June 20, 2001
Appeal of
UPWEST CORPORATION
LEASE AGREEMENT
PSBCA No. 4281
APPEARANCE FOR APPELLANT:
Raymond R. Flowers, Jr., Esq.
APPEARANCE FOR RESPONDENT:
Robert E. O’Connell, Esq.
OPINION OF THE BOARD
Appellant, UpWest Corporation, has appealed from the default termination of its contract to construct and lease to Respondent, United States Postal Service, a building to house the Sahuarita, Arizona Main Post Office. A hearing was held in Albuquerque, New Mexico. Only entitlement is at issue in this proceeding.
FINDINGS OF FACT
1. On September 17, 1996, Respondent issued Solicitation Number 072976-96-A-0230 for the construction and lease of a post office on a Postal Service designated site in Sahuarita, Arizona. Payment to the successful contractor was to be solely in the form of rental payments under the lease. The base term of the lease was to be 20 years, and offerors were asked to provide alternative offers, one that included two five-year renewal options and one that provided for no renewal options. (AF 2-1; Stip. 1)[1]
2. On or about October 30, 1996, Appellant submitted a proposal in response to the solicitation. The proposal included a site plan depicting Appellant's proposed arrangement of the building, parking lots and other features on the site. The proposal also included a Project Cost Summary, which contained estimates totaling $639,488 for site improvement and building construction costs. In addition, the proposal contained a proposed construction schedule that allotted approximately 50 days to the design and permit process and approximately 100 days for construction. (AF 3-2).
3. By letter dated April 11, 1997, the contracting officer informed Appellant that its proposal had been accepted, and enclosed copies of the lease for Appellant's signature. The letter requested that Appellant execute the lease and forward performance and payment bonds required by the solicitation (see Finding 6, below). The letter also stated that upon receipt of the completed leases and bonds, a copy of the lease accepted by the Postal Service would be forwarded for Appellant's records. Appellant executed the lease on April 17, 1997, and returned it to the contracting officer. (AF 1-26, 1-1).
4. Although Appellant did not submit the required bonds, by letter dated April 28, 1997, the contracting officer forwarded an executed lease to Appellant. The letter constituted notice to proceed with design, but stated that construction could not begin until drawings were approved by the contracting officer. The letter stated also that construction was to be completed within 180 days, or by October 25, 1997, and that the required bonds were to be submitted by May 18, 1997. Finally, the letter informed Appellant of the appointment of a contracting officer's representative (COR) for the project, and stated that he would be responsible for approving design submittals. The contracting officer advised that the COR "cannot take any action or make any agreement with you that will increase the contract cost or lengthen the term or time for completion. Approval of such changes must come from me as Contracting Officer." (AF 3-8, 1-1).
5. The contract provided that the Appellant would be required to acquire the post office site under an "Assignable Option to Purchase" provided by Respondent,[2] and hire a licensed architect/engineer to adapt a standard Postal Service building design to meet applicable local, state, and national codes. The assignable option stated that the site was "subject to CC&R's [conditions, covenants and restrictions] and design guidelines." (AF 2-1, page 1; Stip. 2; AF 3-6; Tr. 84-85).
6. The contract also required Appellant to submit a performance bond and a labor and material payment bond within 20 days after acceptance of the proposal. The performance bond was required to be in a penal amount "to be determined by the Contracting Officer." The payment bond was to be a percentage of the performance bond. (AF 2-1, page 2).
7. The contract provided that Appellant could not commence construction until its design had been reviewed by the Postal Service and a notice to proceed given by the contracting officer. The solicitation required the lessor to submit initial design drawings within 60 days of acceptance of the lease. (AF 2-1, page 2; Stip. 3).
8. The contract also contained a Construction Rider[3] which, in clause 2a, required completion of the building no later than 180 days after notice to proceed was given by the contracting officer.[4] Clause 2b of the Construction Rider required Appellant to exercise the Assignable Option to Purchase within 30 days of its assignment by the Postal Service or before the option's expiration date, whichever was sooner. Clause 3 of the Construction Rider provided that the term of the lease and rental payments would commence on the day after acceptance of the completed building by the Postal Service. Clause 13 of the Construction Rider provided that no work could commence until the required bonds had been approved by the contracting officer. (AF 2-1, pages C-1, C-2; Stip. 4).
9. Clause 6 of the Construction Rider, "Termination for Default - Damages for Delay - Time Extensions," provided that the Postal Service could terminate Appellant's right to proceed with the work if Appellant "…refuses or fails to acquire the site … or to prosecute the work with such diligence as will ensure its completion within the time specified in this contract … or fails to complete said work within such time…." The clause also provided that Appellant's right to proceed could not be terminated if the delay in completion "…arises from unforeseeable causes beyond the control and without the fault or negligence of the contractor…." (AF 2-1, page C-1; Stip. 5).
10. On or about May 5, 1997, Appellant received the assignable option, executed by the contracting officer on behalf of the Postal Service. Immediately thereafter Appellant's president contacted the seller to arrange for closing on the property. At that time he learned that the seller had not yet completed and recorded the "CC&R's" (see Finding 5) -- a step that the developer/seller was required to accomplish in order to have clear title before the transfer took place. (AF 1-20, 21, 22; AF 3-6; Tr. 84). Thereafter, Appellant proceeded to obtain a traffic study, an environmental impact study, a plant survey, and a soil analysis, all of which were its responsibility under the contract (Tr. 86; ASAF 6).
11. Appellant submitted preliminary plans for review in September 1997. Respondent's COR returned his comments by memorandum dated October 21, 1997. With respect to the site plan, the COR's comments required changes to provide customer parking at the front of the building, reorient the loading dock, and move the "snorkel" lane and island to the middle of the parking lot.[5] In its proposal (Finding 2), Appellant had located the snorkel lane at the far end of the same parking lot. The COR's comments also included some revisions to the proposed interior floor plan for the building. (AF 1-17; AF 3-2).
12. On October 23, 1997, Appellant's president notified the COR that, according to the developer, parking lots were not permitted along the front side of the building. Appellant stated that it would redraw the site plan as soon as agreement was reached regarding this item. (AF 1-16).
13. On November 24, 1997, title to the site was transferred to Appellant. (ASAF 5).
14. Appellant submitted another set of plans to the COR on January 6, 1998. The plans, which showed the site arrangement, grading and drainage, had been approved by the Town of Sahuarita. The COR returned his comments to Appellant on January 16, 1998. Among other comments, not relevant here, the COR noted that the "service yard" should be used for parking, and that the loading dock and snorkel lane comments from October (Finding 11) had not been incorporated into the drawings. The COR also asked that Appellant provide an "accounting of any additional cost to comply." (AF 1-14; AF 3-14).
15. In a February 13, 1998 letter to Appellant, the COR noted the dispute between the parties regarding the incorporation of the October comments. He then asked Appellant to review the comments and develop a construction schedule based on incorporation of all the comments, and to provide a breakout of the costs if Appellant believed it was entitled to compensation for the changes. Finally, the COR asked Appellant to provide a schedule for securing the necessary bonds. (AF 1-13).
16. In a February 17, 1998 response, Appellant's president stated that because the COR had failed to provide "modification agreements" for changes made at two other post offices constructed by Appellant, no changes would be made at Sahuarita until "all satisfactory paper work is complete." He also stated that changing the site plan would cost $6,000 and that additional construction costs might also be caused by the changes to the site. (AF 1-12; Tr. 111, 112).
17. In a February 18, 1998 letter, the COR responded to Appellant's letter of February 17, 1998, stating that the request to change the site plan had been made in October 1997, and noting that his February 13, 1998 letter had given "clear direction" on the steps required to incorporate the changes. (AF 1-11).
18. By letter dated February 26, 1998, Appellant's president stated that the proposed revisions represented changes from Appellant's proposal and again notified the COR that an approved modification would be required before the changes could occur. He reiterated his estimate of $6,000 for redrawing the site plan and having it reviewed, and estimated the cost of implementing the revised site plan at $4,000 to $5,000, which would include the possible importation of fill dirt. Finally, he stated: "Upon receipt of a signed change modification I will proceed. Please advise." (AF 1-10).
19. By letter of February 27, 1998, Appellant's president reported to the COR that a representative of the Town of Sahuarita had informed him that a review of the proposed changes would take between 30 and 90 days, and that there was no assurance that the changes would be approved (AF 1-9).
20. The COR responded to Appellant in a letter dated May 5, 1998. In the letter the COR stated that the Postal Service was withdrawing its request that the loading dock be reoriented, but that it still wanted the snorkel lane relocated. The COR stated that Appellant's president and his engineer had indicated that that change could be handled as a field change and would not require reapproval by the Town. The COR also stated that these decisions should allow the project to proceed, and requested that Appellant provide bonds and a construction schedule by May 11, 1998. (AF 1-8).
21. Appellant's president had not told the COR that the snorkel lane change could be handled as a field change without approval. The change would have altered the drainage on the site, and approval by the Town of Sahuarita was required. (Tr. 116, 117, 123).
22. By letter to Appellant dated June 10, 1998, a successor contracting officer stated that she considered Appellant's failure to commence construction to be "endangering continued performance of your lease contract," and that she considered Appellant's failure to provide the performance and payment bonds to be a default under the lease agreement. The contracting officer warned that unless this condition was cured within 10 calendar days, the Postal Service might pursue its right to terminate the lease for default, and hold Appellant responsible for excess costs of reprocurement. (AF 1-7).
23. In his June 24, 1998 response to the cure letter, Appellant's president again referred to the fact that he had not received "proper documentation" for the changes that he alleged had been directed by the COR. He stated that he could provide bonds once he could estimate the cost of construction, which he alleged could be increased by $20,000 to $30,000 due to the changes.[6] Appellant's president also reiterated his allegation that the COR had failed to provide necessary "change order requests" for changes made in connection with Appellant's two earlier projects. He stated that he would provide bonds for Sahuarita once the necessary documentation was provided for the other two projects and for Sahuarita. Finally, he stated that Appellant was available at any time to "resolve and settle the disagreement" and suggested a conference to discuss the parties' differences. (AF 1-5).
24. By final decision dated June 25, 1998, the successor contracting officer terminated the contract for default, citing Appellant's failure to provide the required bonds. Appellant filed a timely appeal. (AF 1-2, 4).
25. Neither contracting officer ever specified a penal amount for the performance bond (Tr. 29, 31).
DECISION
In support of its position that the contract was properly terminated for default, Respondent relies exclusively on Appellant's failure to submit the performance and payment bonds. Respondent argues that Appellant's failure to submit the bonds, despite clear warnings that failure to do so might result in a default termination, justified the contracting officer's decision to terminate the contract. Respondent argues that Appellant would have been able to submit the bonds at that time, but chose not to do so. Respondent contends that Appellant failed to show excusable causes for its failure to submit the bonds and that, therefore, the default should be upheld.
With regard to the bonds, Appellant argues that the contracting officer failed to set the penal amount of the performance bond, as required by the lease (Findings 6, 25). Appellant argues that, unlike the typical construction project, Respondent's financial risk from Appellant's non-performance was minimal since Appellant was constructing the building using its own funds. Therefore, Appellant argues that it made no sense to procure a bond representing the full amount of construction costs. In addition, Appellant argues that it could not secure bonds that represented the cost of construction because that cost was unknown due to the ongoing dispute over Respondent's failure to formalize the changes. Therefore, Appellant argues that it was terminated for failing to provide bonds that it and its surety lacked adequate information to prepare and in a penal sum that the contracting officer failed to establish.
Having considered the record and the parties' arguments we conclude that the termination for default in this appeal was improper, and it is reversed.
Appellant failed to submit the required bonds within the specified 20-day period after Respondent's acceptance of the lease, which occurred in April 1997. Nevertheless, Respondent failed to enforce the initial 20-day period and allowed Appellant to proceed with the contract work. Although Respondent requested the bonds on two other occasions (Findings 15, 20), it took no action to enforce the requirement until over a year later, when the successor contracting officer sent the June 10, 1998 cure notice. However, the contracting officer never determined the penal amount of the bond, as required by the contract (Finding 6).
In addition, Respondent has not shown that Appellant's failure to provide the bonds or commence construction under these circumstances was a failure to prosecute the work with such diligence as would ensure completion within the contract time. See Cole's Construction Co., Inc., ENGBCA No. 6074, 94-3 BCA ¶ 26,995. The termination for default clause provided that the contract could be terminated for default only if the contractor "refuses or fails to acquire the site … or to prosecute the work with such diligence as will ensure its completion within the time specified in this contract … or fails to complete said work within such time." Construction of the building was to be completed within 180 days after notice to proceed was given. Thus, as calculated by the contracting officer, the initial completion date was October 25, 1997 (Finding 4). However, because of the developer's difficulties with the CC&R's (Finding 10), Appellant was not even able to acquire title to the property until November 24, 1997. By that time, however, the parties were engaged in discussing the changes to Appellant's proposal that the COR had initiated. These discussions proceeded up to the time of termination, with Appellant demanding that it receive direction or confirmation from the contracting officer that the changes were required. However, Respondent failed to provide direction from the contracting officer either that the changes to Appellant's proposal were to be implemented or that Appellant was to construct the project as proposed. These circumstances constituted delays that were "unforeseeable causes beyond the control and without the fault or negligence of the contractor." As of the date of termination the excusable delays were continuing and no new completion date for the building had been established. Without an ascertainable completion date, the contracting officer could not terminate the contract for default either for Appellant's failure to prosecute the work so as to ensure its completion "within the time specified" or for Appellant's failure to complete the work "within such time."
Accordingly, the appeal is sustained and the termination for default is reversed.
David I. Brochstein
Administrative Judge
Vice Chairman
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
William K. Mahn
Administrative Judge
Board Member
[1] "AF 1-", "AF 2-", and "AF 3-" refer to Respondent's appeal file, volumes 1, 2, and 3, respectively; "Stip." refers to the Stipulation filed by the parties; "ASAF" refers to Appellant's supplement to the appeal file; and "Tr." refers to the hearing transcript.
[2] The option, which was from the developer of the area, specified a "purchase" price of "$0 zero dollars." (AF 3-6).
[3] Postal Service Form "RECONS (Jan. 1995)."
[4] An addendum to the Construction Rider notified offerors that it was Respondent's intent to issue a notice to proceed upon issuance of the lease and that, therefore, the offeror would have 180 days from issuance of the lease to design and construct the building (AF 2-1, "Addendum to Construction Rider").
[5] The "snorkel" lane/island consists of a group of outside collection boxes accessible to customers from their vehicles (Tr. 79).
[6] Appellant had been using his estimated cost of construction as the required bond amount (Tr. 127, 128; AF 1-5).