May 19, 2005

Appeal of

 

READCO, L.L.C.

LEASE AGREEMENT

PSBCA No. 5026

 

APPEARANCE FOR APPELLANT:

Steven R. Fuller, Esq.

 

APPEARANCE FOR RESPONDENT:

Rozann M. Heininger, Esq.

 

OPINION OF THE BOARD

 

Appellant, Readco, L.L.C., has appealed the Contracting Officer's decision denying its claim for increased rent in connection with a “Construct and Lease” agreement entered into between Appellant and Respondent, United States Postal Service, for the Coalville, Utah main post office.  At the request of the parties, the appeal is being decided on the record without a hearing.  39 C.F.R. § 955.12.  Only entitlement is at issue in this proceeding (Order of October 20, 2003).

FINDINGS OF FACT

            1.  On or about December 21, 2000, Respondent issued a solicitation seeking offers to construct and lease a main post office in Coalville, Utah.  As described in the solicitation, the successful lessor was to purchase a Postal Service controlled site, construct a post office, and lease the facility to the Postal Service for a base period of 20 years, with two five-year options.  (Appeal File Tab (AF) 21).

            2.  The solicitation included the Solicitation for Proposals form (“d_solicitation2_form,” May 1999)(“Solicitation Form”), instructions, drawings, the proposed lease with a Construction Rider, and a Construction Rider Addendum (“Addendum”) (AF 21).  The Solicitation also included a Proposed Site Utilization Plan (“Site Plan”) and a set of drawings designated “USPS Small Standard Building Design, Plan 40A” (“Standard Design”).  Although the Postal Service detailed its construction requirements as part of the solicitation process, final design of the building remained the lessor’s responsibility.  (AF 19, 20, 21).

            3.  Both the Solicitation Form and the proposed lease included statements of the building size.  The Solicitation Form stated,

“The approximate areas desired are indicated below in square feet: (see drawings and specifications)

Net Interior Space                                         4,535

Driveway, Parking & Maneuvering  SEE SITE PLAN

Platform                                                          276”

 

The proposed lease, to be executed by the parties after construction, similarly listed square footage for “Net Floor Space” as 4,535 and for “Platform” as 276, but did not describe them as “approximate” areas.  Immediately below those two figures, the proposed lease also listed additional categories — “Parking and Maneuvering” and “Other” (the latter with subcategories “Driveway”, “Landscaping”, and “Sidewalks”) — but gave no separate square footage estimates for them.  (AF 21).

            4.  The cover sheet of the Standard Design drawings listed the net square feet of the facility as 4,110 and the gross square feet as 4830.  The cover sheet also indicated, via a boxed-in note pointing to these square foot figures, that the net square feet would be 4,535 if, as was the case in Coalville, the platform was enclosed.  The note also directed that the square foot figures were to be modified to reflect “actual project conditions.”  (AF 20).

            5.  The design of the Coalville Post Office, as described in the Addendum and depicted in the Site Plan, differed in several respects from the provided Standard Design.  Among the modifications listed in Addendum Paragraph 23(d) were the addition of a “building & grounds” room at the rear of the enclosed platform and the addition of an area of “covered carrier parking” at the east end of the building.  With regard to the covered parking, the Addendum stated that the “intent is to continue roof and walls to make this look like an integral part of the building….”  The Addendum did not specify the size of either the building and grounds room or the covered carrier parking area, but Paragraph 23(d) instructed the contractor to refer to the Site Plan regarding these modifications.  The Site Plan showed the covered carrier parking area to be enclosed by walls on three sides, but open to the outside on the fourth, and, from the dimensions and scale on the drawing, could be calculated to be approximately 600 square feet in area.  Similarly, the approximate increase in the building size due to the addition of the building and grounds room could be calculated.  (AF 19, 20, 21 (Site Plan); Declaration of Thomas E. Stephen (“Stephen Decl.”), ¶11).

            6.  Appellant was aware during bid preparation that the Standard Design would be modified to include the covered parking area, the building and grounds room, and other design changes.  (Affidavit of J. S. Read (“Read Affidavit”), ¶ 15; Appellant’s Answer to Interrogatory (“Interrogatory”) Nos. 16, 18, 28(a)).

            7.  In preparing the bid for Appellant, its estimator did not calculate the “net interior space” or “net floor space” (see Finding 3) of the proposed project from the dimensions in the Site Plan or Standard Design (Read Affidavit, ¶¶ 14-15; Interrogatory Nos. 12-14, 16-18, 29(b)).  Instead, he treated the sum of Respondent’s square footage figures in the solicitation and proposed lease (4,535 square feet of net interior/floor space and 276 square feet indicated for the platform for a total of 4,811 square feet) as an authoritative statement of the net floor space of the building Appellant had to construct.  (Read Affidavit, ¶¶ 2, 14; Interrogatory No. 13).  In doing so, the estimator assumed that the building and grounds room and the covered parking area were included in Respondent’s 4,535 square foot figure for net interior/floor space (Read Affidavit, ¶¶ 14-15; Interrogatory Nos. 16, 18).  However, Respondent had not included either area in its statement of “net” interior/floor space in the solicitation.  (Stephen Decl., ¶¶ 6, 7, 11).

            8.  From what he considered to be the net interior area of 4,811 square feet (Finding 7), the estimator made his own projection of the gross square footage of the building – i.e., net interior area plus exterior walls – arriving at an estimated total of 5,100 square feet.  He then multiplied that figure by a per-square-foot cost, which cost was based on his experience in constructing commercial buildings, to arrive at an estimate for the basic building.  To this, he added in other project costs, such as land acquisition costs and engineering fees, and used all of the costs to derive a rental amount to be included in Appellant’s offer.  (Read Affidavit, ¶ 14; Interrogatory Nos. 12, 17, 29).

            9.  On or about February 12, 2001, Respondent accepted Appellant’s offer to construct and lease the Coalville Main Post Office at an annual rental rate of $65,666.  The square footage figures on the executed lease were identical to those in the proposed lease, listing 4,535 and 276 as the “Net Floor Space” and “Platform” areas, respectively (Finding 3).  (AF 16).  

            10.  In accordance with the provisions of the construction rider, the fixed term of the lease and the payment of rent were to commence on the day following acceptance, which occurred on April 8, 2002.  The construction rider provided that the contracting officer would insert the appropriate commencement date in the lease and forward the lease to the contractor/lessor for recording.  By letter dated April 9, 2002, the contracting officer sent Appellant a letter requesting that the lease be recorded.  However, in the lease attached to that letter, in addition to the insertion of the dates representing the term of the lease, both the original Net Floor Space and Platform figures had been crossed out and “5,835” had been typed in next to “Net Floor Space.” (Stephen Decl. ¶ 16; AF 15, 17, 21).  The lease attached to the April 9 letter was in all other respects identical to the agreement earlier submitted by Appellant and executed by the parties (AF 15, 16).

            11.  The alteration to the lease was the result of a miscalculation by one of Respondent’s clerks (AF 6, 13).  The 5,835 square-foot figure was not the net interior space but was instead Respondent’s estimate of the gross square footage of the completed facility, which included the square footage from the covered carrier parking area and building and grounds room (AF 13, Eymann Decl., ¶ 7; Stephen Decl., ¶¶ 11, 17).

            12.  Appellant interpreted the altered total on the lease as an indication that the facility constructed by Appellant was larger than had been stated in the initial solicitation and the executed lease.  In April 2002, Appellant requested increased compensation from Respondent based on this suspected higher net square footage.  (AF 14).

            13.  In response to Appellant’s request, Respondent acknowledged that the 5,835 figure had been a clerical error and that Appellant should restore the correct net space figures to the lease (AF 13).  However, unconvinced by this and subsequent correspondence with Respondent that the inaccuracy was in the April 9 lease copy rather than in the solicitation, by letter dated October 21, 2002, Appellant filed a certified claim seeking an increase in rent of $8,716.96 per year.  (AF 5-9, 11-14). 

            14.  The contracting officer issued a final decision denying Appellant’s claim on March 31, 2003, maintaining that there was no discrepancy between the solicitation requirements, Appellant’s submitted design, and the dimensions of the completed building (AF 3).  Appellant filed a timely appeal (AF 2).

DECISION

            Appellant’s primary argument is that its estimator was misled by ambiguous or deficient solicitation documents into underestimating the size, and cost, of the building Appellant was to construct and lease to Respondent.  Specifically, Appellant argues that the estimator reasonably interpreted the specified “net interior space” figure in the Solicitation Form and proposed lease to represent the interior size of the building Appellant had to construct, and that he reasonably developed Appellant’s offer beginning with that figure.  Appellant argues that because Respondent had specifically included the net interior space in the solicitation, at the time of bidding there was no reason for its estimator to have performed his own calculation of the size of the building before developing Appellant’s construction cost estimate and that he justifiably relied on the area stated in the solicitation.  In addition, Appellant contends that the Site Utilization Plan did not provide sufficient detail and dimensions to have allowed Appellant to accurately calculate the size of the building with the covered carrier parking area.

            Respondent’s position is that Appellant constructed a building that was exactly in accordance with the contract plans and specifications; that the contract documents were not ambiguous; and that, in any event, even if the contract document were ambiguous, Appellant has not shown that it relied on its interpretation in submitting its bid.  Respondent also argues that the solicitation required Appellant to perform its own calculation of gross square footages, and that the solicitation (including the Site Plan) provided enough information for Appellant to have made the calculation.[1]

            Appellant has demonstrated that it relied on its reading of the net interior space figure in the solicitation when developing its construction estimate which, in turn, it used to calculate its offer.  As noted above (Finding 8), Appellant used the net interior space figure as the beginning point in developing the construction estimate that formed the basis for its offer.

            However, we are not persuaded that Appellant’s exclusive reliance on its understanding of the net interior space figure was reasonable.  As noted below, there were at least two discrepancies regarding building area in the solicitation documents, which discrepancies should have caused Appellant to question the accuracy of the net interior space figure and to seek clarification from the contracting officer before making an offer.

            The most obvious of the discrepancies was the fact that both the Solicitation Form and the Standard Design drawings stated the net interior area to be 4,535 square feet if, as here, the platform was enclosed.  (Findings 3, 4).  Since, as Appellant was aware, the Standard Design did not include at least the approximately 600 square-foot covered carrier parking area plus the area of the building and grounds room, Appellant should have expected the statement of area in the Solicitation Form to be significantly larger than the statement of area on the Standard Design drawings.  That they were the same should have alerted Appellant that something was potentially amiss either in Respondent’s statements of area or in Appellant’s understanding thereof.

            In addition, in performing its cost calculations, Appellant read the total net interior area to be the sum of the 4,535 square-foot net interior space and the 276 square-foot platform figures on the Solicitation Form (Finding 7).  However, the identical 4,535 square-foot net area stated on the Standard Design drawings was indicated as including the area of an enclosed platform (Finding 4).

              Since Appellant’s estimator did not perform his own calculation of the building area from the drawings, his method of estimating the cost of constructing the building was highly dependent on the reliability of Respondent’s statements of that area in the solicitation (see Findings 7, 8), and Appellant should have been particularly alert to any discrepancies in those statements.  Under these circumstances, the discrepancies noted above were sufficiently obvious to have obligated Appellant to seek clarification before making an offer.  See, e.g., Triax Pacific, Inc. v. West, 130 F.3d 1469, 1474 (Fed. Cir. 1997); Space Corp. v. United States, 200 Ct. Cl. 1, 5, 470 F.2d. 536, 538 (1972).  That Appellant may have failed to note the discrepancies in the solicitation provisions does not affect its obligation to have sought clarification, since “it is not the actual knowledge of the contractor, but the obviousness of the discrepancy which imposes the duty of inquiry.”  Chris Berg, Inc. v. United States, 197 Ct. Cl. 503, 455 F.2d 1037 (1972), citing J.A. Jones Constr. Co. v. United States, 184 Ct. Cl. 1, 395 F.2d 783 (1968).  Having failed to seek clarification of an obvious defect in the solicitation, Appellant may not recover the excess costs it seeks.

            Accordingly, the appeal is denied.

                                                                                    David I. Brochstein

                                                                                    Administrative Judge

                                                                                    Vice Chairman

 

I concur:

James A. Cohen

Administrative Judge

Chairman

 

I concur:

Norman D. Menegat

Administrative Judge

Board Member


[1]   The parties also dispute whether the numerical change on the lease copy that Respondent sent to Appellant in April 2002 (Finding 10) was a “clerical error” or, instead, an attempt by Respondent to modify the terms of the lease.  However, we need not resolve this issue, because such a unilateral alteration at the recording phase would not alter the binding terms of the earlier executed lease, and would have no bearing on the accuracy of the initial solicitation.  Accordingly, this dispute has no relevance to Appellant’s alleged entitlement to increased rent.