November 13, 2000

Appeal of

J. LEONARD SPODEK and SARA NATHANSON

NATIONWIDE POSTAL MANAGEMENT

LEASE AGREEMENT

(Northside Station – Tulsa, OK)

PSBCA Nos. 4222 & 4266

APPEARANCE FOR APPELLANT:

J. Leonard Spodek

APPEARANCE FOR RESPONDENT:

Melinda Varszegi

OPINION OF THE BOARD

            J. Leonard Spodek and Sara Nathanson, d/b/a Nationwide Postal Management (Appellant), have appealed two decisions of the contracting officer assessing Appellant for the costs of repairs to the Northside Station, Tulsa, Oklahoma.  The appeals were consolidated for hearing and decision.  A hearing was held in Tulsa.  Both entitlement and quantum are at issue in PSBCA No. 4222, with entitlement the only issue in PSBCA No. 4266.

FINDINGS OF FACT

            1.  On June 15, 1965, Appellant’s predecessor-in-interest leased the Northside Station in Tulsa, Oklahoma, to Respondent[1] for an initial term of twenty years.  Three five-year lease renewal options have subsequently been exercised.  The terms and conditions of the original lease remained unchanged during the term of the lease and the option periods.  (Stipulation of the Parties (Stip.) 1, 3; Appeal File 4222/4266 (AF 4222/4266), tabs 1-2).

            2.  On December 18, 1996, Appellant purchased the property and assumed the lessor’s responsibility under the lease (Stip. 2; AF 4222/4266, tab 3).

            3.  Paragraphs 6 and 7 of the lease provide, in pertinent part, as follows:

            “6.  The Lessor shall . . . furnish all lighting fixtures,  plumbing and toilet facilities and utility meters, all as now installed in the demised premises . . . .  The Lessor shall furnish air conditioning equipment, . . . maintenance of said equipment, including but not limited to the necessary refrigerant and filters. . . .  The Lessor agrees to provide and replace during the continuance of the lease all ballasts, as needed.

* * *

            7.  The Lessor shall, unless herein specified to the contrary, maintain the demised premises, including the building and any and all equipment, fixtures, and appurtenances, whether severable or non-severable, furnished by the Lessor under this lease in good repair and tenantable condition, except in the case of damage arising from the act or negligence of the Government’s agents or employees . . . . ”  (AF 4222/4266, tab 1).

            4.  Under paragraph 10 (c) of the lease, the lessor agrees that, if any part of the leased property becomes unfit for the purpose leased, the lessor will satisfactorily correct the unfit condition (AF 4222/4266, tab 1).

PSBCA No. 4222

5.  On July 15, 1997, a representative of the contracting officer inspected the facility and identified certain deficiencies that were in need of repair or replacement.  These items included a leaking toilet, roof leaks, approximately 70 stained and water damaged ceiling tiles (caused by the roof leaks), approximately 40 inoperable light fixtures, interior and exterior painted surfaces that were in poor condition and, in some locations, paint that was peeling (the building had not been painted since the lease began in 1965), a defective electric breaker, approximately 25 feet of cracked sidewalk in the front of the building, spalled brick on the front corner of the building, approximately 1400 feet of cracks (varying in width from one quarter to three quarters of an inch) in the asphalt paving of the parking and maneuvering areas, lack of caulking in the vertical expansion joint, and loose flashing on the roof.  (Transcript pages (Tr.) 24-36, 157, 158, 162-164, 201, 274, 280, 357; Respondent’s Exhibits R-1 and R-2).

            6.  By letter dated July 25, 1997, the contracting officer notified Appellant of the above deficiencies and the need for Appellant to repair them.  The contracting officer further advised Appellant that if it did not correct the deficiencies within thirty days of receipt of the letter, the Postal Service would hire a third party contractor to
do the work and charge Appellant with the cost of the third party contract as well as with any associated administrative costs.  (AF 4222, tab 6).

            7.  By letters dated August 7, 1997, and September 16, 1997, Appellant informed Respondent that it would perform roof repairs and paint the interior and exterior of the facility.  Appellant also informed Respondent that it would repair defective light fixtures, as well as replace those stained and water damaged ceiling tiles that were not damaged as a result of Postal Service activities.  (AF 4222, tabs 7, 9).

            8.  However, as of September 26, 1997, Appellant had not performed any of the work identified by Respondent in its letter of July 25, 1997.  As a result, Respondent issued work order No. 8, in the amount of $5,931.58, under a competitively awarded Indefinite Quantity Construction (IQC) contract[2] to have some of the repairs performed.  The work order included replacing the defective breaker (replaced on October 24, 1997), at a cost of $42.32; repairing the toilet, at a cost of $150.00; replacing a 5’ x 25’ section of damaged concrete sidewalk, at a cost of $1,147.40; routing and filling approximately 1400 lineal feet of cracks in the asphalt paving, at a cost of $3,226.45; re-caulking a vertical expansion joint on the west side of the building, at a cost of $311.52; repairing sidewalk cracks, at a cost of $556.00; and repairing loose flashing at the intersection of the roof and wall, at a cost of $1,053.89.  However, in light of Appellant’s stated intention to perform some of the necessary repairs (see Finding No. 7, above), the work order did not include painting the interior or exterior, repairing roof leaks, repair or replacement of light fixtures, or replacement of damaged or stained ceiling tiles.  With the exception of repairing sidewalk cracks, which was deleted by a subsequent modification to the work order (see Finding No. 12, infra), the work required by the work order was completed by the IQC contractor, at the agreed upon prices.  (Tr. 135-138, 293, 294; AF 4222, tabs 11, 14, 35, 37).

            9.  The cracks in the asphalt were repaired to prevent deterioration of the asphalt and the underlying sub-base.  Similarly, the spalled brick, expansion joints and loose flashing were repaired to prevent water leaks and the resultant damage.  (Tr. 150, 154-156).

10.  Appellant eventually performed some of the items of repair listed in Respondent’s July 25 letter, including roof leak repair and replacement of some of the damaged ceiling tiles.  However, although Appellant contracted with a local painting contractor to have the facility painted, the contractor never performed any painting.  In addition, Appellant failed to replace defective light fixtures and did not complete the replacement of damaged and stained ceiling tiles.  On October 20, 1997, Respondent notified Appellant that these deficiencies remained to be corrected and granted Appellant until October 31, 1997, to have the work done or the Postal Service would proceed to have the work accomplished by a third party contractor.  (Tr. 296-298, 374, 375; AF 4222, tab 19).

            11.  On November 18, 1997, after ascertaining that Appellant had not begun performing any of the work identified in Respondent’s letter of October 20, 1997, the contracting officer modified work order No. 8, increasing it by $13,696.58, to have the work performed.  The modification included removal and replacement of approximately 80 damaged ceiling tiles (640 square feet)[3] at a cost of $601.60, and replacement of lamps and ballasts in 51 light fixtures with energy saving lamps and ballasts at a cost of $1,964.01.  The remainder of the price of the modification, $11,130.97, covered the cost of painting the interior and exterior of the facility.  Appellant was notified of this modification on the same date and advised to take no further action to make repairs to the facility.  (Tr. 298, 299; AF 4222, tabs 22, 36).

            12.  On December 2, 1997, an electrical contractor hired by Appellant showed up at the post office to work on the light fixtures.  Neither Appellant nor its contractor had previously notified the post office that the contractor intended to begin work that day, and, since Respondent had already contracted to have the electrical work performed, the contractor was denied admittance.  However, on the same day, Respondent placed the electrical work in work order No. 8 on hold, and notified Appellant that its electrical contractor would be permitted in the facility as early as December 4 to make the electrical repairs.  (Tr. 48, 49, 273, 274, 300, 301; AF 4222, tab 28).

13.  Appellant’s electrical contractor did not perform the repairs, and on January 26, 1998, the contracting officer notified Appellant that Respondent’s IQC contractor would proceed with the repairs.  The contracting officer issued a final modification to the work order, changing both the type of work to be performed and the number of fixtures to be repaired[4].  This reduced the cost of the electrical work from $1,964.01 to $1,960.00.  This modification also deleted the repair of sidewalk cracks and eliminated premium time for painting, for an overall deduction in the amount of $3,312.81.  (Tr. 50-52, 272, 273, 301; AF 4222, tabs 29, 38).

14.  Respondent incurred administrative costs of at least $550.00 in arranging with the third party IQC contractor to have the repairs to the facility performed.  These administrative costs represent a conservative estimate of the salary costs to the Postal Service for the time spent by Postal Service employees in awarding, modifying and administering the third party contract for the repairs, and are reasonable in amount.  (Tr. 303, 304; AF 4222, tab 33).

15.  By final decision dated March 27, 1998, the contracting officer demanded payment of $16,865.35, consisting of the cost of work order No. 8, as modified, and $550.00 in administrative costs.  The contracting officer also informed Appellant that if it failed to pay the full amount by April 10, 1998, an additional $200.00 in administrative costs, plus interest at the rate of 7.3%, would be assessed.  (AF 4222, tab 33).  On June 3, 1998, Appellant filed a timely appeal of this decision (Notice of Appeal).

16.  At the hearing in these appeals, the IQC contractor discovered that it had erroneously charged the Postal Service for demolition and site removal of concrete foundations although it had not done that work (Tr. 150-153; AF 4222, tab 35; see Finding Nos. 8 & 12).  Respondent no longer seeks to recover the cost of this work ($426.80) from Appellant.  Therefore, Respondent reduced the amount sought in this appeal to $16,438.55 ($16,865.35 - $426.80).

PSBCA No. 4266

17.  In May of 1998, the air conditioner at the Northside Station failed to operate.  Respondent’s Manager of Field Maintenance notified Appellant of this circumstance and requested that Appellant repair the air conditioner.  Appellant, however, disclaimed responsibility for maintaining the air conditioner at the facility.  (Tr. 258, 259; AF 4266, tab 6).

18.  Respondent then entered into a third party contract to have the air conditioner repaired.  In addition, Respondent incurred administrative costs in contracting for the repair of the air conditioning unit.  These administrative costs represented the salary costs to Respondent for the time spent by its employees in awarding and administering the third party contract to repair the air conditioning unit. (Tr. 259, 260, 270, 303, 304, 308; AF 4266, tab 8).

19.  By final decision dated July 14, 1998, the contracting officer assessed Appellant for the $628.00 cost to repair the air conditioner, plus $150.00 in administrative costs.  The contracting officer also informed Appellant that if $778.00 was not paid by July 28, 1998, an additional $200.00 in administrative costs, plus interest at the rate of 6.3%, would be assessed.  (AF 4266, tab 7).  On August 3, 1998, Appellant filed a timely appeal of this final decision (Notice of Appeal).

DECISION

Respondent argues that Appellant, as lessor, had a duty under the lease to maintain the premises in good repair and tenantable condition, and when Appellant failed to make necessary repairs, Respondent had the right to make the needed repairs and offset rents otherwise due to cover the costs of the repairs.  Appellant argues that many of the repairs Respondent undertook were not necessary to keep the facility in “good repair and tenantable condition,” and that the costs Respondent incurred in performing the repairs were not reasonable.  Appellant also disputes Respondent’s right to offset the costs incurred in performing the repairs against rents otherwise owed to Appellant.

PSBCA No. 4222

Each of the work items discussed below were accomplished by Respondent under a competitively bid and awarded IQC contract (Finding of Fact No. (FOF) 4).  Absent any showing by Appellant, or by other evidence in the record that the costs incurred were excessive or unnecesary we find the costs to be reasonable.  See M.R. Kaplan, et.al., PSBCA Nos. 1147, 1298, 1303, 1310 88-3 BCA ¶ 20,827 at 105,318.

Stained and Damaged Ceiling Tiles

In its brief, Appellant conceded that the lessor has responsibility for replacement of damaged ceiling tiles, to the extent the damage did not result from the acts of Postal Service employees or customers.  Appellant did not, however, offer any evidence of damage caused by Postal Service employees or customers.

The record in this appeal demonstrates that the facility had numerous damaged and water-stained ceiling tiles and, although some of the damaged ceiling tiles were replaced by Appellant after it repaired the roof leaks, some 80 stained and damaged ceiling tiles remained to be replaced.  Respondent replaced these damaged ceiling tiles under a competitively awarded IQC contract after providing Appellant adequate notice of the need for the repairs.  (FOF 8, 10, 11).

In these circumstances, Appellant is liable for the costs Respondent incurred in having the IQC contractor replace 80 damaged and stained ceiling tiles ($601.60) (FOF 11).

Defective Electrical Breaker

Appellant does not dispute that repairing a defective electrical breaker falls within the lessor’s responsibility to keep the facility in good repair and tenantable condition but argues that Respondent did not prove that the breaker needed replacement.  We have found, however, that the electrical breaker was defective (FOF 5).  Appellant next argues that Respondent prevented its electrical contractor from entering the post office to replace the breaker.  The facts do not support this contention.  Appellant was first notified of the defective breaker, and the need to replace it, on July 25, 1997.  As of September 26, Appellant had taken no action to replace it, and on that date, Respondent arranged to have the work done, under a competitively awarded IQC contract, at a cost of $42.32.  The work was accomplished on October 24, 1997.  (FOF 8).  It was not until much later, on December 2, 1997, that Appellant’s electrical contractor showed up at the post office (see FOF 12).  Accordingly, having received and ignored adequate notice of the need for the work, Appellant is liable to repay Respondent the costs it incurred ($42.32) in having the breaker replaced under a competitively awarded IQC contract.

Toilet Repair

Here also, Appellant disagrees with the need for this repair and also argues that Respondent’s employees must have caused any damage to the toilet.  However, Appellant did not offer any evidence to support the contention that the toilet was damaged by an act of Respondent’s employees.  This item clearly falls within Appellant’s obligation to keep the facility in good repair and tenantable condition.  The toilet was in need of repair (FOF 5), and Appellant was notified on July 25, 1997, of this circumstance.  Nevertheless, as of the end of September, Appellant had taken no action to do so.  Accordingly, Respondent was justified in having the work done and is entitled to be reimbursed for the costs it incurred ($150.00) in having its IQC contractor perform this repair (FOF 8).

Asphalt Cracks in the Parking and Maneuvering Areas

Appellant argues that Respondent has failed to prove that Appellant was responsible for this repair.  We agree with Appellant.  Under the facts of this appeal, repair of the cracks in the asphalt was preventive maintenance (FOF 9), which is not Appellant’s responsibility under the lease.  See J. Leonard Spodek d/b/a Nationwide Postal Management, PSBCA No. 3833, 97-2 BCA ¶ 29,273 at 145,644.  Respondent has failed to demonstrate that the asphalt repairs were necessary to restore the parking and maneuvering areas to good repair and tenantable condition and may not recover the costs of those repairs.

Spalled Brick and Repair of Expansion Joint and Loose Flashing

Respondent argues that both of these repairs were justified as preventive maintenance, i.e., to prevent future water leaks.  However, as with the asphalt repairs, above, under the terms of the lease, the lessor is not under a duty to perform preventive maintenance.  See J. Leonard Spodek d/b/a Nationwide Postal Management, PSBCA No. 3833, 97-2 BCA ¶ 29,273 at 145,644.  As above, Respondent has not demonstrated that these repairs were necessary to restore the parking and maneuvering areas to good repair and tenantable condition.  Therefore, the costs of these repairs may not be charged to the lessor.

Light Ballasts

Paragraph 6 of the lease required the lessor to replace all ballasts as needed.  Respondent has satisfactorily demonstrated that it gave Appellant notice in July 1997 of the need to replace approximately 40 inoperable light fixtures (FOF 5, 6).  Although Respondent may have improperly turned away an electrician Appellant sent to the facility on December 2, 1997, Respondent immediately informed Appellant that the electrician could return and perform the electrical work.  Ultimately, however, Appellant never replaced any of the defective ballasts.  Accordingly, Respondent acted properly in replacing the defective ballasts and charging Appellant $1,960.00 in costs it incurred in doing so.  (FOF 12, 13).  Finally, we note that Appellant did not offer any evidence that his electrician would have replaced the defective ballasts at a lower cost.

Painting

Appellant argues that the lease does not impose on the lessor the requirement to paint all previously painted interior and exterior surfaces and that Respondent failed to demonstrate that the painting performed by Respondent was necessary to maintain the facility in good repair and tenantable condition.

We agree.  In this instance, the entire testimony concerning the physical condition of the painted surfaces consisted of one conclusory statement that the paint was in “poor condition” (with no further explanation) and a statement that the paint was peeling in “some places”[5] (FOF 5).  While some painting may have been necessary, this evidence is insufficient to meet Respondent’s burden of showing the existence and extent of painting needed to maintain the painted surfaces in good repair and tenantable condition.  See J. Leonard Spodek d/b/a Nationwide Postal Management, PSBCA Nos. 4206, 4217 & 4310, 00-2 BCA ¶ 30,979; Edward R. and Lorraine Ester, PSBCA No. 1559, 88-2 BCA ¶ 20,573.

Accordingly, Respondent may not charge the cost of painting ($8,542.97)[6] against Appellant.  This portion of the appeal is sustained.

Administrative Costs

In the final decision, the contracting officer assessed Appellant $550.00 in administrative costs incurred in awarding and administering the third party contract and $200.00 in administrative costs incurred in offsetting the amounts Respondent charged Appellant for rents otherwise due (FOF 13).  We have previously held on numerous occasions that Respondent may recover the reasonable administrative costs it incurs in awarding and administering a third party contract to make repairs that are the lessor’s responsibility.  See J. Leonard Spodek d/b/a Nationwide Postal Management, PSBCA No. 4207, 00-1 BCA ¶ 30,593, and cases cited therein.

Although in some circumstances it may be appropriate to apportion the recovery of administrative costs based on the same proportion of the claim that is allowed in the appeal (see J. Leonard Spodek d/b/a Alabama Postal Holdings, PSBCA Nos. 4124 & 4127, 00-2 BCA ¶ 30,918), those circumstances are not present here.  In this case we have found $550.00 to be a reasonable amount considering the effort involved in awarding and twice modifying the work order under the IQC contract to accomplish the work that we have found to be Appellant’s responsibility (FOF 14).  Respondent’s efforts would not have been less if only those items we have allowed were performed[7].  We note also in this regard that Appellant did not offer any evidence to challenge the amount or its reasonableness.  Accordingly, Respondent is entitled to recover $550.00 in administrative costs.

This Board has not, however, extended the recovery of administrative costs to costs incurred in offsetting from rents amounts otherwise owed, and declines to do so here.  See J. Leonard Spodek d/b/a Nationwide Postal Management, PSBCA No. 4207, supra.  Accordingly, Respondent may not recover the additional $200.00 in administrative costs it seeks.

PSBCA No. 4266

Appellant admits that, as lessor, it is responsible for maintaining the air conditioning equipment.  Appellant alleges, however, that Respondent altered the air conditioning equipment at the Northside Station, thereby relieving the lessor of its responsibility to continue maintenance.  Appellant failed to offer any proof to support this allegation.

What the record does show is that the air conditioning unit at the facility was not working when Appellant was contacted by Respondent in May of 1998 and requested to repair the unit (FOF 15).  When Appellant refused to take any action to repair the unit, as required by clause 6 of the lease, Respondent acted properly in contracting with a third party to have the unit repaired at a reasonable cost of $628.00 (FOF 16).  Accordingly, Respondent may recover from Appellant the costs it incurred in having the unit repaired, plus the reasonable administrative costs Respondent incurred in awarding the third party contract.  However, here also we decline to allow Respondent to recover any administrative costs associated with offsetting rents otherwise owed to Appellant.  (See Administrative Costs discussion under PSBCA No. 4222).

CONCLUSION

PSBCA No. 4222 – Respondent is entitled to recover $2,753.92 of the costs it incurred under the IQC contract, plus $550.00 in administrative costs, plus interest on these amounts until paid by Appellant.

PSBCA No. 4266 --  Respondent is entitled to recover the cost of the third party contract to repair the air conditioning unit at the Northside Station Post Office, plus the administrative costs it incurred in having the air conditioner repaired, as well as interest on these amounts until paid by Appellant.

The appeals are sustained to the extent indicated and are otherwise denied.

William K. Mahn

Administrative Judge

Board Member

I concur:

James A. Cohen

Administrative Judge

Chairman

I concur:

David I. Brochstein

Administrative Judge

Vice Chairman

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[1]   Respondent was then the Post Office Department.  Pursuant to the Postal Reorganization Act, P.L. 91-375, 84 Stat. 719 (1970), all the functions, powers, and duties of the Post Office Department were transferred to the United States Postal Service and the Post Office Department was abolished.

[2]   The IQC contract was awarded to the qualified bidder whose bid contained the lowest “multiplier” of a catalog of prices for various construction tasks and building materials (Tr. 135-138).

[3] The IQC contractor surveyed the facility to determine the number of ceiling tiles that needed replacement and determined that 80 ceiling tiles were damaged or stained and required replacement (Tr. 163, 164). 

[4]   The IQC contractor had determined during the time it was making other repairs to the post office that only 30 ballasts needed replacement and that the existing “high output” ballasts should be replaced with a like kind (Tr. 172, 173).

[5]   Respondent introduced photographs showing what appears to be peeling paint on the underside of the loading dock roof (Respondent’s Exhibit R-2).  No other specific evidence of peeling paint was introduced.

[6]   As initially modified, work order No. 8 included $11,130.97 in costs associated with painting the facility.  However, the final modification deducted $2,588.00 in premium time costs originally included.  (FOF 9, 11).

[7]   The initial work order, as well as both of the subsequent modifications contained items of work that we have found to be Appellant’s responsibility (FOF 8, 11, 13).