appellant’s Claim for Damages

Appellant seeks $1,233,423.41 in damages for (1) the balance of the rent for the firm

term ($1,039,818.65), (2) funds expended to identify and remediate the odor ($51,744.42),

and (3) REA preparation costs ($141,860.34). We evaluate and decide each category of

damages below.

A.

The Balance of the Rent and Wise’s Duty to Mitigate Damages

Since we determined that the default termination was wrongful, we find that Wise is

entitled to damages for unpaid rent during the firm term. The amount of rent damages,

however, must be calculated in light of Wise’s duty to mitigate its damages. Relevant to this

calculation are the following facts. Annual rent was established under supplemental lease

amendment (SLA) 2 in the amount of $447,035.47. The firm term of the lease began in

October 2012 and ended in October 2017. GSA began paying rent at a reduced rate when

it partially vacated the facility in February 2014. The last reduced rent payment that Wise

received from GSA was in January 2015 but that payment was for rent in December 2014,

since rent was paid in arrears. Wise received no rent for the firm term period from January

2015 through October 2017. Even though Wise signed a new lease in July 2017, the leasing

period for the new lease began on January 1, 2018, which was beyond the firm term of

Wise’s lease with GSA. Wise argues that it is entitled to the full amount of the unpaid rent

for the firm term. The agency, on the other hand, contends that Wise had a duty to mitigate

its damages but failed in that duty and now seeks to recover those damages from the

Government.

CBCA 6659, 7422

33

We agree that Wise had a duty to attempt to mitigate its damages. “As a general rule,

a party cannot recover damages for loss [from a breach of contract] that he could have

avoided by reasonable efforts.” Robinson v. United States, 305 F.3d 1330, 1333 (Fed. Cir.

2002) (quoting Restatement (Second) of Contracts § 350 cmt. b (1981)). The non-breaching

party “is expected to take such affirmative steps as are appropriate in the circumstances to

avoid loss by making substitute arrangements or otherwise.” Id. (quoting Restatement

(Second) of Contracts § 350 cmt. b). That is, the non-breaching party must act as a

“reasonable man under the circumstances” in attempting to mitigate its damages. Datronics

Engineers, Inc. v. United States, 418 F.2d 1371, 1379 (Ct. Cl. 1969). “[T]here is no

compelling reason for applying a different standard to lease contracts than would apply for

all other contracts.” Sun Cal, Inc. v. United States, 25 Cl. Ct. 426, 434 (1992); see Robinson,

305 F.3d at 1332-33 (applying doctrine to breach of real estate contract); Diamond Plaza,

Inc., PSBCA 3846, 97-1 BCA ¶ 28,737, at 143,449 (reducing appellant’s recovery for failure

to mitigate damages for breach of lease contract), appeal dismissed, 135 F.3d 772 (Fed. Cir.

1997). Accordingly, “lessors [must] take reasonable steps to mitigate damages resulting

from the repudiation of a lease contract.” Sun Cal, 25 Cl. Ct. at 434. “Reletting and selling

property are two of the most direct ways for a lessor to mitigate damages.” Id. at 433. We

review the record to determine whether Wise’s mitigation efforts were reasonable in the

circumstances here.

In considering breach of lease damages, different courts have applied somewhat

different approaches to the allocation of each party’s respective burden of proof as to the

reasonableness of mitigation efforts. Some courts have held that the breaching party bears

the burden of showing that the lessor failed to mitigate its damages. See, e.g., Vesta Liberty

Street, LLC v. ELX, LLC, No. 3:21-CV-1719, 2024 WL 4653024, at *5 (D. Conn. Nov. 1,

2024); In re Merry-Go-Round Enterprises, 241 B.R. 124, 132-33 (Bankr. D. Md. 1999)

(identifying several states that place the burden on the breaching party). Other courts, like

the Court of Appeals for the Seventh Circuit, have found that when a tenant vacates a leased

property too soon and without proper cause, the lessor, as part of its obligation to prove the

extent of its actual damage, “has the burden of proving mitigation of damages as a

prerequisite to recovering damages,” St. Louis North Joint Venture v. P&L Enterprises, Inc.,

116 F.3d 262, 265 (7th Cir. 1997), meaning that “the lessor not only has a duty to mitigate,

[but] also has the burden to prove that it made a reasonable effort to find a suitable tenant.”

In re Engle, No. 05-64571-FRA7, 2006 WL 4528533, at *2 (Bankr. D. Or. June 13, 2006)

(quoting Portland General Electric v. Hershiser, Mitchell, Mowery & Davis, 738 P.2d 593,

595 (Or. Ct. App. 1987)).

We have not found any decisions binding on the Board that treat the burden of proof

for mitigation any differently in a lease contract than any other type of contract. The Court

of Claims, whose decisions constitute binding precedent for the United States Court of

Appeals for the Federal Circuit, has held that, generally, “the burden of proof with respect

CBCA 6659, 7422

34

to a [non-breaching party’s] asserted failure to mitigate damages rests upon the [breaching

party] who asserts it.” T.C. Bateson Construction Co. v. United States, 319 F.2d 135, 160

(Ct. Cl. 1963) (citing 134 A.L.R. 242). That being said, different tribunals have structured

elements of that burden in different ways. At least one court has recognized a shifting

burden, placing the initial burden on the defaulting party to establish a prima facie case that

the non-defaulting party’s mitigation efforts were inadequate, after which the burden shifts

to the non-defaulting party to rebut that showing and demonstrate that its mitigation efforts

were reasonable. Forest Environmental Services Co. v. United States, 5 Cl. Ct. 774, 780

(1984) (citing Miller v. United States, 106 Ct. Cl. 239 (1946), in support). Conversely, other

tribunals, including the Court of Claims in Datronics, have required the non-breaching party,

as a condition of establishing the amount of recoverable damages, to present evidence of its

reasonable efforts to mitigate before shifting the burden to the breaching party to establish

that those mitigation efforts were inadequate. See, e.g., Datronics, 418 F.2d at 1379

(rejecting the argument that “it was [the defaulting party’s] burden to show that the [nondefaulting party] could have reduced the expense of reprocurement below that incurred in

fact” and requiring the non-defaulting party to show the reasonableness of its mitigation

efforts); Mega Construction Co., 29 Fed. Cl. at 483 (placing the initial burden on the nondefaulting party to establish the reasonableness of its response to the breach before shifting

the rebuttal burden to the breaching party); Daubert Chemical Co., ASBCA 46752, 94-2

BCA ¶ 26,741, at 133,057 (finding that the non-defaulting party “met its burden” of

establishing that it “acted reasonably in mitigating its damages”); American & Federal

Identification Co., ASBCA 14225, 70-1 BCA ¶ 8299, at 38,553 (“Once a prima facie

showing has been made [by the non-defaulting party] of a reasonable effort to repurchase at

minimum cost, the burden of rebutting such a case by showing a failure of mitigation would

naturally rest with [the defaulting party].”).

We need not attempt to determine which of those differing approaches is correct.

Even if we impose the burden on the Government to present a prima facie case challenging

the reasonableness of Wise’s mitigation, GSA satisfied that burden. GSA showed that Wise

failed to take even the most basic steps to re-let the building, such as having a sign on the

outside of the building or on the property that was easily visible to the public and contained

the lessor’s contact information or the broker’s information. In order to find out any

information about the building and its owner, the eventual tenant testified that he researched

real estate property records. He also said that he drove by the building many times before

stopping and taking a look at it from the outside. Apparently, leasing information was not

posted on or near the building, so he looked up the property records. Because Wise failed

to take the most fundamental steps to find a new tenant for the property, we find that the

Government has established a prima facie case that Wise’s mitigation efforts were

inadequate.

CBCA 6659, 7422

35

In response to the Government’s evidence, Wise needed to demonstrate that, despite

the lack of a “for rent” sign, it took reasonable efforts to mitigate its damages. “When

mitigation is appropriate, the test to be applied to the [non-breaching party’s] conduct is

whether the conduct taken in response to the [other party’s] breach was reasonable.” Toyota

Industrial Trucks U.S.A., Inc. v. Citizens National Bank of Evans City, 611 F.2d 465, 471

(3d Cir. 1979). “Reasonable conduct ‘is to be determined from all the facts and

circumstances of each case, and must be judged in the light of one viewing the situation at

the time the problem was presented.’” Id. (quoting In re Kellett Aircraft Corp.,

186 F.2d 197, 198 (3d Cir. 1951)). We cannot discern when exactly the building became

available for lease. In the period of time that immediately followed the SSA’s departure,

Wise conducted further air quality testing in the facility not only to ascertain whether the

SSA, through its operations, caused the odor but also to demonstrate to future tenants that

the building remained safe for occupancy. This course of action was justifiable in light of

the very public allegations that an odor in the building made employees ill. Where the record

falls short regarding mitigation efforts is the period from January 2015 to July 2017, which

is the time between GSA’s last rent payment and the date that Wise signed a new lease.

Wise did not rebut the statement that there was no sign on the property or the fact that

there was no information about the lessor or broker posted on the building. Moreover,

Wise’s owner provided very few details about what steps he took to re-lease the building.

He made general statements about having a broker in Charlotte and showing the property a

few times to prospective tenants but shared no specifics such as how the broker advertised

the property or what meaningful efforts the lessor or property manager took to conclude that

reconfiguring the facility to accommodate several smaller tenants was cost prohibitive.

While we acknowledge statements regarding a slow economy, the local news about an odor

in the building, and the suitability of the building for one tenant, we find that Wise did not

present sufficient evidence of mitigation to award the full damages that Wise seeks. This is

especially the case given Wise’s mistaken belief that GSA likely would continue to pay rent

during the firm term because it was obligated to pay it.

“[A] failure to mitigate damages may decrease the amount of recoverable damages

but does not necessarily preclude recovery of damages altogether.” NCO Financial Systems,

Inc. v. Montgomery Park, LLC, 918 F.3d 388, 395 (4th Cir. 2019); see Manufacturers Life

Insurance Co. (USA) v. Mascon Information Technologies Ltd., 270 F. Supp. 2d 1009, 1014

(N.D. Ill. 2003) (“[A]lthough the landlord has the burden of presenting evidence that it took

reasonable measures to mitigate, a failure to do so will not completely bar recovery.”); In re

Cornwall Paper Mills Co., 169 B.R. 844, 852 (Bankr. D.N.J. 1994) (If lessor fails to attempt

to mitigate, “the lessor’s recovery for unpaid rent will be reduced by the sum which the

lessor would have received had damages been mitigated.”); Engle Investors v. United States,

21 Cl. Ct. 543, 549 (1989) (“Accepting at face value plaintiff’s contention that the Forest

Service failed to mitigate damages does not mean . . . [it] cannot collect any damages.”).

CBCA 6659, 7422

B.

36

Reasonable Mitigation Period and Calculation of Damages for Unpaid Rent

In light of the above contract principles and the facts related to Wise’s mitigation

efforts, we find that a twelve-month period was a reasonable amount of time for Wise to

re-lease the building. We calculate damages as follows. GSA owes rent to Wise for the

period of January through December 2015, which amounts to one year of annual rent at

$447,035.47. In addition, in 2014, GSA paid Wise a reduced rate for rent based on the

vacant space provision in the lease, which provides for a $5 psf reduction in rent. However,

since GSA maintained a small staff in the building, along with all of its furniture and

equipment, the space was not vacated at all until late October 2014. Therefore, GSA owes

Wise the difference between: (a) the reduced rate that GSA was paying Wise from February

through October 2014 and (b) the full amount it was owed for each of those months.

To calculate the full monthly rent for the firm term, we divide the annual rent

($447,035.47) by twelve, which amounts to $37,252.96, per month. In 2014, GSA paid one

month of rent (January) at the full rate. For the month of February, GSA paid Wise

$34,732.96 in rent, a reduction of $2520. For the months of March through October, GSA

paid Wise $32,912.96 per month in rent, a reduction of $4340 a month. The total amount of

rent that was improperly deducted in 2014 was $37,240. Wise is entitled to recover that

underpayment. Adding that amount to the rent for January through December 2015 to which

we find that Wise is entitled ($447,035.47), the total amount of damages for unpaid rent that

GSA owes to Wise is $484,275.47.

C.

Costs Related to Identifying and Remediating the Odor

We deny Wise’s request for the costs of identifying and remediating the odor. Even

if the agency failed to prove that Wise was ultimately responsible for the odor, the terms of

the contract required certain duties from Wise as the lessor. We find that Wise’s efforts to

address the odor were in keeping with those duties and should not be paid. We further find

that the air quality testing that Wise conducted and funded, among other investigative efforts,

served other purposes, such as mitigating losses and supporting litigation. The test results

also supplied Wise with persuasive evidence that the building was safe for occupancy, a fact

that undoubtedly helped Wise secure a new tenant in the building. Accordingly, we deny

Wise’s request for costs to identify and remediate the odor in the building.

D.

REA Preparation Costs

Finally, Wise seeks to recover its REA preparation costs. It is well settled that once

a litigant assumes a litigation posture, REA costs are not recoverable. Grumman Aerospace

Corp. v. England, 34 F. App’x 710, 713-14 (Fed. Cir. 2002). In a typical default termination

case, a party arguably assumes such a posture when it appeals the termination decision.

CBCA 6659, 7422

37

Here, however, neither Wise nor its counsel understood the termination letter to signal the

commencement of litigation, especially given the defects in that letter. The letter from

Wise’s initial counsel to the contracting officer and agency counsel further demonstrated

Wise’s preference to pursue informal negotiations rather than file a claim under the Disputes

clause of the contract. Despite Wise’s various attempts to engage in discussions with the

agency and reach an agreement, the agency refused to entertain such discussions.

Wise hired new counsel who assisted Wise with preparing and submitting an REA to

the contracting officer on August 2, 2019. Over the next twenty-eight days, Wise was

bounced around among various agency representatives with little to no progress, prompting

Wise to resubmit the REA as a certified claim on August 30, 2019. To make a determination

about entitlement to REA preparation costs, we must decide when, in this timeline, Wise

assumed a litigation posture.

The certification and submission of Wise’s claim pursuant to the contract’s Disputes

clause, 52.233-1, is the clearest indication of the commencement of litigation. However, the

Board recently found that an REA, despite its title, was a claim from which the contractor

began the appeal process. ELA Group, Inc. v. Department of Labor, CBCA 8235, 24-1 BCA

¶ 38,702, at 188,180-81. Using the Federal Circuit’s test articulated in Zafer Construction

Co. v. United States, 40 F.4th 1326 (Fed. Cir. 2022), the Board explained that the inquiry

should “focus[] on whether, objectively, the document’s content and the context surrounding

the document’s submission put the contracting officer on notice that the document is a claim

requesting a final decision.” Id. at 188,179-80 (quoting Zafer Construction, 40 F.4th at

1368). This test is also useful for identifying when the REA proposal became a dispute

rather than mere negotiations. Citing Bill Strong Enterprises v. Shannon, 49 F.3d 1541 (Fed.

Cir. 1995), overruled in part on other grounds, Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed.

Cir. 1995), Wise acknowledged this distinction in its own REA proposal, filed as an exhibit

in the appeal file:

[W]hether a contractor’s settlement costs are allowable [turns] on . . . how the

disputed claim is being pursued. In other words, is it being pursued in hopes

of settlement as part of contract negotiation or is it being pursued to by-pass

the contract administration process and prepare for the resolution of the issue

before a judicial forum or administrative board. In the case of the former, the

costs are allowable. In the case of the latter, the costs are unallowable.

Exhibit 66 at 48.

We agree with this distinction but do not agree that Wise’s REA preparation costs are

allowable. Wise’s REA, entitled “proposal for unpaid rent and a contract change,” presents

a comprehensive case for its entitlement to $1,233,423.41 for unpaid rent, the costs of

CBCA 6659, 7422

38

identifying and remediating the odor, and the costs of preparing the REA. The proposal also

cited to contract provisions and clauses, as well as exhibits and case law. Moreover, Wise’s

claim for unpaid rent does not seek an adjustment for a contract change regardless of how

it was presented. Rather, Wise seeks to recover funds that it believes it was entitled to under

the contract but was denied when the agency vacated the building and terminated the lease.

Regarding the context surrounding submission of the REA, Wise’s contract had been

terminated for default five years prior to the REA proposal submission, a termination that

Wise described in the REA as wrongful, and one that precludes any finding that the REA,

despite being submitted within the Dispute clause’s six-year statutory time-frame, was an act

of contract administration. Grumman Aerospace Corp., ASBCA 50090, 01-1 BCA ¶ 31,316,

at 154,674 (citing Bill Strong, 49 F.3d at 1550). Contract performance had long since ceased

due to the termination, precluding the necessity of any routine contract administration

activities. Characterizing the termination as “wrongful” makes the dispute plain.

Finally, the fact that Wise simply added a certification to the proposal less than a

month after submitting the REA demonstrates, in the circumstances here, that Wise was

already prepared for litigation on August 2, 2019, particularly since proving its REA

necessitated a challenge to the already-issued default termination decision. For these

reasons, we find that Wise assumed a litigation posture when it began preparing the REA.

Accordingly, we deny Wise’s request for REA preparation costs as they are unallowable.

Decision

We GRANT IN PART Wise’s appeal for costs in the amount of $484,275.47, plus

CDA interest to run from the date of Wise’s submission of its certified claim.

We GRANT Wise’s appeal challenging the agency’s claim for excess reprocurement

costs against Wise.

We DENY AS MOOT Wise’s motions for summary judgment, declaratory judgment,

and sanctions.

Kathleen J. O’Rourke

KATHLEEN J. O’ROURKE

Board Judge

We concur:

Harold D. Lester, Jr.

HAROLD D. LESTER, JR.

Board Judge

Elizabeth W. Newsom

ELIZABETH W. NEWSOM

Board Judge