August 11, 2005

 

Appeal of

ANNUITY INVESTMENT PROPERTIES, INC.

Under Contract No. 072976-00-A-0122

PSBCA No. 5045

 

APPEARANCE FOR APPELLANT:

David M. Dornbos

 

APPEARANCE FOR RESPONDENT:

Rozann M. Heininger, Esq.

 

OPINION OF THE BOARD

Appellant, Annuity Investment Properties, Inc., built a post office for lease to Respondent, United States Postal Service.  Local government authorities imposed requirements on the project that increased Appellant’s design and construction costs over those it anticipated.  Appellant submitted a claim for its additional costs, and the contracting officer denied it.  This appeal followed.

            A hearing was held in Denver, Colorado, and the parties have submitted briefs and reply briefs in support of their positions.  Only entitlement is at issue (Hearing Transcript, volume-page (“Tr.”) I-10).

FINDINGS OF FACT

1.  On June 30, 2000, Respondent issued a solicitation seeking to lease a post office in Sedalia, Colorado.  The successful offeror was to buy a Postal Service controlled site in Sedalia, build a post office according to Respondent’s drawings and specifications, and lease the facility to Respondent for a minimum of twenty years.  (Appeal File, Tab (“AF”) 29, Construction Rider, Clause 1 and Solicitation Clause 7; Stipulation Concerning Non-Contested Facts, paragraphs (“Stip.”) 1, 2; Tr. I-97).

            2.  The solicitation package contained Postal Service standard plans and specifications for the building to be constructed; a topographical survey showing the elevations, grade contours and features of the existing site; the form of lease (which would become the contract upon award); a Construction Rider to the lease that spelled out the requirements for construction of the building; and a "Site Utilization Plan."  The Site Utilization Plan (“SUP”) was a drawing of the intended layout of the project on the selected site showing the building location and orientation as well as the location of parking, walkways, landscaping, traffic patterns, and entrance and exit driveways.  (AF 29, 31 (Small Standard Building Designs Plan 50A), 32; Tr. II‑271).

3.  The Construction Rider described the SUP as

“a conceptual layout indicating USPS preferred operational and functional relationships.  The Lessor shall not attempt to reconfigure the plan layout.  Exceptions to this requirement shall include compliance with local codes or USPS criteria, adjustments to accommodate setbacks and related instances.”

 

(AF 29, 32, Construction Rider Addendum 23.c; see Tr. II-273).

            4.  To prepare the SUP for the solicitation, Respondent’s project manager/architect had coordinated Respondent’s proposed layout of the site with the local Douglas County planning officials and Colorado Department of Transportation (“CDOT”) officials in 1999.  He provided early drafts of the SUP, received comments from the officials, revised the SUP to incorporate those comments and resubmitted the revised SUP for their consideration.  This exchange of information was not the formal submission of plans for County and CDOT approval, and there remained many details to work out in the formal approval process, but the project manager believed that the SUP included in the solicitation substantially satisfied all the major local planning issues.  (Tr. II-28-35, 64-66, 281; AF 17, 24, 33-41; Appellant’s Exhibits (“App. Exh.”) 10, 12-16, 26, 59).  The Construction Rider advised offerors that the SUP “has been reviewed by County and CDOT” officials (AF 29, Construction Rider Addendum 23.d).

5.  A note on the SUP alerted offerors that the layout supplied by Respondent made no allowance

“for site conditions such as excessive slopes, requirements for septic fields, wells, etc. or other unusual requirements which might alter the actual design.  Verify that all setbacks, clearances, site drainage, site detention, sidewalks, curb cuts, right of way access and related items are in full compliance with all applicable state, county and local ordinances before submitting a completed site plan.”

 

(AF 29, after page 20; Stip. 17).

6.  The solicitation advised that the awardee would be required to hire a Colorado-licensed architect/engineer to prepare construction drawings adapting Respondent’s plans, specifications and SUP to the site and as necessary to meet applicable local, state and national laws and code requirements (AF 29, Solicitation Clause 7 and Construction Rider Clause 22.a, c, d and Addendum 23.e, g, h; 28.e. f, g; Stip. 8, 9).

7.  The Contract required Appellant to obtain necessary licenses and permits:

"The offeror is, without additional expense to the Postal Service, responsible for identifying and complying with zoning requirements, if applicable, obtaining any necessary licenses and permits required for privately owned buildings, and for complying with any applicable federal, state, and municipal laws, codes, and regulations, in connection with the performance required under or related to this contract."

 

(AF 29, Construction Rider Clause 10, LICENSES, PERMITS, SAFETY, INDEMNIFICATION, Subsection a; Stip. 10; see also AF 29, Solicitation Clause 13 and Construction Rider Clauses 22.c and Addendum 23.g, 23.h; Stip. 9).

            8.  Offerors were cautioned,

“The minimum requirements established by this agreement must not be construed as lowering the standards established by the local, county, or state laws, ordinances, or regulations.  When such local, county or state requirements are more stringent than the minimum requirements set forth in this agreement, the more stringent requirements must govern.”

 

(AF 29, Construction Rider Clause 22.d).

9.  Before Appellant submitted its proposal, Appellant’s principal, Mr. Dornbos, discussed the project with Respondent’s project manager, who advised Appellant of his coordination with County and CDOT authorities regarding the project (Tr. II-155, 268; AF 18).

10.  Appellant also met with Douglas County planning officials to discuss the project informally, and while they expressed no objections to the SUP and provided certain general information for the project, they did not discuss specific requirements for this project or give any official approvals (Tr. II-154, 167-168).  The County and CDOT do not give binding responses until they review the plans submitted through their formal review process, and they so advised Appellant (Tr. II-111, 178-179, 213-214).

11.  Appellant prepared its offer based on Mr. Dornbos’ understanding that the site plan had been negotiated with and was acceptable to the County and CDOT (Tr. II-185-186, 190; AF 18).

            12.  On July 31, 2000, Appellant submitted an offer on the lease form included in the solicitation for that purpose, proposing to lease the completed building to Respondent for $81,000 per year for the twenty year term of the lease (Tr. II-157-158,164; Stip. 25).  With its offer, Appellant submitted a breakdown of its project costs on the Lease Offeror’s Qualifications form.  The cost breakdown included an expected cost of $8,500 for cut/fill on the project, which Appellant had determined based on its experience on other similar projects it had constructed.  (Tr. II-157-158, 160-164, 225-226, 251; Stip. 26; Resp. Exh. J, K).  Although not stated in the breakdown, the $8,500 for cut/fill included Appellant’s allowance for a storm water detention system (Tr. II-219).

13.  Appellant’s offer was accepted on August 9, 2000, Respondent signifying its acceptance by the contracting officer signing the lease and returning a signed copy of it to Appellant (Tr. I-164).  The contract included the Construction Rider (AF 32, 42; Stip. 27, 31).

14.  After award, Appellant hired an architect and began the process of designing the project and obtaining the approvals of local authorities.  Douglas County, CDOT and the Fire Marshal, as a condition of approving the project’s design, imposed certain requirements that were not shown on or differed from those on the SUP.  (AF 43-53; Stip. 29).  The scope and nature of some of the County requirements surprised Respondent’s project manager, who believed from his pre-solicitation coordination with the County and CDOT officials (Finding 4) that the general concept of the SUP was satisfactory to those agencies (AF 24).  Respondent had objections to, and encouraged Appellant to resist, some of the County’s requirements (Tr. II-177; AF 24).

15.  Although in their pre-offer discussions with Appellant the County officials said nothing about detention and drainage issues (Tr. II-178-179), the County required Appellant to design and construct a storm water detention pond with a detention structure to meter flow of storm water from the site.  The County-required detention system exceeded what Appellant had anticipated installing, and its cost exceeded what Appellant had included in its proposal for site storm water control.  (Tr. II-222-226; AF 53, App. Exh. 18, 56, Resp. Exh. H).

16.  The detention pond and detention structure designed and constructed by Appellant were consistent with, and may even have exceeded, the requirements of the County as established in the County’s published “Storm Drainage Design and Technical Criteria,” (Resp. Exh. C), a manual that is readily available to the public (Tr. III-63, 89-92, 110).  The Criteria manual established the minimum requirements for all projects in the County similar to the Sedalia Post Office (Tr. III-111-112).  These requirements were well known (Tr. I-81, II-108), and a developer could figure out the detention and drainage requirements for the Sedalia project by applying the standards in the County manuals (Tr. III-83, 112-113, 124).  After award, Appellant’s engineer prepared a Drainage Report and designed the site’s storm water control system applying the County Criteria manual standards (AF 94).  The detention system required by the County and designed and constructed by Appellant was not unusual or elaborate (Tr. II-308, III-93, 95, 105-106, 118; Resp. Exh. ii (Photographs 6-9)).

17.  The “Site Control and Acquisition” chapter of Respondent’s Realty Acquisition and Management Handbook (August 1996), advises that in preparing an analysis of sites as part of Respondent’s site selection process, Respondent should include documentation, “if available,” regarding drainage (App. Exh. 62, Handbook RE‑1, Realty Acquisition and Management (August 1996), Section 442.41.a).

18.  The Construction Rider noted, “The final elevation of the building shall insure positive drainage away from the building in all directions.  Building up a new compacted earth base to accomplish this goal is anticipated.”  (AF 29, Construction Rider Addendum 23.b; see also Construction Rider Addendum 30.a subsections 3 and 4).

19.  The original site sloped generally from the northeast corner to the southwest corner, where the detention pond was eventually located, at varying grades of around 3 percent, (Tr. II-183, 251, III-80-81; AF 31 (Architectural Survey), 53).  Raising the building pad to achieve positive drainage away from the building and meeting the maximum and minimum slopes identified in the Construction Rider required some cutting in the northeastern corner of the site and importation and installation of fill on the southwestern portion of the building pad and site.  The amount of fill required was not unusual.  (Tr. II-297-304; Resp. Exh. hh (G-1)).

20.  Appellant incurred costs for earthwork fill that exceeded the $8,500 amount it had included in its proposal for cut/fill (Tr. II-222-226; App. Exh. 18, 56; Resp. Exh. H; see Finding 12).

21.  The Construction Rider required the offeror to “[v]erify fire protection requirements including, but not limited to, fire hydrants, interior fire sprinklers (wet or dry), fire alarm system, etc. with the responsible jurisdictions, and the local fire department.”  (AF 29, Construction Rider Addendum 30, DRAWING AND SPECIFICATION REQUIREMENTS AND CLARIFICATIONS, Subsection a.24).

22.  Before bidding, Appellant had been advised by the local Fire Chief that the requirements of a uniform fire code from 1979 would apply to this project.  It was Appellant’s understanding of that code that a fire alarm system would not be required.  (Tr. II-179).  Accordingly, Appellant did not include the cost of a fire alarm system in its proposal (Tr. II-162-163, 180; App. Exh. 18).

23.  Once Appellant’s plans were formally submitted to the County after award, they were passed to the Fire Marshal for review.  The Fire Marshal imposed a number of requirements, including a fire alarm system.  Appellant was able to get some of the requirements relaxed, but the Fire Marshal would not budge on the fire alarm system, and Appellant eventually installed the system.  (Tr. II-181-183; AF 85-92).

24.  Appellant incurred architectural costs that he had not anticipated or included in his proposal in order to design and redesign to meet County requirements for the grading and storm water detention as well as changes to setbacks, traffic flow, entrance and exit drives, and the location of the dumpster (Tr. II-109, 185, 202, 235-236; AF 45-68, 71; App. Exh. 18; Resp. Exh. gg).

25.  Douglas County was known as a difficult jurisdiction in which to get building projects approved (Tr. II-84, 110), but the number and nature of the County-required on-site changes were not extraordinary.  The final plan approved by the County was substantially the same as the layout shown on the SUP.  The building was very close to the same location; access to the site was substantially the same; and customer, employee and carrier parking were in substantially the same locations with respect to the building as shown on the SUP although the exact configuration and traffic patterns changed somewhat.  (Tr. II-284, 289, 291-294; Resp. Exh. hh (S1, S-3)).

26.  The topographic survey included in the solicitation showed a barbed wire fence encroaching on the southeast corner of the site.  The SUP did not show a new fence at the property line, but the existing fence plainly conflicted with the proposed project as shown on the SUP.  (AF 29, 31).

27.  In its reviews of Appellant’s plans, the County directed that the fence be relocated to the property line (Tr. II-185, 227-228, 233, 311, 315; AF 22, 25, 50, 54), and Appellant’s approved Site Demolition and Erosion Control Plan, DWG CO-1, identified the existing fence and provided, “Remove existing fence to property line.  Install new post at prop line to support off-site fence.”  (Tr. II-137; App. Exh. 61).

28.  Appellant constructed a split-rail boundary fence along a portion of the southeastern corner of the property to separate the site from the neighboring residence (Resp. Exh. ii, photograph 13).  A new fence was not shown on the SUP (AF 29) nor was its cost included in Appellant’s pre-offer calculation of costs (App. Exh. 18).  Neither the County nor Respondent directed or required construction of the split-rail fence (Tr. I‑83, 85, II-311, 315).

29.  On March 18, 2003, Appellant submitted a claim for its additional costs for grading and fill, storm water detention system, fire alarm system, fence and architectural fees.  Appellant also claimed financing and overhead costs for the additional improvements and profit.  (AF 4).

30.  The contracting officer denied the claim in a June 27, 2003 final decision (AF 3), and Appellant filed a timely appeal (AF 2).

DECISION

            Appellant argues that because the solicitation failed to disclose the requirements eventually imposed by Douglas County and the Fire Marshal, compliance with them was beyond the scope of the parties’ agreement.  As, according to Appellant, it could not identify and include the cost of such compliance in its offer, it should not be responsible for the resulting expense.  Appellant also claims financing costs, overhead and profit related to the additional costs.

Respondent argues that the solicitation and lease placed on Appellant the burden of identifying requirements of local permitting authorities and incorporating their cost into its proposal.  According to Respondent, Appellant bears the risk that those authorities might impose unexpected and costly requirements as conditions of approving the project.

The language used in the Licenses, Permits, Safety, Indemnification clause  (hereinafter referred to as the “Licenses” clause) of the Construction Rider (Finding 7) required Appellant to adapt Respondent’s SUP and standard plans to conform to local requirements.  Appellant was obligated to modify the design as directed by local authorities as a condition to permitting construction and to be responsible, without reimbursement by Respondent, for any increased design or construction costs incurred as a result.  See Vasallo Constr., Inc., PSBCA No. 3067, 93-1 BCA ¶ 25,289; Josiah Briggs & Co., PSBCA No. 2304, 90-1 BCA ¶ 22,429; Dattel Realty Co., PSBCA No. 2066, 89-2 BCA ¶ 21,874.  The Licenses clause placed upon Appellant the risk that local permitting authorities would impose unexpected or new requirements on the project, and as between Respondent and Appellant, the cost of complying with them was to be borne by Appellant “without additional expense to the Postal Service” (Findings 7, 8).  See Vasallo Constr., Inc., PSBCA No. 3067, 93-1 BCA ¶ 25,289; Shirley Constr. Co., ASBCA No. 42954, 92-1 BCA ¶ 24,563.

Appellant nonetheless argues that the statement in the Licenses clause that compliance with local requirements shall be “without additional expense to the Postal Service” was modified by references elsewhere in the Construction Rider Addendum to Appellant’s obligation to comply with all local laws, codes, etc., that did not include the language “without additional expense to the Postal Service.”  We reject this argument as we see no meaningful difference.  The clauses that Appellant identifies in support of this argument unequivocally make Appellant responsible for compliance with local requirements.  These provisions do not provide a basis for holding Respondent liable for paying Appellant’s costs of compliance.

Appellant argues that the Licenses clause should not bar its recovery because Respondent misrepresented in the solicitation that the SUP had been approved by the applicable local permitting jurisdictions (Finding 4).  According to Appellant, it reasonably assumed that the local authorities would not impose requirements not shown on the SUP and that, therefore, it was reasonable to prepare the rental offer based on constructing only what was included in the SUP (Finding 11).  From this, Appellant concludes that Respondent should be liable for the additional costs incurred to satisfy the local authorities.

However, as Respondent argues, the SUP was plainly identified as a conceptual drawing and was never represented to be a plan officially and finally approved by the local authorities (Finding 3).  In fact, in discussions with County officials, Appellant was advised that while they were generally satisfied with the SUP, formal approval would only be given as part of the formal application process to be pursued after award and design by Appellant’s architect (Finding 10).  Appellant knew the SUP did not reflect an officially-approved plan.  Additionally, offerors were cautioned in the solicitation that the lessor would have to design the project to meet all local requirements and to the extent those requirements were more stringent than what was reflected on the SUP, the more stringent local requirements would govern (Findings 3, 5-8).  Therefore, Appellant should not have been misled by the solicitation language regarding reviews of the project by local authorities.

Appellant suggests that Respondent had superior knowledge regarding what the County would require and failed to provide that information to Appellant.  However, Appellant did not identify any specific information that Respondent had that it should have disclosed.  The limited scope of pre-solicitation coordination and the limited nature of the County’s acquiescence with the proposed SUP were disclosed and known to Appellant (Findings 4, 9, 10).  Appellant has simply not shown any superior knowledge on Respondent’s part.  See Josiah Briggs & Co., PSBCA No. 2304, 90-1 BCA ¶ 22,429.

Additionally, the relevant information was equally available to Appellant.  The requirement for a storm water control system was determinable from the County’s readily-available manuals, which established detailed requirements for such a system on the Sedalia project (Finding 16).  The solicitation stated that fill would be required, stated specific requirements for positive drainage away from the building and permissible design slopes for the site (Findings 18, 19), and included a topographical survey identifying the existing elevations and grade contours (Finding 2).[1]  The amount of fill required was not unusual for such a project, and the storm water plan was neither elaborate nor unusual for similar projects in the County (Findings 16, 19).  There was no showing that Respondent possessed any information about the requirements of the County, the storm water detention requirements and the project’s grading and fill requirements that was not equally available to Appellant.

Appellant also argues that the Postal Service Real Estate Handbook required Respondent to prepare a drainage report and include it as part of the solicitation.  If Respondent had done so, Appellant argues that it and other offerors would have included the cost of the storm water detention system in their proposals.  Appellant argues it should be relieved of the cost of providing the detention system because Respondent did not prepare a drainage report and provide it to offerors.  Respondent argues that the Handbook provisions Appellant relies on are not applicable to this project and that there is no requirement that Respondent provide a site drainage study with the solicitation.

We are not persuaded that the Handbook provision Appellant relies on (Finding 17), even if applicable to Sedalia, required Respondent to prepare and provide to offerors a detailed drainage study, such as that prepared by Appellant’s engineer (Finding 16).  Additionally, the Handbook only reflects guidance to Respondent’s officials in performance of their duties on behalf of Respondent.  Appellant has not shown that it exists for the benefit of Respondent’s construction and lease contractors.  See James Hovanec, PSBCA No. 4767, 04-2 BCA ¶ 32,805; AFV Enterprises, Inc., PSBCA Nos. 2691, 3316, 01-1 BCA ¶ 31,388 at 155,023.  Accordingly, Appellant does not have a contractually enforceable right against Respondent for any failure of Respondent’s officials to comply with the Handbook directions.  See Freightliner Corp. v. Caldera, 225 F.3d 1361, 1365 (Fed. Cir. 2000); AFV Enterprises, Inc., PSBCA Nos. 2691, 3316, 01-1 BCA ¶ 31,388 at 155,023; TPI International Airways, Inc., ASBCA No. 46462, 96-2 BCA ¶ 28,602, aff’d,135 F.3d 776 (Fed. Cir.) (Table), cert. denied, 525 U.S. 874 (1998).

Appellant argues that Respondent’s acceptance of its offer that included an estimate breakdown of $8,500 for cut/fill (Findings 12, 13) reflects the parties’ agreement that Appellant’s responsibility for fill was limited to $8,500.  This argument is negated by all of the caveats in the solicitation and all the expressions of the broad, all-encompassing obligation on Appellant’s part to comply with local requirements (Findings 3, 5-8) and to achieve positive drainage away from the building (Findings 18, 19).  Respondent’s acceptance of Appellant’s offer cannot be read to be a guarantee by Respondent that Appellant would not be liable for costs in excess of the cut/fill line item in its estimated cost breakdown.

            As to the fire alarm, Appellant argues that the Fire Marshal erroneously interpreted applicable codes when requiring a fire alarm system.  However, that the Fire Marshal may have imposed requirements exceeding what Appellant was told by the Fire Chief and exceeding what was required by applicable fire codes does not mean that Respondent is liable for the cost of the fire alarm system.  Under the Licenses clause, as between Respondent and Appellant, it was Appellant who assumed the risk of complying with the requirements of the local authorities, even unexpected or changed requirements, as discussed above, or of obtaining relief from their imposition.  See The Leonard Pevar Co., PSBCA Nos. 219 and 257, 77-2 BCA ¶ 12,690; R & W Constr. Co., PSBCA Nos. 2357, 2404, 90-1 BCA ¶ 22,381; Charles N. Landon, Inc., GSBCA No. 3295, 71-1 BCA ¶ 8891.

As to the split rail fence, Appellant has not shown that it was required by the County or by Respondent to install such a fence (Finding 29).  The County required Appellant to relocate the existing barbed wire fence but said nothing about a split rail fence.  That it was not shown on the SUP does not provide a basis for making Respondent pay for it as Respondent did not require Appellant to install it (Findings 27, 28).

The additional architectural fees Appellant claims were not shown to be unusual for a project of this nature (Findings 25, 26), and Respondent does not guarantee that compliance with the design requirements of the County can be accomplished without exceeding the amount Appellant budgeted for design fees.  It is Appellant’s responsibility to account in its proposal for those fees and to be responsible for any shortfall in its proposal.  Appellant has not shown that it was any conduct of Respondent that caused its design fees to exceed its estimate.

Appellant also argues that County officials imposed requirements on Appellant more stringent than usual in retaliation for Respondent’s refusal to accommodate the County’s design preferences on a postal-owned project a few years earlier.  However, Appellant has not shown that any actions of County officials were motivated by animus toward Respondent.  Douglas County was known to be demanding (Finding 26), but there was no showing that the County applied a standard different from what it would have applied to any similar non-postal project.

As Appellant has not shown entitlement to recover the additional costs for architectural fees, cut and fill, storm water control, fire alarm or split-rail fence, it likewise may not recover for the associated financing fees, overhead and profit.

The appeal is denied.

                                                                        Norman D. Menegat

                                                                        Administrative Judge

                                                                        Board Member

 

I concur:

James A. Cohen

Administrative Judge

Chairman

 

I concur:

David I. Brochstein

Administrative Judge


[1] Appellant argues that there were defects in the topographical survey that rendered it useless in calculating its offer.  However, Appellant has not identified any particular deficiencies in the survey that might have had an impact on calculation of its offer or on these claims.