GRANTED IN PART; DISMISSED IN PART FOR LACK OF JURISDICTION:

GRANTED IN PART; DISMISSED IN PART FOR LACK OF JURISDICTION:

December 20, 2016

CBCA 5150

1201 EYE STREET, N.W. ASSOCIATES, LLC,

Appellant,

v.

GENERAL SERVICES ADMINISTRATION,

Respondent.

Reginald M. Jones, Douglas P. Hibshman, and Nicholas T. Solosky of Fox Rothschild

LLP, Washington, DC, counsel for Appellant.

Heather R. Cameron and Kristi Singleton, Office of General Counsel, General

Services Administration, Washington, DC, counsel for Respondent.

Before Board Judges DANIELS (Chairman), SOMERS, and SULLIVAN.

SULLIVAN, Board Judge.

1201 Eye Street, N.W. Associates, LLC (1201 Eye Street) appeals the final decision

of a contracting officer of the General Services Administration (GSA), in which the

contracting officer denied 1201 Eye Street’s claim for additional amounts in operating cost

adjustments for the term of the five-year lease extension that began on July 16, 2012. Based

upon the plain language of the terms of the lease and the lease extension agreement between

the parties, we grant the appeal and award 1201 Eye Street additional operating cost

adjustments in the amount of $1,326,687.42, for the first three years of the lease extension,

and interest as allowed by the Contract Disputes Act (CDA), 41 U.S.C. § 7109 (2012).

CBCA 5150

2

Findings of Fact

I.

Relevant Lease Terms

In 2002, GSA awarded 1201 Eye Street1 a contract for a lease of real property,

located at 1201 Eye Street, NW, Washington, D.C. Appeal File, Exhibit 1.2 The lease

period was ten years, id. at 1, and the tenant agency, the National Park Service (NPS), took

occupancy on July 16, 2002. The contract, including the solicitation for offers, contained

the terms and conditions that were to govern the lease.

The lease set forth the annual rent amounts that GSA would pay in the ten years of

the lease:

3. The Government shall pay the Lessor annual rent of:

For lease years 1 – 4, the Government shall pay the Lessor annual rent of

Eight Million Two Hundred Nine Thousand Nine Hundred Twenty and

00/100 Dollars ($8,209,920.00) (based on a rate of $42.76 per USF [useable

square foot] payable at the rate of Six Hundred Eighty Four Thousand One

Hundred Sixty and 00/100 Dollars ($684,160.00) per month in arrears. For

lease years 5 through 7, the Government shall pay the Lessor annual rent of

Eight Million Seven Hundred Eighty Five Thousand Nine Hundred Twenty

and 00/100 Dollars ($8,785,920.00) (based on a rate of $45.76 per USF)

payable at a rate of Seven Hundred Thirty Two Thousand One Hundred Sixty

and 00/100 Dollars ($732,160.00) per month in arrears. For lease years 8

through 10, the Government shall pay the Lessor annual rent of Nine Million

Three Hundred Sixty One Thousand Nine Hundred Twenty and 00/100

Dollars ($9,361,920.00) (based on a rate of $48.76 per USF) payable at a rate

of Seven Hundred Eight Thousand One Hundred Sixty and 33/100 [sic]

Dollars ($780,160.00) per month in arrears.

Exhibit 1 at 1. The lease further required that, “[i]n addition to the annual rent, the

Government shall pay Operating Expense Adjustments and Tax Adjustments as provided

in this [standard form] 2 and the attached Solicitation for Offers during the Lease term.” Id.

1

The contract was initially awarded to 1215 Eye Street as the original owner of

the property, but in 2006 ownership was transferred to 1201 Eye Street. Transcript, Vol. 1

at 57-59.

2

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

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3

Operating expenses were defined in the lease as “cleaning services, supplies,

materials, maintenance, trash removal, landscaping, water, sewer charges, heating,

electricity, and certain administrative expenses attributable to occupancy.” Exhibit 1 at 19.

The total of these expenses for the property at the beginning of the lease was $1,326,720,

an amount documented on the form 1217 included in the lease. Id. at 2, 72. This operating

base amount was included in the first year’s annual rent amount for the property, with

adjustments to be made every year thereafter. Transcript, Vol. 1 at 68-69.3

The lease provided direction as to how the operating expense adjustments would be

calculated:

3.5 Operating Costs (Sep 2000)

A. Beginning with the second year of the lease and each year thereafter, the

Government shall pay adjusted rent for changes in costs for cleaning services,

supplies, materials, maintenance, trash removal, landscaping, water, sewer

charges, heating, electricity, and certain administrative expenses attributable

to occupancy. Applicable costs listed on GSA Form 1217, Lessor’s Annual

Cost Statement, when negotiated and agreed upon, will be used to determine

the base rate for operating costs adjustment.

B. The amount of adjustment will be determined by multiplying the base rate

by the percent of change in the Cost of Living Index. The percent change will

be computed by comparing the index figure published in the month of the

lease commencement date with the index figure published in the month which

begins each successive 12-month period. For example, a lease which

commences in June of 1995 would use the index published in June of 1995,

and that figure would be compared with the index published in June of 1996,

June of 1997, and so on, to determine the percent change. The Cost of Living

Index will be measured by the Department of Labor revised Consumer Price

Index (CPI) for wage earners and clerical workers, U.S. city average, all items

figure, (1982 to 1984 = 100) published by the Bureau of Labor Statistics.

Payment will be made with the monthly installment of fixed rent. Rental

adjustments will be effective on the anniversary date of the lease.

3

The Board held a hearing in this matter on November 1-2, 2016, at the request

of the parties. Although the appeal is resolved based upon the plain language of the lease

and lease extension agreements, the Board used the hearing to confirm its understanding of

the operative terms through the testimony of witnesses.

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4

C. In the event of any decreases in the Cost of Living Index occurring during

the term of the occupancy under the lease, the rental amount will be reduced

accordingly. The amount of such reductions will be determined in the same

manner as increases in rent provided under this paragraph.

Exhibit 1 at 19-20.

II.

Calculation of Operating Expense Adjustments During the Lease Term

For the ten years of the lease, GSA paid monthly rent payments in a single sum for

both the annual rent and the operating cost adjustments. Transcript, Vol. 1 at 174. The tax

adjustments were paid annually in a single, separate payment. Id. at 62. During the lease

term, the annual rent increased twice, in lease years 2006 and 2009. Exhibit 1 at 1. The

base operating cost and the calculation to determine the adjusted operating costs remained

the same.

GSA calculated the payments annually as paragraphs 3 and 3.5 of the lease required,

on a worksheet that was provided to 1201 Eye Street. These worksheets, referred to as

supplemental lease agreements (SLAs), were prepared by the budget function within GSA,

Transcript, Vol. 2 at 233-34, and issued unilaterally by the contracting officer. See, e.g.,

Exhibit 12. The contracting officer described the SLA documents as “administrative” in

nature. Transcript, Vol. 2 at 323-24.

As detailed on the SLAs provided in the record, each year, GSA calculated the

change in the cost of living from the base year and multiplied that figure by the base

operating cost to determine the amount of the operating cost adjustment due. For example,

the cost of living index in 2005, lease year four, was 191, and in 2002, the base year, was

176.1. The calculated difference between these two figures is 0.084611016. This figure

was multiplied by $1,326,720, the base operating cost, to derive the operating cost

adjustment of $112,255.12 for 2005. When this amount is added to the annual rent,

$8,209,920, the resulting amount is the total annual rent of $8,322,175.12 for 2005. The

lease required no additional steps in the calculation of the total annual rent.

In preparing the SLAs, GSA added two extra steps to its annual calculation of the

amounts owed, but arrived at the correct total annual rent figure. After calculating the

operating cost adjustment for the year, GSA subtracted an amount that it labeled “previous

escalation paid,” which was the operating adjustment for the previous year, from the current

year’s adjustment. The resulting amount was labeled “annual increase in operating cost due

lessor.” This amount was then added to the total annual rent amount calculated for the

CBCA 5150

5

previous year to derive the new annual rent for the current year.4 GSA witnesses testified

that these extra steps were necessary to ensure that 1201 Eye Street was not paid twice for

these escalated amounts. Transcript, Vol. 2 at 137, 235, 324. But, the Board observes, that

problem could have also been addressed by simply adding the operating cost adjustment to

the base annual rent, rather than to the prior year’s total rent amount.

The Board does not find in the lease any requirement for GSA to undertake these

additional steps, but, as shown in the excerpt of the SLA for 2005, the net result of these two

extra steps is the same as adding the operating cost adjustment for the year to the base rent

for the year to derive the new total annual rent:

Base (CPI-W-U.S. City Avg)

2002

176.10

Corresponding Index

2005

191.00

Base Operating Cost Per Lease

$1,326,720.00

% Increase in CPI-W

0.084611016

Annual Increase in Operating Cost

$112,255.13

Less Previous Escalation Paid5

$66,298.33

Annual Increase in Operating Cost Due Lessor

$45,956.80

. . . the annual rent is increased by $45,956.80. The new annual rent is

$8,322,175.136 payable at the rate of $693,514.59 per month.

4

This step in the calculation is not specifically shown on the SLA, but can be

determined by subtracting the annual increase in operating cost due lessor from the new

annual rent amount and comparing the resulting amount to the previous year’s annual rent

calculation.

5

GSA’s label for this amount is not accurate. Rather than the “previous amount

paid,” this amount is the operating cost adjustment calculated for the previous year, 2004.

Exhibit 4.

6

This new annual rent amount is the sum of the annual increase in operating

cost due lessor and the previous year’s annual rent ($8,322,175.13 = $45,956.80 +

$8,276,218.33). Exhibits 4, 5. It is also the sum of the base rent amount and the calculated

operating cost adjustment for the year ($8,209,920 + $112,255.13 = $8,322,175.13).

CBCA 5150

6

Exhibit 5 (SLA 18, effective July 16, 2005).

During the term of the lease, the annual rent payments calculated by GSA matched

those amounts that paragraphs 3 and 3.5 required be paid to 1201 Eye Street:

Year

Annual Rent

Calculated

Increase in

Operating

Costs

Annual Rent

Plus Calculated

Increase (Total

Annual Rent)

Rent Paid By

GSA

2002-03

$8,209,920.00

$0.00

$8,209,920.00

$8,209,920.00

2003-04

$8,209,920.00

$26,368.65

$8,236,288.65

$8,236,288.65

Exhibit 3

2004-05

$8,209,920.00

$66,298.33

$8,276,218.33

$8,276,218.33

Exhibit 4

2005-06

$8,209,920.00

$112,255.13

$8,322,175.13

$8,322,175.13

Exhibit 5

2006-07

$8,785,920.00

$174,033.12

$8,959,953.12

$8,959,953.127

Exhibits 6, 83

2007-08

$8,785,920.00

$207,935.67

$8,993,855.67

$8,993,855.67

Exhibits 7, 83

2008-09

$8,785,920.00

$302,862.83

$9,088,782.83

$9,088,782.83

Exhibits 9, 83

2009-10

$9,361,920.00

$259,392.22

$9,621,312.22

$9,621,312.22

Exhibit 10

7

In lease year 2006, GSA failed to increase the base annual rent amount in its

calculations as required in paragraph 3 of the lease, which resulted in the incorrect

calculation of total rent payments for three years. Exhibit 85. To address the rent

deficiency, GSA made a one-time lump sum payment. Exhibit 83. GSA also issued an SLA

reflecting the correction to the total annual rent amounts for all three years. Exhibit 83.

When the annual rent increased again in 2009, GSA included the correct amounts in its

calculation of the monthly rent. The chart above reflects the corrected annual rent amounts

paid by GSA. See Exhibits 83, 85.

CBCA 5150

7

2010-11

$9,361,920.00

$284,766.40

$9,646,686.40

$9,646,686.40

Exhibit 11

2011-12

$9,361,920.00

$350,974.32

$9,712,894.32

$9,712,894.32

Exhibit 12

III.

Terms of the Lease Extension

After the lease expired on July 15, 2012, GSA entered a period of holdover for two

years while NPS determined whether and where it wanted to move its personnel. Transcript,

Vol. 2, at 84-86. After NPS determined that it would move its personnel to the main

Department of the Interior building and that completing renovations there would require five

years, NPS asked GSA to negotiate an extension to the existing lease. Id. at 85-86.

Both parties presented evidence and testimony regarding the negotiations that led to

the lease extension. 1201 Eye Street provided two unsolicited offers to GSA, in which 1201

Eye Street stated that “[o]perating expense adjustments shall continue as provided in the

current lease” and “the extension . . . shall not alter or amend the standards, terms and

conditions of Lease Number GSA-11B-01482 with terms outside of this unsolicited offer.”

Exhibit 13 at 2, 3; Exhibit 14. Once NPS requested that GSA execute a lease extension, the

GSA contracting officer forwarded a draft of the lease extension to 1201 Eye Street that

stated in part:

All other terms and conditions of the lease shall remain in force and effect.

....

The new annual rent shall continue to be adjusted for operating cost

escalations as provided in the Lease using the same operating cost base

established during the initial term of the Lease (i.e., CPI increases are due

July 16, 2012, July 16, 2013, July 16, 2014, July 16, 2015, and July 16, 2016).

Exhibit 56 at 1, 2.

On April 15, 2014, the parties executed a five-year lease extension:

1. Extension Period: The term of the lease is for a period of five (5) years firm,

subject to Paragraph 4 below, beginning as of July 16, 2012 and ending on

July 15, 2017 (the “Extension Term”).

CBCA 5150

8

Exhibit 15 at 2. The parties negotiated new annual rent amounts based on a revised square

footage and a new rental rate per square foot, as listed in paragraph 3 of the lease extension:

3. Annual Rent: The annual rent during the Extension Term will be $42.60 per

[Building Owners and Managers Association (BOMA) Rentable Square Foot

(BRSF)]/$48.76 per [American National Standards Institute (ANSI) BOMA

Office Area Square Foot (ABOASF)] for the first twelve (12) months of the

Extension Term (July 16, 2012 - July 15, 2013). The annual rent amount

during such one year period is $9,361,350.00 ($42.60/BRSF x 219,750

BRSF).

Effective as of July 16, 2013, the annual rental rate will increase to $49.83 per

BRSF/$57.03 per ABOASF for the remainder of the Extension Term. The

annual rent will increase from $9,361,350.00 to $10,950,142.50, subject to

Paragraph 4 below.

Date

To

# of

Months

Annual

Rate

SF

Total Rent

7/16/2012

7/15/2013

12

$42.60

219,750

$9,361,350.00

7/16/2013

7/15/2014

12

$49.83

219,750

$10,950,142.50

7/16/2014

3/31/2015

8.5

$49.83

219,750

$7,756,350.94

4/1/2015

7/15/2017

27.5

$49.83

174,274

$19,901,001.59

Total Rent:

$47,968,845.03

Id. The parties also agreed that “[t]he new annual rent shall continue to be adjusted for

operating cost escalations as provided in the Lease using the same operating cost base

established during the initial term of the Lease (i.e., CPI increases are due July 16, 2012,

July 16, 2013, July 16, 2014, July 16, 2015, and July 16, 2016).” Id. The lease agreement

provided that “the Government [would] pay a single lump sum payment in the total amount

of any deficiency between rental payments made prior to the date of this Amendment for any

CBCA 5150

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portion of the Extension Term.” Id. Finally, the agreement provided that “[a]ll other terms

and conditions of the lease shall remain in force and effect.” Id. at 1.

IV.

Calculation of Operating Cost Adjustments During the Lease Extension

Based upon the terms of the lease extension agreement, witnesses for both parties

testified that they understood that the operating cost adjustments for the lease extension

period were to be calculated and paid in the same way that they were in the original lease

term. Transcript, Vol. 1 at 112; Id., Vol. 2 at 94. Despite this apparent agreement, GSA

changed the manner in which it calculated the annual rent, which led to the current dispute.

During the lease extension, GSA continued to make monthly rent payments in a

single sum for both the base rent and the operating cost adjustments. Transcript, Vol. 1 at

174. GSA also paid the tax adjustments annually in a single, separate payment. Id. at 16.

GSA continued to calculate the new annual rent payments on the SLAs provided to 1201

Eye Street. See, e.g., Exhibit 17.

The first steps in the total rent calculations remained the same. GSA continued to

calculate the change in the cost of living index from the base year and multiplied that figure

by the base operating cost to determine the operating cost adjustment for the year. GSA also

calculated the difference between the current and prior year’s adjustment, still labeled as

“previous escalation paid,” to determine the “annual increase in operating cost due lessor.”

However, for the first year of the lease extension, rather than adding this annual

increase to the total annual rent paid in the previous year as GSA had done during the

original lease to capture the previous operating cost adjustments, GSA added this amount

to the base annual rent amount agreed to in the extension between the parties. Exhibit 16.

Because the base rent amount did not contain the previous cost adjustments, GSA calculated

a total rent amount that paid only the increase in operating cost adjustments from the prior

year (2011), instead of the operating cost adjustment increase from the base year (2002).

In the second year of the lease extension, GSA compounded the error by adding the

annual increase in operating cost due the lessor to the prior year’s annual rent, rather than

the annual rent amount to which the parties had agreed for that year. Exhibit 17. The

amount of $34,023.10 was added to $9,383,062.70, the total rent paid in 2012, to derive the

new annual rent of $9,417,085.80 for 2013. In the third year of the lease extension, GSA

added the annual increase to the base annual rent amount set forth in the lease extension.

Exhibit 19. Again, as the result of this method of calculation, GSA only paid 1201 Eye

Street the increase in cost adjustments between 2013 and 2014 rather than from 2002 to

2014.

CBCA 5150

V.

10

1201 Eye Street’s Claim

On July 17, 2015, 1201 Eye Street submitted its certified claim to the contracting

officer, seeking the correct amount of operating cost adjustments pursuant to the terms of

the lease and lease extension. 1201 Eye Street sought $1,326,687.42, as the amount owed

for the first three years of the lease extension. The contracting officer denied 1201 Eye

Street’s claim on October 15, 2015, and 1201 Eye Street filed its timely appeal.8

At the hearing, 1201 Eye Street’s senior property accountant testified as to the

calculation and amount of these damages. 1201 Eye Street calculated that it should have

received $32,217,132.69, in rent and operating cost adjustments in the first three years.

1201 Eye Street received only $30,890,445.27. The difference between these two amounts

is $1,326,687.42. The senior property accountant also testified as to amounts paid by GSA

from July 2002 to September 2016, based upon calculations placed into evidence. Exhibit

85.

8

Prior to the submission of 1201 Eye Street’s claim, the parties engaged in

negotiations to resolve the issue. 1201 Eye Street included in the appeal file documents

which purported to show GSA’s agreement with its interpretation of the terms of lease and

lease extension regarding the calculation of operating cost adjustments. GSA sought to

exclude one document, Exhibit 69, arguing that it was protected by the attorney-client

privilege. The Board found that, although the document is protected by the attorney-client

privilege, GSA waived the privilege when it failed to take reasonable steps to prevent its

disclosure or rectify its error once it was discovered. Nevertheless, the Board ultimately

excluded the document under Federal Rule of Evidence (FRE) 408, which precludes the

introduction of evidence of “conduct or a statement made during compromise negotiations

about the claim” offered as evidence of the validity or amount of a disputed claim. Exhibit

69 was an email chain that described statements made during the negotiations between the

parties. Despite the Board’s ruling to exclude this exhibit on the basis of FRE 408 at the

beginning of the hearing, counsel for both parties proceeded to elicit testimony regarding

these negotiations without objection.

CBCA 5150

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Discussion

I.

The Plain Language of the Lease and the Lease Extension Require Payment of the

Amounts 1201 Eye Street Seeks

The issue to be decided in this appeal is the amount of the operating cost adjustments

to which 1201 Eye Street was entitled during the first three years of the lease extension.9 As

noted above, the parties agree that the lease agreement provided that operating cost

adjustments would continue to be calculated and paid in the same manner as was done

during the lease. The parties disagree as to how these amounts were to be calculated. The

answer to this disagreement is found in the plain language of the original lease, specifically

paragraph 3.5 of the solicitation for offers.

Resolving a contract interpretation problem begins with a reading of the plain

language of the lease. Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed. Cir. 1991)

(“Contract interpretation begins with the plain language of the agreement.”); A-Son’s

Construction, Inc. v. Department of Housing & Urban Development, CBCA 3491, et al.,

15-1 BCA ¶ 36,089, at 176,207. A contract must be construed so as to give “reasonable

meaning to all parts of the contract.” Hercules, Inc. v. United States, 292 F.3d 1378, 1381

(Fed. Cir. 2002). Moreover, “the language of a contract must be afforded the meaning

derived from the contract by a reasonably intelligent person acquainted with the

contemporary circumstances.” Firestone Tire & Rubber Co. v. United States, 444 F.2d 547,

551 (Ct. Cl. 1971). When the plain language of the contract is unambiguous, the Board does

not need to look to extrinsic evidence to interpret its provisions. TEG-Paradigm

Environmental, Inc. v. United States, 465 F.3d 1329, 1338 (Fed. Cir. 2006); see Hunt

Construction Group, Inc. v. United States, 281 F.3d 1369, 1373 (Fed. Cir. 2002) (“When

the contract language is unambiguous on its face, our inquiry ends, and the plain language

of the contract controls.”).

9

In its notice of appeal and complaint, 1201 Eye Street seeks to recover its

operating cost adjustments for the entire period of the lease extension. The Board only has

jurisdiction to award the amount owed for the first three years because this period was the

period set forth in its claim to the contracting officer. Strawberry Hill, LLC v. General

Services Administration, CBCA 5149, 16-1 BCA ¶ 36,561. Given that the terms of the lease

extension remain the same during the remaining term of the lease extension, the Board

presumes that the parties can determine between themselves the additional amount owed to

1201 Eye Street for operating cost adjustments for later years, if and when 1201 Eye Street

submits a claim or request for equitable adjustment for those monies.

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12

Here, the plain language of the lease explains the calculations required to compute

the annual rent and the adjustments for operating costs. Paragraph 3 of the lease recites the

annual rent amounts for the first ten years of the lease and provides that 1201 Eye Street

shall also receive operating cost adjustments in addition to these amounts. Paragraph 3.5

dictates how these operating cost adjustments are to be calculated–the difference in the cost

of living index between 2002 and the current year is to be multiplied by the base operating

cost.

The language of the lease extension is equally clear. All terms of the lease remain in

“force and effect.” The lease extension provides that adjustments will continue to be made

to the annual rent for operating costs and tax payments “as provided in the lease.” Those

adjustments were to be made “using the same operating cost base established during the

initial term of the Lease.” The annual rent amounts for lease extension years 2012 through

2015 are clearly laid out in paragraph 3 of the extension. Although the annual rent amounts

changed, there was no change in the calculation of the operating cost adjustments or the total

annual rent.

Pursuant to the language of the lease and the lease extension, GSA was to continue

to pay 1201 Eye Street operating cost adjustments based upon the change in the cost of

living index calculated from 2002. Nothing in the lease extension agreement changed that

obligation or method of calculation. GSA correctly asserts that it did not change its method

of calculating the operating cost adjustment–GSA did continue to calculate the operating

cost adjustment using the operating cost base amount and the base year of 2002. Transcript,

Vol. 2 at 345. The mistake came when GSA undertook its additional steps in its calculation

of the total annual rent due. During the original lease, GSA subtracted the prior year’s

adjustment from the current year, but then added the resulting figure to the prior year’s total

annual rent figure. Despite these extra steps, as explained above, 1201 Eye Street still

received the base annual rent plus the operating cost adjustment.

However, when GSA calculated the total annual rent for the lease extension, it took

only one additional step–it subtracted the prior years’ adjustment from the current year’s

adjustment. It then added the resulting figure to the agreed-upon annual rent for 2012. As

a result, GSA paid 1201 Eye Street only for the difference in operating cost adjustments

between 2011 and 2012. This calculation does not comport with the plain language of

paragraphs 3 and 3.5, which requires that GSA pay the operating cost increases from 2002.

GSA argues that 1201 Eye Street seeks to recover what it terms “accumulated

operating costs” and that 1201 Eye Street should have clearly indicated its interest in

receiving these sums when the parties negotiated the lease extension agreement.

“Accumulated operating costs” are the sum of all the amounts that GSA labels as “previous

CBCA 5150

13

escalation paid”10 in each of the ten years of the lease. Transcript, Vol. 2 at 250. This

amount was $350,974.32 for the last year of the original lease. Id. If 1201 Eye Street

wanted to include these amounts in the calculation of operating adjustments, GSA asserts,

1201 Eye Street should have included language addressing these costs in the lease extension.

Contrary to GSA’s assertion, the terms of the lease agreement provide that 1201 Eye Street

is to receive these amounts, and the terms of the lease extension agreement require that

operating cost adjustments be calculated in the same manner as under the original lease. If

GSA did not want to include the amounts that it identifies as “accumulated operating costs,”

it needed to address that in the lease extension by changing the base year for the calculation

of the change in the cost of living index.

GSA further argues that 1201 Eye Street had three methods available by which it

could have ensured that these amounts would be included in the payments under the lease

extension. First, 1201 Eye Street could have reset the base operating cost year and amount

in the lease extension. Transcript, Vol. 2 at 343. Second, it could have added language in

the lease extension ensuring that “accumulated operating costs” would be included. Id. at

343. Third, 1201 Eye Street could have added the “accumulated operating costs” to the

annual rent amounts in the paragraph 3 table of the lease extension. Id. Again, GSA

misunderstands that these amounts are included by virtue of the fact that the lease extension

agreement provided that the operating cost adjustments would continue to be calculated in

the same manner as set forth in the lease. This method included using the base year of 2002

and did not require 1201 Eye Street to identify “accumulated operating costs” as a separate

amount. In fact, if GSA did not want to pay 1201 Eye Street these “accumulated amounts,”

it should have reset the base year from which the operating cost adjustments were measured.

Moreover, if 1201 Eye Street had included these amounts in the rent table without changes

to the method of calculating the adjustment, 1201 Eye Street would have collected greater

total rent payments.

II.

GSA’s Interpretation Conflicts with the Extrinsic Evidence of the Prior Course of

Dealing

GSA argues in the alternative that, if the Board does not find that its interpretation

is supported by the plain language of the agreements, the lease extension agreement must

be ambiguous and the Board should apply the doctrine of contra proferentem against 1201

Eye Street as the drafter of the language at issue. Respondent’s Pre-Hearing Brief at 9.

10

As explained in footnote 5, the description “previous escalation paid” is a

misnomer because the amount is the operating cost adjustment for the previous year.

CBCA 5150

14

GSA also presented witness testimony regarding perceived ambiguities in the language of

the lease extension.

When contract language is subject to more than one reasonable interpretation, the

doctrine of contra proferentem may be applied to construe terms against the drafter. Turner

Construction Co. v. United States, 367 F.3d 1319, 1321 (Fed. Cir. 2004). But, the Board

should turn to the doctrine of contra proferentem as a “last resort,” only after “other

approaches to contract interpretation have failed.” Gardiner, Kamya & Associates v.

Jackson, 467 F.3d 1348, 1352 (Fed. Cir. 2006). Other approaches to contract interpretation

include the examination of extrinsic evidence, and specifically the course of dealing of the

parties. TEG-Paradigm, 465 F.3d at 1339; see also McAbee Construction, Inc. v. United

States, 97 F.3d 1431, 1434 (Fed. Cir. 1996). Extrinsic evidence can also serve to confirm

that the Board’s interpretation of the plain meaning of the contract was in fact the parties’

understanding. A-Son’s Construction, Inc., 15-1 BCA at 176,208. Particularly useful is the

prior dealings of the parties during the term of the original lease. See Metropolitan Area

Transit, Inc. v. Nicholson, 463 F.3d 1256, 1260 (Fed. Cir. 2006) (“When, as here, the

contract language is ambiguous, the parties’ own course of performance is highly relevant

to contract interpretation.”).

Assuming, arguendo, that there is an ambiguity in the terms of the lease and lease

extension, the Board need not resort to the doctrine of contra proferentem. The testimony

at hearing did not establish that 1201 Eye Street was the drafter of the language at issue in

the appeal. While 1201 Eye Street submitted unsolicited offers to GSA during the holdover

period, the language at issue in the appeal was found in the draft of the lease extension

prepared by the contracting officer, not in the offers submitted by 1201 Eye Street.

Moreover, GSA’s interpretation is not reasonable and conflicts with the prior conduct of the

parties. During the original lease, GSA calculated the operating cost adjustments and total

monthly rent as detailed above so that 1201 Eye Street received the full amount of the

operating cost adjustment calculated from 2002. GSA changed the calculation during the

term of the lease extension so that 1201 Eye Street did not receive this full amount.

Finally, GSA attempted to establish that the lease extension contains ambiguities as

to how the operating cost adjustments are to be calculated. According to GSA, the rent table

in paragraph 3 of the lease extension agreement creates an ambiguity with the column

heading “total rent,” suggesting that the amounts listed are inclusive of annual rent and

operating cost adjustments. Transcript, Vol. 2 at 272. Though the table heading may have

been unclear, the language of the lease extension dispels any ambiguity because it lists the

annual rent and provides that “the annual rent will continue to be adjusted for operating cost

escalations.” The original lease contained the annual rent amounts in paragraph 3 and

provided that they would be further adjusted. GSA also argues that the specific use of the

CBCA 5150

15

term lease extension as opposed to lease renewal creates an ambiguity because the term

extension requires that the terms of the lease be reset, whereas in a renewal the terms would

carry over. Id. at 9-10, 108, 309-12. Despite this professed understanding of GSA

terminology, the terms of the lease clearly state that the calculation of operating cost

adjustments is to remain the same.

Decision

The appeal is GRANTED IN PART. For the first three years of the lease extension,

1201 Eye Street is awarded $1,326,687.42, with interest to run from July 17, 2015, pursuant

to 41 U.S.C. § 7109. 1201 Eye Street’s claim for the last two years of the lease extension is

DISMISSED FOR LACK OF JURISDICTION.

___________________________

MARIAN E. SULLIVAN

Board Judge

We concur:

_____________________________

STEPHEN M. DANIELS

Board Judge

_____________________________

JERI KAYLENE SOMERS

Board Judge