CIVILIAN BOARD OF CONTRACT APPEALS

UNITED STATES

CIVILIAN BOARD OF CONTRACT APPEALS

THIS OPINION WAS INITIALLY ISSUED UNDER PROTECTIVE ORDER

AND IS BEING RELEASED TO THE PUBLIC IN ITS ENTIRETY

ON DECEMBER 22, 2014

DENIED: December 11, 2014

CBCA 2618, 2673

ASP DENVER, LLC,

Appellant,

v.

GENERAL SERVICES ADMINISTRATION,

Respondent.

Neal J. Sweeney and Tyler P. Scarbrough of Kilpatrick Townsend & Stockton LLP,

Atlanta, GA, counsel for Appellant.

Lori R. Shapiro and Lesley M. Busch, Office of General Counsel, General Services

Administration, Washington, DC, counsel for Respondent.

Before Board Judges HYATT, VERGILIO, and WALTERS.

HYATT, Board Judge.

These consolidated appeals concern claims asserted by appellant, ASP Denver, LLC

(ASP), under a lease of office space to respondent, the General Services Administration

(GSA). The appeal docketed as CBCA 2618 seeks reimbursement of real estate tax increases

CBCA 2618, 2673 2

for the year 2010, calculated by ASP to be $3 83,362.35.! The appeal docketed as CBCA

2673 asserts entitlement to a lump sum of $899,850, in addition to rent, for the provision of

overtime heating, ventilation, and air conditioning (HVAC) services in the first year of the

lease.”

Under the lease, ASP is responsible to pay real estate taxes for a base year amount that

reflects a full assessment of the property; this amount is considered to be included in the rent.

Once the base year rate is determined, GSA will, in subsequent years, pay for its

proportionate share of increases over that baseline for real estate taxes. Here, the parties

dispute whether the amount of base year taxes was affirmatively negotiated prior to award

of the lease (as ASP contends) or the lease provided that the base year taxes are the taxes

paid coincident with the first twelve-month period after the property has been fully assessed

(as GSA contends). In addition to this disagreement, although both GSA and ASP were

aware that the building would be located in the Stapleton redevelopment area, neither party,

apparently, realized that a portion of the property tax assessment issued by the City and

County of Denver would include an amount imposed by a quasi-municipal governmental

subdivision, the Westerly Creek Metropolitan District (WCMD). ASP claims that the full

burden of this assessment should be borne by GSA. GSA disagrees and also contends that

the WCMD assessment does not qualify under the definition of taxes covered by the lease’s

Tax Adjustment clause. We reject ASP’s interpretation of the lease. ASP is liable for base

year taxes, which are to be part of the rent. Any mistakes about assessments are not borne

by GSA. Moreover, a congressionally-imposed budgetary limit would have made the nowproposed price unacceptable.

The lease also requires ASP to provide two separate HVAC systems for the facility.

One system provides HVAC services for the building during normal business hours. The

other system is a dedicated system required to provide both (1) continuous twenty-four hour

! For the subsequent tax years, ASP filed additional appeals for real estate tax

increases. The Board docketed each of those appeals as follows: CBCA 3470 (2011 tax

year); CBCA 3551 (2012 tax year); and CBCA 4273 (2013 tax year). Each of these cases

was stayed during the pendency of CBCA 2618.

For the subsequent lease years, ASP filed appeals claiming similar lump sum

payments for overtime HVAC services. The Board docketed each of those appeals as

follows: CBCA 3469 (March 12, 2011, to March 11, 2012); CBCA 3492 (again for March

12, 2011, to March 11, 2012); CBCA 3476 (March 12, 2012, to March 11, 2013); and

CBCA 3961 (March 13, 2013, to March 12, 2014). Each of these cases has been stayed

pending resolution of CBCA 2673

CBCA 2618, 2673 3

service to specifically designated areas of the building, and (2) an on-demand capability to

activate the system with a manual override in other, specifically designated areas. The

dispute between the parties arises because ASP believes it is entitled to a lump sum amount

for provision of on-demand services during non-working hours. It derived that amount by

using overtime rates quoted in the lease provision addressing overtime hours for the general

building system and applying them to a formula set forth in a provision applicable to the

twenty-four-hour HVAC system. GSA contends that although ASP was permitted by the

latter clause to submit, prior to award, a specific lump sum representing the cost of providing

the dedicated system hours outside of normal business hours, ASP did not doso. Thus, GSA

maintains that it has no obligation to pay the lump sum demanded by ASP. We agree with

GSA’s interpretation of the lease and deny this claim as well.

Findings of Fact

The General Acquisition Process

In 2006, Congress appropriated funds for the construction and long-term lease of a

facility to house the regional office of the Federal Bureau of Investigation (FBI) in Denver,

Colorado. Subsequently, on February 23, 2007, GSA issued a pre-solicitation notice for a

“build-to-suit” office facility, annex, and secured parking garage, to be leased to GSA for

occupancy by the FBI. The facility was to be located on approximately ten acres of land in

the Stapleton Redevelopment area in Denver. Interested parties had the opportunity to

submit a written statement of interest by March 5, 2007.

Alex S. Palmer & Company’, a large real estate developer headquartered in Nashville,

Tennessee, has a wealth of experience in developing and managing commercial real estate,

including build-to-suit projects. The company has successfully completed previous building

projects for the Federal Government, including GSA. ASP submitted a written statement of

interest on March 2, 2007, advising that it “was looking forward to submitting a proposal for

the upcoming project in the Stapleton Redevelopment Area in Denver, CO.”

3 The proposal was submitted by and negotiated with Alex S. Palmer &

Company. ASP Denver, LLC was substituted for this company as lessor shortly after

award. In this decision we treat the two affiliates entities as one, referring to them both as

“ASP.”

CBCA 2618, 2673 4

GSA implemented a two-phase negotiated procurement for the project, with the

objective of making an award following a best value analysis.* Phase I required submission

of technical proposals from interested offerors; phase II invited qualified offerors to develop

complete technical and pricing proposals. The solicitation for offers (SFO) envisioned a

turn-key project under which the rental rate was to include all costs, with few, if any,

adjustments available under the lease for cost increases occurring over the life of the lease.

Phase I of the SFO was issued on April 12, 2007. ASP submitted an offer responding

to the SFO on May 29, 2007. GSA evaluated the offers it received under phase I and, on

July 3, 2007, provided the phase II SFO and related documents to ASP and other qualified

offerors. These related documents included: the FBI’s Program of Requirements (POR); the

site plan; the option agreement for the land purchase; unit costs for adjustment; GSA Form

1264, Proposal To Lease Space; GSA Form 1217, Lessor’s Annual Cost Statement; GSA

Form 3517B, General FAR Clauses; GSA Form 3518, Representations and Certifications;

a small business subcontracting plan; and Form B, Document Security.°

The SFO was incorporated into the lease agreement, and included the following

provisions of general application:

1.5.H. There is a Congressionally-imposed rent limitation of $6,130,425 per

annum on this project. The average annual rental rate will not exceed the

‘ In this context, the use of a negotiated procurement permitted GSA flexibility

to conduct discussions with offerors, to seek clarifications of the proposals, and to make

tradeoffs among cost, price, and other factors in selecting the offer that presented the best

value to the Government. Federal Acquisition Regulation (FAR) 15.306(d) explains that:

Negotiations are exchanges . . . between the Government and offerors, that are

undertaken with the intent of allowing the offeror to revise its proposal. These

negotiations may include bargaining. Bargaining includes persuasion,

alteration of assumptions and positions, give-and-take, and may apply to price,

schedule, technical requirements, type of contract, or other terms of a

proposed contract.

5 On July 25, 2007, ASP received supplemental documents to the July 3 SFO.

These additional documents included a room data matrix and room data legend. On August

16, 2007, ASP received a revised room data matrix. The room data legend stated that the

rooms identified in the room data matrix as “dedicated” and the rooms identified in the room

data matrix as “on demand” would both be served by the twenty-four-hour HVAC system.

CBCA 2618, 2673 5

approved rental rate of $35 [per rentable square foot| per annum for a lease

term of 20 years, as stated in the Committee Resolution, dated July 19, 2006.

1.7B. The successful offeror must purchase the property at the negotiated

price within no more than 30 days after award of the Lease and in accordance

with the terms set forth in the Assignable Option Agreement (to be provided

by the Government).

2.1.E. The Contracting Officer will negotiate the rental rate for the initial term

and any renewal options and evaluate the proposed costs. The Contracting

Officer will negotiate with those offerors determined to be in the competitive

range in accordance with [Federal Acquisition Regulation part] 15. The

competitive range is determined by the combination of price and technical

factors - not just price alone. The Contracting Offer will negotiate

the rental rate for the initial term and evaluate the proposed costs against the

prospectus limitation and the scoring model for sufficiency, [i.e.,] Present

Value’ (PV) of the Net Operating Income (NOI) over the life of the lease does

not exceed 90% of the Fair Market Value (FMV) of the asset.

2.1.F. After technical and price evaluations, discussions, and/or negotiations,

the Contracting Officer will request final proposal revisions. The final

proposal revisions will be evaluated by the [source selection evaluation board],

and a recommendation for award will be provided to the Source Selection

Authority for approval. The recommendation will be the proposal that

represents the best value to the Government considering technical evaluation

factors and price.

2.1.G. All proposals must consistently use the same terminology . . . as stated

in the SFO.

On October 11, 2007, ASP submitted an initial offer with its pricing and technical

proposals.’ On November 8, 2007, the contracting officer sent ASP a letter requesting that

§ The present value analysis creates an “apples to apples” comparison of every

offer received by GSA.

7 ASP’s chief financial officer (CFO) undertook primary responsibility for

reviewing the financial aspects, financial modeling, and initial budgeting of the lease when

preparing ASP’s proposal. ASP’s founder and president was also active in the review and

CBCA 2618, 2673 6

it submit final proposal revisions and reciting his understanding of the terms negotiated

between ASP and the Government. On November 16, 2007, ASP responded to the

contracting officer’s November 8 letter with its final offer.

Evaluation of ASP’s Offer

This procurement was overseen by the assigned GSA contracting officer and realty

specialist who, in coordination with a source selection board, selected a contractor for the

project. The contracting officer testified that, prior to award, he was “the source selection

official that signed off on the decision of the source selection board to make an award to

ASP.” He also testified that the realty specialist assumed primary responsibility for the

conduct of negotiations with the offerors and would consult with him when she had

questions. She performed the present value analysis and he reviewed it with her. As the

contracting officer, he signed the actual lease document.

GSA’s realty specialist chaired the source selection board and drafted the source

selection plan and reports. She also prepared a memorandum to serve as a yardstick for

GSA’s objectives in the negotiation process. This document, denominated the “Price

Negotiation Document,” was prepared early in the procurement process prior to the receipt

of any phase II proposals. It identified GSA’s negotiation objectives and its goal, or bottom

line, in negotiating the deal. The document states that GSA’s ultimate goal was to negotiate

a full service rental rate below the prospectus limitation, with either a low or no lump sum

payment required from the agency. In this document, GSA stated an objective range for base

year taxes to be $4.50 per square foot of rentable footage, using a Stapleton-area average, and

for the hourly overtime rate to be $50 per hour.

Negotiations with ASP were conducted from May 28 through November 19, 2007.

A written memorialization of these negotiations is contained in the report of the source

selection board, dated December 17, 2007. Under a section entitled “Record of

Negotiations,” the report states:

The offer submitted by [ASP] was the best technically as well as price. In their

original Phase Two offer, there was no lump sum price for building specific

security items nor was there a breakdown on their unit price list for security

items. Upon discussions with the [ASP] team they had include[d] these costs

in their shell rent costs. This caused some concern with the Government as

preparation of ASP’s proposal.

CBCA 2618, 2673 7

the[ir] shell rent cost was substantially lower than the other offerors and also

included the security costs that other offerors wanted paid by lump sum in an

RWA [reimbursable work authorization]. The Contracting Officer cautioned

the [ASP] team on several occasions to review and ensure that their proposal

included all requirements in the SFO.

The Government’s synopsis of ASP’s revisions in its final offer states that ASP’s

“OFFERED Rate per RSF [rentable square foot]” for the tax base year was $3.88 and its

proposed overtime rate was $25 per hour per floor.’

In addition to the source selection board’s report, GSA prepared several iterations of

an occupancy agreement between GSA and the FBI, memorializing the financial aspects of

the lease. Each version of the occupancy agreement shows an annual charge of $679,601.40

and an annual rate of $3.88 per rental square footfor real estate taxes for the duration of the

lease. Every iteration of the occupancy agreement also provides that the rental amount will

be adjusted annually for operating costs and real estate taxes. GSA’s realty specialist

explained the purpose of the occupancy agreement. She testified that:

The occupancy agreement . . . is a budgeting tool that we prepare for the

agencies. It outlines our agreement with them in the written text, but the

financial portion is meant to be used as a budgeting tool. So, we put in the

breakdown of the rental rates . . . the base rent, operating costs, tenant

improvements. [We note the possibility of escalation so that agencies] budget

a little more money because [it is] maybe not in the rent, but on an annual

basis, they’re going to be paying a little bit more in taxes.

The occupancy agreement notes: “The tenant’s financial obligations for years beyond the

current year do not mature until the later year(s) are reached. Thus, there is no requirement

that the tenant agency certify that current year funds are available to defray future year

obligations.”

8 The base year tax rate of $3.88 is used on another GSA form entitled

“SCORE.” Under the subheading “Constant Dollar Input Values,” a category of real estate

taxes and insurance cost per square foot is listed as $3.88. A document setting forth lease

scoring information lists the pricing information from ASP’s final proposal and includes the

line item “REAL ESTATE TAXES AND INSURANCE: $3.88.”

CBCA 2618, 2673 8

Lease Awarded to ASP

The source selection board determined that ASP’s proposal provided the best value

for the Government and selected ASP as the awardee on December 17, 2007. ASP was

notified of award and given the opportunity to review and comment upon the entire lease

prior to executing it. The lease sets forth a price of $35 per rentable square foot. This figure

includes real estate expenses. The lease does not expressly identify a base year rate for taxes.

On December 18, 2007, GSA entered into a lease agreement with ASP, under which

that company was to design and construct a new office facility, annex, and secured parking

garage, with approximately 175,155 rentable square feet of office and related space, located

on approximately ten acres in the Stapleton Redevelopment Area of Denver, Colorado, to be

leased upon completion to GSA for occupancy by the Federal Bureau of Investigation (FBI).

At that time, the lease agreement provided that the term of the lease would begin on

December 1, 2009, and extend through November 30, 2029.’

CBCA 2618

Several general provisions of the SFO as incorporated into the lease are specifically

relevant to CBCA 2618:

3.3.G.1. Using the SFO, Program of Requirements, Special Requirements,

Attachments, etc., the Offeror must provide a rental rate that will deliver all

requirements as a turn-key project. The rate structure . . . must include all

costs to deliver the space.

4 The documents comprising the lease consist of the following: (a) Standard

Form 2; (b) phase II SFO and amendments thereto; (c) the FBI’s POR; (d) a space planning

guide; (e) a security unit price list completed by ASP; (f) the site plan; (g) a unit cost for

adjustment form completed by ASP; (h) a Document Security Form completed by ASP; (i)

GSA Form 3516A (FAR Clauses); (j) GSA Form 3517B (General Clauses); (k) GSA Form

3518 (Representations and Clarifications); completed by ASP, (1) GSA Form 1364 (Proposal

to Lease), completed by ASP; (m) Appendix A (Room Data Matrix); (n) Appendix B (Squad

Adjacencies); (0) ASP’s November 29, 2007 final proposal clarification; (p) ASP’s

November 16, 2007 final proposal revisions; (q) ASP’s May 29, 2007 phase I offer; (r)

ASP’s October 11, 2007 phase II offer; and (s) ASP’s second final proposal clarification.

CBCA 2618, 2673

3.3.G.2. The rental rate structure . . . must include the following:

3.3.G.3. The lease rate per square foot for the building shell rental, fully

serviced. All improvements in the base building, lobbies, common areas, and

core areas must be provided by the Lessor, at the Lessor’s expense. This rate

must include, but not be limited to, property financing (exclusive of Tenant

Improvements), insurance, taxes, management, profit, etc., for the building.

... If the shell rate changes during the term of the lease, state the new shell

rates(s) and corresponding period(s) of time for which that rate is applicable.

Paragraph 4.4 of the lease sets forth the Tax Adjustment clause. It states as follows:

A. Real estate taxes, as referred to in this paragraph, are only those taxes

which are assessed against the building and/or the land upon which the

building is located, without regard to benefit to the property, for the purpose

of funding general Government services. Real estate taxes shall not include,

without limitation, general and/or special assessments, business improvement

district assessments, or any other present or future taxes or governmental

charges that are imposed upon the Lessor or assessed against the building —

and/or the land upon which the building is located.

B. Base year taxes as referred to in this paragraph are 1) the real estate taxes

for the first 12-month period coincident with full assessment or 2) may be an

amount negotiated by the parties that reflects an agreed upon base for a fully

assessed value of the property.

C. The term “‘full assessment” as referred to in this paragraph means that the

taxing jurisdiction has considered all contemplated improvements to the

assessed property in the valuation of the same. Partial assessments for newly

constructed projects or for projects under construction, conversion, or

renovation will not be used for establishing the Government’s base year for

taxes.

E. The Government shall 1) make a single annual lump sum payment to the

Lessor for its share of any increase in real estate taxes during the lease term

over the amount established as the base year taxes or 2) receive a rental credit

or lump sum payment for its share of any decreases in real estate taxes during

CBCA 2618, 2673 10

the lease term below the amount established as the base year taxes. The

amount of lump sum payment or rental credit shall be based upon evidence of

valuation and payment submitted by the Lessor to the Contracting Officer in

accordance with subparagraph D.

1. In the event of an increase in taxes over the base year, the Lessor

shall submit a proper invoice of the tax adjustment including the calculation

thereof together with evidence of payment to the Contracting Officer. THE

GOVERNMENT SHALL BE RESPONSIBLE FOR PAYMENT OF ANY

TAX INCREASE OVER THE BASE YEAR TAXES ONLY IF THE

PROPER INVOICE AND EVIDENCE OF PAYMENT IS SUBMITTED

BY THE LESSOR WITHIN 60 CALENDAR DAYS AFTER THE DATE

THE TAX PAYMENT IS DUE FROM THE LESSOR TO THE TAXING

AUTHORITY. ...

2.4...

F. The Government shall pay its share of tax increases or shall receive its

share of any tax decrease based on the ratio of the rentable square feet

occupied by the Government to the total rentable square feet in the building or

complex (percentage of occupancy). For the purpose of this lease, the

Government’s percentage of occupancy as of the date hereof [July 23, 2007]

is 100% percent [sic] based upon occupancy of TBD [To Be Determined]

rentable square feet in a building of TBD rentable square feet. This percentage

shall be subject to adjustment to take into account additions or reductions of

the amount of space as may be contemplated in this lease or amendments

hereto.

ASP’s Initial Offer, as Relevant to CBCA 2618

ASP’s offer included GSA Form 1364, Proposal To Lease Space. The proposal stated

that ASP’s composite square foot rate per annum is $35, which includes $3.88 for base year

taxes. Therefore, based on total rental square feet of 175,155, the rent per annum was to be

$6,130,425.

ASP’s offer also included GSA Form 1217, Lessor’s Annual Cost Statement. In this

form, ASP estimated that the annual real estate taxes for the building would be $680,000.

This amount is provided under section II of the form, entitled “Estimated Annual Cost of

Ownership Exclusive of Capital Charges.” ASP asterisked this number and advised:

CBCA 2618, 2673 11

For Property Tax Purposes, we have assumed a favorable tax valuation of

$35,000,000. The assessment rate for commercial is 29%, which would create

an assessed value of $10,150,000. This assessed value would then be

multiplied by the Mill Levy; currently 66.948 (.066948) for a property tax bill

of $679,522[.] [O]f major concern is if the valuation more closely reflects

actual project costs ($60 Million). Discussions are ongoing with Denver

Assessor Office to address.

On October 12, 2007, one day after it submitted its offer, ASP sent the contracting

officer a letter highlighting certain points relevant to real estate taxes under the lease.

Specifically, ASP stated its “concern about the prospectus rental rates proposed by the GSA

being sufficient to provide the quality and type of office building you . . . want to construct

in Denver.” ASP also expressed misgivings with respect to the potential for a “[s]ignificant

impact on operating expenses if'a Mill Rate of 66.948 is applied to a higher evaluation of the

property then [sic] assumed by the developer; this could impact the value and financing

viability of the asset.”

The GSA realty specialist and ASP’s CFO both testified to their respective

understandings of the real estate tax rate quoted by ASP and its purpose with respect to the

overall process of negotiating and evaluating the rental rates proposed by the competing

offerors. ASP’s CEO testified that in providing the $3.88 per square foot number, he

understood the parties to be negotiating a firm base tax year rate using the alternative method

under paragraph B of the tax adjustment clause.

The realty specialist interpreted paragraph 12 of Standard Form 2 to seek from

offerors an estimated amount of real estate taxes to apply until the property was fully

assessed after completion of the building. When ASP proposed an estimated $3.88 per

square foot, GSA did not interpret this to mean that this was to establish the base year for

price adjustments based on increases in tax assessments. She regarded section 4.4 as

referring to the adjustment in taxes later in the life of the lease — in her mind, the $3.88 per

square foot estimate was a portion of the rental rate to be allocated by the lessor to pay taxes

until the building was fully assessed. After that, the parties would establish the base year and

determine the first full year of assessment. Her rationale for using the first option under SFO

paragraph 4.4, was that this was a new construction project and “it is a very risky thing to

attempt to negotiate a base because you have no history.” She stated further that with respect

to this lease, “[t]he tax assessor’s office assessed — gave a full assessment in 2010, so the

calendar year 2010 would be the base year.” Thus, ASP was required to pay the full amount

assessed for that year in taxes.

CBCA 2618, 2673 12

In his letter dated November 8, 2007, soliciting ASP’s final offer, the contracting

officer stated, with respect to real estate taxes, that the “[p]ercentage of Government

occupancy for tax purposes based on the first full assessment calendar year is 100%. The tax

base indicated in your offer is $3.88 per rentable square foot.” At the conclusion of the letter,

the contracting officer advised ASP that, if it wished “to submit changes or modifications,

please do so in th[at] letter in a different colored ink, initialing them, signing the concurrence

line . . . and returning the letter to this office.”

In its final offer, dated November 16, 2007, responding to that request, ASP

acknowledged that the building site is located in Denver, Colorado, in zip code 80238, and

“the percent of government occupancy for tax purposes based on the first full assessment

calendar year is 100%, and the tax base in our offer is $3.88 per rentable square foot.”

Paragraph 12 of the lease executed on December 18, 2007, provides the following

(emphasis added):

In accordance with SFO paragraph 4.4 titled “Tax Adjustment,” the percent of

the building occupied by the Government is 100% based on a total of 175,155

per [sic] rentable square feet available in the building. The estimated annual

tax base for adjustments is $679,601.40 or $3.88 per rentable square foot. The

base year taxes shall be the first calendar year of full assessment and will

be set in accordance with Paragraph 4.4.

In a modification to the lease, the Government agreed to commence lease payments

on March 12, 2010, reflecting the actual date that the FBI occupied the facility, and changed

the term of the lease to begin on March 12, 2010, and extend through March 11, 2030. A

certificate of occupancy was issued for the facility on April 26, 2010.

In early 2011, the City/County of Denver sent ASP a property tax statement that

reflected the 2010 tax assessment for the property. The amount of taxes due by April 30,

2011, was $1,245,131.07. The tax statement included assessments on the facility by both the

City/County of Denver and WCMD. The combined mill levy was 121.637, of which the

City/County of Denver accounted for 66.591 and WCMD accounted for 55.046. After

dividing the total assessment by 175,155 rentable square feet, the assessed rate comes to

$7.11 per square foot.

ASP’s CFO testified that the 2010 tax statement reflected an assessment that fully

encompassed improvements to the facility. On May 9, 2011, ASP submitted an invoice for

increased taxes to GSA. In the cover letter to the invoice, ASP explained that it was

CBCA 2618, 2673 13

submitting the invoice “[p]ursuant to SFO Section 4.4(E)(1)” and requested payment of the

amount of $457,072.38 within ten days.

After the Government did not pay the invoice, ASP submitted a certified claim on

August 10, 2011, for the difference between the allegedly agreed-upon base tax rate of $3.88

and the increased tax rate of $7.11 per rentable square foot, or the amount of $457,072.38."

On October 19, 2011, the contracting officer denied the claim for increased taxes

because the claim did not accord with the Tax Adjustment clause in paragraph 4.4. ASP’s

appeal of this decision was docketed by the Board as CBCA 2618.

Mill Rates in Years Prior to Lease Commencement

The parties filed a joint stipulation at the conclusion of the hearing in this appeal

concerning the mill rates for the property on which the FBI building was to be built reflecting

the following levies and their tax year dates:

2008: total mill levy of 121.821 includes both City/County of Denver and WCMD;

2009: total mill levy of 120.307 includes both City/County of Denver and WCMD;

2010: total mill levy of 121.637 includes both City/County of Denver and WCMD.

The WCMD assessment was addressed by ASP’s expert witness, Mr. Russell Dykstra,

a Colorado attorney who specializes in this area of the law. Mr. Dykstra explained in his

expert report:

The Westerly Creek Metropolitan District is a quasi-municipal governmental

subdivision of the State of Colorado that was formed on July 13, 2000

pursuant to [Colorado state law]. . . . The District is empowered to provide

facilities and services that serve the residents, property owners and public area

within the area formerly known as the Stapleton International Airport. . . .

0 On June 4, 2013, the Board issued an order granting ASP’s motion for leave

to amend its real estate tax claim from $457,072.38 to $383,062.35 for reimbursement of

GSA’s alleged share of the 2010 real estate taxes paid by ASP above the alleged negotiated

and agreed-upon base year tax rate. Therefore, the 2010 tax claim was for the period of

March 12, 2010, to December 31, 2010.

CBCA 2618, 2673 14

[T]he District imposes a mill upon all property within its boundaries... . [The

revenues collected are used] to provide funding for public main-line and

regional infrastructure such as public parks, streets, regional interchanges,

storm drainage ways, water systems, sewer systems [and other services] to

serve the area within the District. Many of these improvements have been or

ultimately will be, transferred to the City and County of Denver.

The District is empowered to impose ad valorem property taxes on all property

within the District and has done so in order to meet its general operational

funding requirements and to produce revenues . . . for funding of the

improvements, facilities and services.

Mr. Dykstra also advised that WCMD had not created a special improvement district nor had

it imposed any special assessments.

Mr. Dykstra’s report shows that as of December 2007, the mill levy on property in the

Stapleton Redevelopment District, including WCMD’s charges, was 121 .785. In its annual

cost statement submitted on October 12, 2007, and later incorporated into the lease

agreement, ASP represented to the Government that the mill levy on this property was

66.948. .

As required under the agreement, pursuant to GSA’s option, ASP purchased the land

on which the facility was to be constructed in January 2008. The closing documents for this

purchase establish a mill levy at that time of 121.785. ASP’s president signed this document.

CBCA 2673

Pertinent provisions of the SFO and accompanying documents relating to ASP’s

contention in CBCA 2673 that the lease entitled it to a lump sum payment for overtime

HVAC costs include:

1.1.F. Where the SFO and [POR] conflict, the POR will apply. Contact the

Contracting Officer for clarifications.

1.4.F. The building systems shall provide a dedicated, 24-Hour [HVAC]

system, independent of the general building system. This system shall consist

of two separate modes, a dedicated mode and an on-demand mode. The

dedicated system shall be flexible to accommodate changes to meet future

requirements without causing major disruptions to the tenant’s operations. The

CBCA 2618, 2673 15

on-demand mode shall provide continuous cooling for designated equipment

rooms and continuous conditioning of designated office areas. All equipment

connected to the dedicated 24-hour HVAC system shall be connected to an

emergency generator supplying essential power to the tenant. Refer to the

Mechanical, Electrical, Plumbing section of the SFO and the Mechanical

section of the POR.

3.3.G.2. The rental rate structure . . . must include the following:

3.3.G.4. The annual cost (per usable and rentable square foot) for the cost of

services and utilities. This equals line 27 of GSA Form 1217, Lessor’s Annual

Cost Statement, divided by the building size (shown on the top of both GSA

Form 1364, Proposal to Lease Space, and Form 1217) for usable and rentable

square feet respectively.

Paragraph § 3.3.CC'! lists the necessary documents for an offeror to submit in

response to the phase II SFO. Included in this list, at number 10, is the following

requirement:

“An hourly overtime rate for overtime use of heating and cooling. Refer to

the ‘Overtime Usage’ paragraph in the SERVICES, UTILITIES,

MAINTENANCE section of this SFO.”

SFO 9 3.6E addresses the conduct of the present value analysis of costs submitted by

offerors. Paragraph 3.6.E.6.e of the SFO provides that “[t]he cost of overtime HVAC [is]

estimated to be 6,250 hours per year for the 24-hour areas . . . . This cost is present value,

and it will not be discounted.”

Paragraph 3.7.A of the SFO advises that:

In accordance with OMB Circular A-11, the Government will perform

calculations on the submitted price proposals that determine the present value

of the net operating income over the life of the lease. This calculation cannot

exceed 90 percent of the fair market value of the asset as determined by the

Government’s General Construction Cost Review Guide (GCCRG). The

calculation will subtract operating expenses, taxes, insurance, Offeror’s

" “CC” refers to the second “C” listed under paragraph 3.3 of the SFO.

CBCA 2618, 2673 16

management fees, building maintenance cost, and reserves for capital

replacement cost from the gross annual rent, to arrive at net operating income.

Additional clauses in the lease pertaining to the HVAC systems are found in

paragraph 8.0 of the SFO, which provides mechanical, plumbing, and electrical

specifications. Paragraph 8.1.A requires that “[s]ervices, utilities, and maintenance shall be

provided by the Lessor as part of the rental consideration.” The principal clauses at the heart

of this dispute are:

8.3 NORMAL HOURS

A. Services, utilities, and maintenance shall be provided daily, extending 7:00

a.m. to 6:00 p.m. except Saturdays, Sundays, and federal holidays.

B. The Government will reimburse a portion of the cost of the HVAC for all

rooms requiring 24-Hour HVAC service. The Offeror shall provide to the

Government the cost, if any, for HVAC services based on 6,250 hours per

year (14-hours per day of overtime HVAC x 251 days and 24-hours per day

of overtime HVAC x 114 days). The Government will pay for this usage via

a lump sum payment each fiscal year of the lease. The payment will be

prorated for those years that the Government does not occupy the space the

entire fiscal year. (This cost will be considered in the Present Value price

evaluation prior to the award of a lease).

8.4 OVERTIME USAGE (SEP 2000)

A. The Government shall have access to the leased space at all times without

additional payment, including the use, during other than normal hours, of

necessary services and utilities such as elevators, toilets, lights, and electric

power.

B. If heating or cooling is required on an overtime basis, such services will

be ordered orally or in writing by the Contracting Officer or the GSA

Buildings Manager. When ordered, services shall be provided at the hourly

rate established in the contract. Cost for personal services shall only be

included as authorized by the Government.

C. When the cost of service is $2,000 or less, the service may be ordered

orally. An invoice shall be submitted to the official placing the order for

CBCA 2618, 2673 17

certification and payment. Orders for services costing more than $2,000 shall

be placed using GSA Form 300, Order for Supplies and Services. . . .

D. All orders are subject to the terms and conditions of this lease. In the

event of a conflict between an order and this lease, the lease shall control.

Paragraph 6.5 of the FBI’s particularized needs, set forth in the POR, specifically

addresses the “24 Hour HVAC System”:

A. The Lessor shall provide 24 hour HVAC in those rooms identified in the

SPECIFIC ROOM REQUIREMENTS” section of this SFO.

B. The Lessor shall provide a dedicated HVAC system, independent of the

general building system, that operates 24 hours per day, 365 days per year.

The dedicated 24 Hour HVAC system shall be flexible to accommodate

changes to meet future requirements without causing major disruption to the

Tenant’s operation. The system shall provide continuous cooling for

designated equipment rooms and conditioning of designated office areas when

requested by a room-mounted override button.

C. The Lessor shall be responsible for servicing and performing preventive

maintenance for the dedicated 24 Hour HVAC system in accordance with the

manufacturer’s recommendations to improve system reliability and to avoid

potential equipment failure for the term of the lease.

2 The specific room requirements for the building were referenced and shown

on the room data matrix and room data matrix legend. The room data matrix legend

provides that “24/7 HVAC-D (Dedicated)” means “[h]eating ventilation and air conditioning

systems serving rooms identified within the matrix as HVAC-D shall be served by the 24-

HOUR HVAC SYSTEM” and that “24/7 HVAC-OD (ON DEMAND)” means “[h]eating

ventilation and air conditioning systems serving rooms identified within the matrix as

HVAC-OD shall be served by the 24-HOUR HVAC SYSTEM, but do not require

continuous 24-Hour HVAC. These rooms shall [be] conditioned on the same schedule as

normal HVAC rooms, but shall be available by manual actuation of a room-mounted

override button.”

CBCA 2618, 2673 18

D. The Lessor shall provide instruction to the Tenant designated employees

in the proper operation and utilization of the dedicated 24 Hour HVAC

system.

E. All energy costs incurred by the operation of the dedicated 24 Hour HVAC

system shall be incorporated within the lease rate.

ASP’s Initial and Final Offers Pertaining to the Overtime HVAC Claim

ASP’s initial offer included a section denominated “Hourly Overtime For Heating

and Cooling,” which stated:

Hourly overtime rate for heating and cooling, in response to item 3.3, C, 10,

on page 36 of the SFO, is $25 per hour per floor of the office building, or

$150 per hour in the event the entire building is being run. These rates are

effective for the first year of operation, subject to subsequent CPI [consumer

price index] adjustment and/or energy/utility charge adjustments.

ASP’s initial offer did not include a lump sum amount for HVAC services covered under

paragraph 8.3.B for GSA’s consideration.

The contracting officer’s request for final offers on November 8, 2007, confirmed the

understanding that overtime rates would be “$25.00 per hour per floor, $150.00 per hour for

the entire building,” and that rates would be “effective for the first year of operation only

and ... subject to subsequent CPI adjustments and/or energy/utility charge adjustments.”

In its final offer, ASP represented that the overtime rate would be “$25 per hour per

floor, $150 per hour for the entire building, both for the first year of operation, subject to

subsequent CPI adjustments and/or energy/utility charge adjustments.” Furthermore, ASP

indicated that it understood “normal working hours are from 7:00 AM to 6:00 PM except

Saturdays, Sundays, and Federal Holidays, and we will assure the required building

temperatures are met by 7:00 AM.”

Paragraph 15 of the lease states the following:

In accordance with SFO paragraph 8.4 titled “Overtime Usage,” the hourly

overtime rate is $25.00 per hour per floor or $150.00 per hour for the entire

building. These rates are effective for the first year of operation only and are

subject to subsequent CPI adjustments.

CBCA 2618, 2673 19

ASP’s final offer did not include a lump sum amount to be paid under paragraph 8.3.B of

the SFO. GSA Forms 1217 and 1364, which are part of the lease, also do not include a lump

sum charge for each year of the lease for providing the twenty-four hour HVAC services.

The Overtime HVAC Claim

On March 15, 2011, ASP submitted an invoice to the Government for the period

March 12, 2010, through March 11, 2011, seeking a lump sum payment of $899,850 for

“overtime HVAC in the 24/7 rooms” for the previous year of occupancy. An ASP employee

testified that the lump sum was derived by applying the overtime rates quoted in response

to paragraph 8.4, and calculating an amount using a corrected version of the formula inserted

into paragraph 8.3. The invoice used the hourly overtime rate of $150 per hour because the

rooms requiring the availability of on-demand HVAC services were spread throughout the

project and not on a single floor.

GSA did not pay the invoice. On September 29, 2011, ASP submitted a certified

claim for the lump sum amount of $899,850 for which it claimed entitlement, attaching the

invoice as well as subsequent correspondence.

On December 16, 2011, the contracting officer denied the claim for overtime HVAC

usage, stating that the claim did not accord with SFO paragraph 8.4, as explicitly referenced

in the standard lease agreement’s paragraph 15. ASP appealed this decision to the Board.

The Board docketed the appeal as CBCA 2673 and consolidated it with CBCA 2618.

After ASP submitted its claim, GSA requested an audit of the claimed expenses,

which was performed by GSA’s Office of the Inspector General. The auditor reviewed data

supplied by ASP and calculated a monthly average of actual on-demand usage of the twentyfour-hour dedicated HVAC system of $1878 per month, or an annual amount of $22,542.

Based on this calculation, the auditor testified that the lump sum claimed by ASP of

$899,850 is approximately forty times the amount of HVAC on-demand usage charges

actually incurred by ASP.

CBCA 2618, 2673 20

Discussion

Overview

These appeals arise under a lease agreement entered into between ASP and GSA for

the construction of an office building, parking spaces, and a secured parking garage, to be

leased upon completion to GSA, and occupied by the Denver FBI field office. The

legislation appropriating funding for this project included a Congressionally-imposed rent

limitation of $6,130,425 per annum and also mandated that the average rental rate could not

exceed the approved annual rate of $35 per square foot per annum for a lease term of twenty

years. ASP is an experienced developer and has successfully completed similar projects for

the Federal Government.

GSA’s solicitation for offers required the offerors to estimate their costs and evaluate

whether they could perform within the confines of a set rental amount that could not be

exceeded. The evidence shows that both ASP and GSA were concerned about cost

containment. ASP fully recognized, and even expressed its opinion, that to construct the

building within the rent limitation would be difficult. Ultimately, however, ASP offered to

perform and committed to a fixed-price lease within the dictates of the Congressional

mandate.

These appeals pose two distinct disputes under the lease. The first appeal, CBCA

2618, addresses the parties’ disagreement with respect to establishment of a base year for

real estate taxes under the lease. This determination affects the amount of increases in taxes

that GSA would be obligated to reimburse ASP in subsequent years. The second appeal,

CBCA 2673, addresses ASP’s claim that it is entitled to an annual lump sum payment of

nearly $900,000 for providing twenty-four hour HVAC services in designated areas of the

building.

CBCA 2618 - Real Estate Taxes

After the building was completed and occupied, ASP received a tax assessment bill

for the calendar year 2010, in the amount of $1,245,131.07, payable on April 30, 2011. This

amount reflected an assessed mill rate of $7.11 per square foot, nearly double the $3.88 per

square foot rate that had been calculated by ASP and provided to GSA during the lease

formation process. ASP contends that GSA agreed to use $3.88 for the base tax rate for the

duration of the lease and is responsible for assessed taxes in excess of the $3.88 rate.

CBCA 2618, 2673 21

This lease contains a standard clause providing that the annual rent amount shall be

inclusive of base real estate taxes. The Tax Adjustment clause of the lease states that the

Government will reimburse the lessor for its proportionate share of real estate taxes that

exceed the base amount and will receive a credit when actual taxes are less than the base

amount.'’? Paragraph 4.4 of the lease defines the scope of eligible real estate taxes for

purposes of reimbursement and provides two alternatives for establishing the base year

amount. The base real estate taxes included in the rent will be either (1) the real estate taxes

for the first twelve-month period coincident with full assessment, or (2) an amount

negotiated by the parties that reflects an agreed upon base for a fully assessed value of the

property. The Tax Adjustment clause is clear, then, that the base year taxes will be either

anegotiated amount or the real estate taxes for the first twelve-month period coincident with

full assessment. Sixth & E Associates, L.L.C. v. General Services Administration, CBCA

1149, 09-2 BCA § 34,179 (interpreting the same clause). The question here is whether the

facts show that ASP and GSA negotiated a base year tax rate of $3.88 per square foot at the

time the lease was signed.

In responding to the SFO, ASP proposed a rental rate of $35 per square foot. This

rate included estimated real estate taxes which ASP believed would be $3.88 per square foot

on the 175,155 square-foot building, upon completion of the build out. ASP derived this

number based on a mill rate of 66.9948, which was obtained in a telephone conversation

with the city and county of Denver’s tax office. ASP asserts that GSA, which did not

question the rate provided and used it in the evaluation of offers and in the occupancy

agreement it signed with the FBI, “accepted” this rate in negotiations, and agreed to its use

under the second option provided in paragraph 4.4.B. ASP thus argues that it is entitled to

recover all taxes assessed in excess of this amount, starting from 2010 and lasting through

the duration of the lease.

In support of its position, ASP directs us to language it included in letters and forms

it submitted along with its phase II offer and final proposal revision, as well as the option

to use a negotiated base year amount under paragraph 4.4.B. GSA Form 1364, submitted

in its final offer, used a tax rate of $3.88 per square foot for base year taxes. ASP also used

this rate in GSA Form 1217, in which it stated its expectation that the ultimate assessed

value of the property upon completion of the building would be $35 million. Furthermore,

in both its phase II offer and final proposal revision, ASP noted that its offer contained a

base tax of $3.88 per rentable square foot. Neither of these submissions, however, actually

3 Since the Government occupies the entire building, that share would amount

to 100 % of the difference from the base year.

CBCA 2618, 2673 22

asserted its understanding that GSA had agreed that the base year taxes for the twenty-year

lease would be $3.88 per square foot.

There is a complete absence of any compelling evidence that GSA was aware and

understood that ASP wanted to establish a fixed negotiated base rate under the lease in lieu

of using the more common practice of deriving a base year tax rate based upon an

assessment rendered in conjunction with the first year of tenant occupancy. GSA never

directly acknowledged this as a “negotiated” rate. Rather, it viewed the proposed rate of

3.88 per square foot as an estimated amount “indicated” by ASP for purposes of ensuring

its inclusion in the proposed rental rate. Of greatest significance, the lease language

expressly addresses this matter and is contrary to ASP’s present interpretation: “The base

year taxes shall be the first calendar year of full assessment and will be set in accordance

with Paragraph 4.4”

Although the record makes clear that this was anegotiated procurement, under which

various items in ASP’s and other offerors’ proposals were addressed by GSA, nothing

establishes that the parties mutually intended to negotiate a fixed base tax rate at the outset

and prior to full assessment.'* There is no evidence that this issue was ever directly

addressed in conversation between the parties, so any negotiation process respecting the base

year taxes would have to be derived by reference to the written documents memorializing

the procurement process. In effect, ASP maintains that because the lease itself was

denominated a negotiated procurement, the rate it proposed, which was not actively

challenged by GSA, effectively became a “negotiated” base year tax rate.

As drafted, the clauses addressing real estate taxes plainly contemplate that the

contractor will determine, in formulating its overall rental rate offer, the likely amount of

real estate taxes that will be assessed during the first year of occupancy. This number is

requested for the purpose of evaluating proposals. As GSA points out, Standard Form 2,

paragraph 12, of the lease, which states that the “estimated annual tax base for adjustments

is $679,601.40 or $3.88 per rentable square foot,” supports the agency’s understanding that

the rate was not intended to establish a firm base year tax amount as ASP suggests. This

comports with the Board’s reasoning in Sixth & E Associates, which found that the inclusion

of an estimated amount for real estate taxes on a standard form did not give rise to a

negotiated amount. The same paragraph in this form also stipulates that the base year shall

14

The GSA realty specialist testified that the agency would typically only

negotiate a base tax rate in this manner for previously occupied space that had already been

fully assessed.

CBCA 2618, 2673 23

be the first calendar year of full assessment and will be set in accordance with paragraph 4.4

of the lease. Thus, ASP’s interpretation creates an internal inconsistency.

This dispute is largely attributable to the unanticipated assessment imposed by

WCMD and collected by the city and county of Denver in a combined property tax bill. The

overwhelming evidence in the record on this point leads to the conclusion that neither party

considered, or was aware of, this portion of the assessment. The SFO and lease, however,

contemplate a fixed-price arrangement under which the lessor assumes the risk of

anticipating and recovering its expenses through the rental payment. The offerors were

expected to identify the full costs of performing the project and assumed the entrepreneurial

risk of unexpected or unanticipated costs.'’> This is not a tax imposed after ASP committed

to the lease. ASP’s own expert testified that the district existed before the lease was

negotiated. ASP could have identified this cost, but apparently did not. It was not GSA’s

responsibility to ferret out the actual tax rate in effect and inform ASP that the mill rate it

used was inaccurate.

GSA also questions whether the WCMD assessment even qualifies to be considered

a tax for purpose of “funding general government services” within the meaning of paragraph

4.4.A. In this regard, we note that there is no evidence in the record rebutting the expert

testimony elicited by ASP to show that the assessment in fact covers the provision of general

governmental services. The city and county of Denver includes it as a component of

assessed real estate taxes in its property tax assessment notice. ASP’s expert witness

confirmed that the WCMD assessment is a real estate tax under Colorado law, and that the

WCMD “is a general purpose district, which was organized for general public improvements

and is not a special assessment or special improvement district.””’° Additionally, the mill levy

1s As the Court of Appeals for the Federal Circuit has stated, “[B]lecause

fixed-price contracts do not contain a method for varying the price of the contract in the

event of unforeseen circumstances, they assign the risk to the contractor that the actual cost

of performance will be higher than the price of the contract.” Dalton v. Cessna Aircraft Co.,

98 F.3d 1298, 1305 (Fed. Cir. 1996). The contractor assumes the entrepreneurial risk of

unanticipated expenses.

‘6 We note that in City Crescent Limited Partnership v. United States, 71 Fed.

Cl. 797 (2006), the Court of Federal Claims found that a similar supplemental annual

property tax, assessed by a business district created by the City of Baltimore, was

recoverable by the lessor under a GSA lease tax adjustment clause.

CBCA 2618, 2673 24

that is imposed by the WCMD is a general ad valorem tax and not a special assessment. The

expert’s testimony is persuasive and credible. We find that the WCMD assessment is a real

estate tax for purposes of the Tax Adjustment clause.

Although ASP claims both parties agreed and intended that the estimate provided for

real estate taxes would constitute the base real estate tax for purposes of future tax

adjustments, the record does not support its contention that this rate was actually negotiated

and mutually agreed to. As the lessor under the fixed-rate lease, ASP bore the burden to

carefully research the taxes likely to be assessed on the property, and ifit wanted to negotiate

a firm base rate, to inform GSA of its intent. Absent this, under the Tax Adjustment clause,

the base tax year for this lease is the “first twelve month period coincident with full

assessment.”

As a general proposition, the General Services Board of Contract Appeals (GSBCA)

stated in Parcel 49C Limited Partnership v. General Services Administration, G3BCA

16447, 05-2 BCA § 33,013, at 163,604-05,:

The Board and the Court of Appeals for the Federal Circuit have both had

occasion to consider the meaning of the term “first year of a full assessment.”

The Board has defined the term as meaning “the first tax year in which all

contemplated improvements to the assessed property had been included in the

appraisal base.” W. David & Janet M. Kimbrell y. General Services

Administration, GSBCA 11325, 93-2 BCA 4 25,665, at 127,684 (1992)

(quoting Otto K. Wetzel, GSBCA 7466, 85-2 BCA § 18,099, at 90,858). On

appeal, the Court approved that definition and added, “Thus, ‘full’ means an

assessment on the improved property, only after all improvements

contemplated in the lease have been made.” Kimbrell v. Fischer, 15 F.3d 175,

177-78 (Fed. Cir. 1994).

M7 The Federal Circuit held in Kimbrell that the “tax escalation clause is not to

be interpreted to hold respondent responsible for tax increases resulting from

improvements.” 15 F.3d at 177-78 (quoting Wetzel, GSBCA 7466, 85-2 BCA ¥ 18,099, at

90,860). “The government has an obligation to pay for increases in taxes, but only for

increases on that which it bargained for, namely a building on a piece of property, not an

undeveloped piece of property.” Jd.

CBCA 2618, 2673 25

To conclude, under the facts and circumstances herein, ASP has not demonstrated

that it is entitled to use its estimate of $3.88 per square foot as the amount of the base year

for taxes under the lease.

CBCA 2673 - Reimbursement for HVAC Overtime

In this appeal, ASP claims entitlement to reimbursement of the lump sum amount of

$899,950, for provision of overtime HVAC services. This claim is predicated upon its

interpretation of paragraph 8.3.B of the lease and other related forms and correspondence.

GSA counters that neither this clause nor any other relevant lease provisions support ASP’s

claim.

Under the terms of the lease, ASP is required to provide a dedicated, twenty-four hour

HVAC system, in addition to, and independent of, the general building system. This system

is to consist of two separate modes, a dedicated mode and an on-demand mode. The room

data matrix furnished for purposes of identifying which rooms fall into these two categories,

explains that rooms that are designated “24/7 HVAC-D (Dedicated)” must be conditioned

continuously for twenty-four hours a day, seven days a week. Rooms that are designated

“24/7 HVAC-OD (On Demand)” must be served by the dedicated twenty-four hour system

but are not required to actually be heated or air conditioned automatically outside of normal

building hours. Rather, there must be a manually operated, room-mounted override button

to enable occupants to access HVAC services on demand.

The lease requires that the rental payment be inclusive of services, utilities, and

maintenance. Three specific clauses cover the provision of HVAC services. Paragraph

8.3.A establishes normal hours during which the general building HVAC system is to be

operational; paragraph 8.3.B governs the use of the dedicated twenty-four-hour HVAC

system. Both of these provisions pertain to costs that are to be included in the rental rate

under the lease. The dedicated HVAC system is required to operate continuously twentyfour hours a day in the dedicated rooms identified in the room matrix, and to be available for

activation on-demand in the other rooms covered by this system. Paragraph 8.3.B offers the

possibility of payment of a portion of the cost of providing such services outside of normal

hours in a lump sum amount apart from the rental consideration, if the offeror provides a

cost, if any, for these services based on the formula set forth in the clause. Paragraph 8.4.B

addresses HVAC usage on an overtime basis. A building official must order this usage,

which would be compensated on an hourly basis. No order exists, nor would one be

expected, for the usage at issue.

CBCA 2618, 2673 26

The GSA realty specialist testified that the formula'® in paragraph 8.3.B was intended

to allow some flexibility for offerors to recoup, outside of the rental rate, the cost of

providing the dedicated twenty-four hour HVAC services outside of normal hours. This

provision expressly contemplates that those costs, if any, were to be disclosed to the

Government in the form of a lump sum, which would be used for evaluation purposes, and,

if the lease was awarded to that offeror, would be paid on an annual basis. ASP argues that

the lump sum amount it seeks is easily derived by using the overtime rates it submitted in

responding to a request for rates under paragraph 8.4 and applying the formula for

“overtime” HVAC services in paragraph 8.3.B. Thus, it was not necessary to do the

calculation for GSA. ASP also maintains that the overtime rates it provided for paragraph

8.4 apply equally to paragraph 8.3.B.

Paragraph 8.4, on its face, speaks to overtime usage of the general HVAC system

provided for rooms that are not served by the dedicated twenty-four-hour system. This

usage would require the tenant to place an order for the services. No order is necessary for

use of the dedicated system, which is either running continuously or available by manual

activation. Legal precedent establishes that the term “overtime,” by definition, does not

apply to services that are already required to be provided:

Because heating and cooling must always be provided to [designated] rooms

and areas, it can never be required there “on an overtime basis,” so payment

for such services at the [overtime] rate would be inappropriate. Although the

Government, through the lease, did “request” heating and cooling services for

the specified rooms and areas during nonworking hours, we consider that

those hours were not “overtime,” as that phrase should be understood in the

context of the lease as a whole.

6000 Metro LLC v. General Services Administration, GSBCA 15725, et al., 04-1 BCA

{ 32,510, at 160,822 (quoting Clark College District 14 Foundation v. General Services

Administration, GSBCA 15603, 02-2 BCA { 32,005, at 158,138 (citing Rincon Center

Associates v. General Services Administration, GSBCA 11927, 96-1 BCA § 28,126 (1995),

aff'd sub nom. Rincon Center Associates v. Johnson, 108 F.3d 1393 (Fed. Cir. 1997)).

‘8 The clause states: “The Offeror shall provide to the Government the cost, if

any, for HVAC services based on 6,250 hours per year (14-hours per day of overtime HVAC

x 251 days and 24-hours per day of overtime HVAC x 114 days).” Although the formula

mistakenly allows for more hours than there are in a day, ASP has adjusted the formula and

does not claim more than the actual number of hours for which service is available.

CBCA 2618, 2673 27

This dispute is one of contract interpretation. The fundamental objective in contract

interpretation is to determine the parties’ intent at the time the contract was executed. See,

e.g., King v. Department of the Navy, 130 F.3d 1031, 1033 (Fed. Cir.1997); Beta Systems

v. United States, $38 F.2d 1179, 1185 (Fed. Cir. 1988); Alvin, Lid. v. United States Postal

Service, 816 F.2d 1562, 1565 (Fed. Cir. 1987). Contract interpretation begins with an

examination of the plain language of the contract. LAI Services, Inc. v. Gates, 573 F.3d

1306, 1314 (Fed. Cir. 2009) (citing M.A. Mortenson Co. v. Brownlee, 363 F.3d 1203, 1206

(Fed. Cir. 2004)). The contract should be construed as a whole and in light of its purpose.

Reasonable meaning must be given all parts of the agreement so as not to render any portion

meaningless, or to interpret any provision so as to create a conflict with other provisions of

the contract. Fortec Constructors v. United States, 760 F.2d 1288, 1292 (Fed. Cir. 1985);

United States v. Johnson Controls, Inc., 713 F.2d 1541, 1555 (Fed. Cir.1983); Arizona v.

United States, 575 F.2d 855, 863 (Ct. Cl. 1978) (“An interpretation which gives areasonable

meaning to all parts will be preferred to one which leaves a portion of [the contract] useless,

inexplicable, inoperative, void, insignificant, meaningless, superfluous, or achieves a weird

and whimsical result.”). Contract language should also be given the plain meaning that

would be derived by a reasonably intelligent person acquainted with the contemporaneous

circumstances. Firestone Tire & Rubber Co. v. United States, 444 F.2d 547, 551 (Ct. Cl.

1971); Hol-Gar Manufacturing Corp. v. United States, 351 F.2d 972, 975 (Ct. Cl. 1965).

Finally, the contract must be construed to effectuate its spirit and purpose, giving reasonable

meaning to all of its parts. Electronic Data Systems, LLC v. General Services

Administration, CBCA 1552, 10-1 BCA 34,316, at 169,505 (2009).

If the plain language of the contract is unambiguous on its face, that language

controls, and the inquiry ends. Hunt Construction Group, Inc. v. United States, 281 F.3d

1369, 1373 (Fed. Cir. 2002). If the language in question is open to more than one

reasonable interpretation, however, it is ambiguous, and the Board must determine which

interpretation should prevail. Gildersleeve Electric, Inc. v. General Services Administration,

GSBCA 16404, 06-2 BCA § 33,320, at 165,210.

The mere fact that the parties differ on the proper interpretation of contractual

language, however, does not necessarily mean that it is ambiguous. See Tri-Cor, Inc. v.

United States, 458 F.2d 112, 126 (Ct. Cl. 1972). Where a contract is amenable to but one

reasonable construction on its face, it should be given that interpretation and not be read to

create an ambiguity. The fact that an interpretation is conceivable does not mean that it is

reasonable or, in light of the whole contract, the correct one. See Bishop Engineering Co.

v. United States, 180 Ct. Cl. 411, 415-16 (1967) (noting that “it would not be appropriate

to strain the language of other contractual provisions to create an ambiguity” when “a

contract is amenable to only one reasonable construction upon its face” because this “does

CBCA 2618, 2673 28

violence to the intention of the parties as expressed in the contract language and

specifications”); David R. Brown, Jr., BCA 1600-7-82, 83-1 BCA § 16,423, at 81,704;

John McShain, Inc., GSBCA 2743, 70-1 BCA § 8804, at 37,585-86; see also Ja-Mar

Painting Co., ASBCA 13592, 70-1 BCA § 8158, at 37,924; BlackHawk Heating &

Plumbing Co., VABCA 963, 70-2 BCA {| 8426, at 39,201 (explaining that just because a

contractor’s interpretation is conceivable does not in and of itself render the contract

ambiguous because the ambiguity must be reasonable).

When these lease provisions and the contract are read as a whole, the only sensible

meaning that can be attributed to the request for rates for overtime usage under paragraph

8.4 is that GSA wanted hourly pricing for those occasions when it might be necessary to

order HVAC services, outside of normal business hours, for an area or areas of the building

where such services were not provided by the dedicated system. ASP’s quote for this

overtime usage, submitted in response to paragraph 3.3.C.10 of the lease, states that it will

charge $25 per hour per floor and $150 per hour if the entire building is being run. ASP’s

claim is premised on its interpretation that the rates provided in paragraph 8.4 were intended

to be used to derive the lump sum number requested for purposes of paragraph 8.3.B.

Although the term “overtime” is used in both provisions, it is readily apparent from the

contexts that overtime is used in paragraph 8.3.B to differentiate the normal business hours

applicable to the use of the dedicated twenty-four-hour HVAC system.

There is no indication anywhere in the lease that ASP is entitled to an annual sum of

$899,850 or that the hourly rate of $150 is to be applied in connection with paragraph 8.3.B.

A review of ASP’s offer leading up to execution of the lease, which is part of the lease, only

indicates a submission with respect to paragraph 8.4. First, ASP’s October 11, 2007, offer

included a section titled “Hourly Overtime for Heating and Cooling,” which stated the

following:

Hourly overtime rate for heating and cooling, in response to item 3.3, C, 10,

on page 36 of the SFO is $25 per hour per floor of the office building, or $150

per hour in the event the entire building is being run.

ASP’s reference to item 3.3.C.10 clearly indicates that the rate quoted is in response to

paragraph 8.4 because 3.3.C.10 refers to the “Overtime Usage” paragraph, which is

paragraph 8.4, not paragraph 8.3. In addition, the offer’s reference to the $150 rate being

applicable when “the entire building is being run” connotes actual usage of the general

building services, and paragraph 8.4.

CBCA 2618, 2673 29

ASP’s initial offer also included GSA Forms 1217 and 1364, both of which were

subsequently incorporated into the lease. Nowhere in Form 1364 is there any reference to

paragraph 8.3.B or any indication that ASP expects to be paid an annual lump sum of

$899,850 for overtime HVAC services. Likewise, GSA Form 1217 includes no indication

that operation of the twenty-four-hour system by ASP will incur an annual charge of

$899,850. ASP’s interpretation is contrary to paragraph provisions 3.3.G.2 and 3.3.G.4,

which required offerors to submit all costs to deliver the space and that the rental rate must

include the annual cost of services and utilities on line 27 of Form 1217. Further, in

paragraph 8 of ASP’s final proposal, ASP makes no mention that its overtime rates were to

apply to both paragraph 8.3.B and paragraph 8.4, nor does it present an annual lump sum

charge under paragraph 8.3.B.

We thus conclude that paragraph 15 of the lease agreement, which states that it is

pursuant to “SFO paragraph 8.4 titled ‘Overtime Usage’ and establishes the hourly rate of

$25 per hour per floor or $150 per hour for the entire building,” only applies to those HVAC

services ordered for the rooms that do not require twenty-four-hour HVAC services that

receive services outside the normal operation hours established in 8.3.A.

A focused reading of the language would have put ASP on notice that the two

provisions address different sources of HVAC services and that if ASP desired to separate

out costs associated with running the dedicated on-demand HVAC services it was incumbent

on it to identify what those costs were. The fact that ASP, however inadvertently, did not

recognize the need to specify a lump sum amount in association with the dedicated system’s

added costs of normal continuous use if it wanted to recover these costs outside of the rental

rate, does not entitle it after-the-fact to apply rates quoted in response to the need to order

overtime HVAC services.

For the reasons stated above, the appeal must be denied.

CBCA 2618, 2673.

Decision

These appeals, CBCA 2618 and CBCA 2673, are DENIED.

CATHERINE B. HYATT

Board Judge

We concur:

JOSEPH A. VERGILIO RICHARD C. WALTERS

Board Judge Board Judge