PSBCA No. 5233

Appeal of
BAER REAL ESTATE
LEASE AGREEMENT

APPEARANCE FOR APPELLANT:
Edward P. McConville, Esq.
Maney, McConville & Liccardi, P.C.

APPEARANCE FOR RESPONDENT:
Margaret E. Harper, Esq.
Northeast Area Office
United States Postal Service

OPINION OF THE BOARD

            Respondent, United States Postal Service, awarded Appellant, Baer Real Estate, a contract to build a post office according to Respondent’s plans and lease it back to Respondent.  Appellant’s costs of construction exceeded what it expected, and it claims that Respondent is liable for additional costs stemming from (1) imposition by local authorities of onerous drainage and other requirements on the project and (2) Respondent’s failure to disclose to Appellant certain information regarding existing subsurface and other conditions.  Appellant appealed the contracting officer’s denial of its claim for the additional costs.

            At the election of the parties, this appeal is being decided on the record without an oral hearing in accordance with 39 C.F.R. §955.12.  Only entitlement will be addressed.

FINDINGS OF FACT

            1.  On June 18, 1998, Respondent issued a solicitation seeking to lease a post office in South Egremont, Massachusetts.  Offerors could propose to lease an existing building or to construct a post office to Respondent’s specifications and lease it to Respondent for a minimum of twenty years.  (Appeal File, Tab (“AF”) 1; Stipulation dated April 7, 2006, paragraph (“Stip.”) 1-3; Affidavit of Kenneth Baer (“Baer Aff.”); Declaration of Michael Laverdiere (“Laverdiere Decl.”)).

            2.  The solicitation package contained Postal Service standard plans and specifications for the building to be constructed; the form of lease (which would become the contract upon award); and a Construction Rider to the lease that spelled out the requirements for construction of the building (AF 1).

            3.  The solicitation advised that construction by the successful offeror would be required to “comply with all federal, state and municipal laws, codes, and regulations including those of the state and local highway departments.”  (AF 1, Solicitation Clause 13; Stip. 4; see AF 1, Construction Rider Clause 22, DESIGN AND APPROVAL REQUIREMENTS, subsection c; Stip. 6).  Offerors were specifically 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 1, Construction Rider Clause 22, DESIGN AND APPROVAL REQUIREMENTS, subsection d; Stip. 6).

            4.  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 1, Construction Rider Clause 10, LICENSES, PERMITS, SAFETY, INDEMNIFICATION, subsection a; Stip. 6).

            5.  The Construction Rider also provided,

“Offerors must examine the site and be thoroughly acquainted with conditions thereon.  The Lessor will be responsible for site conditions including but not limited to subsurface or latent physical conditions or unknown physical conditions of an unusual nature differing materially from those ordinarily encountered.”

(AF 1, Construction Rider Clause 12, SITE; Stip. 6).

            6.  Respondent received five offers.  In evaluating the offers, Respondent determined that the most favorable site offered was at 64 Main Street in South Egremont.  Appellant had submitted a proposal to construct the post office on another site.  (AF 28; Stip. 7, 8).

            7.  Respondent engaged a consultant to conduct an environmental evaluation of the 64 Main Street site to determine whether there was contamination by oil or other hazardous materials on the site and to identify possible sources of such materials in the immediate vicinity of the site.  The consultant conducted a “walk-over” visual inspection of the property and vicinity (AF 21, Environmental Site Assessment Report, p. 2), which did not include subsurface exploration or analysis (p. 19).  He searched readily available sources, such as published geologic and topographical maps (p. 2).  The consultant’s January 15, 1999 report described the characteristics of the bedrock underlying the site as reflected in a geologic survey map of the State of Massachusetts and noted that no bedrock outcroppings were observed during his visit (p. 10).  The consultant noted that the site (and adjacent area) sloped southeasterly which would result in surface water flowing toward Karner Brook, about 200 feet southeast of the site (p. 11).  (AF 21; Stip. 9; Laverdiere Decl.; Second Declaration of Michael Laverdiere).

            8.  Respondent’s efforts to negotiate a lease with the offeror of the 64 Main Street site were unsuccessful.  During these negotiations, that offeror mentioned to Respondent’s representative that there was bedrock on the site.  (Stip. 10; Laverdiere Decl.).

            9.  On or before February 17, 2000, Appellant submitted an offer to construct and lease to Respondent a post office meeting Respondent’s requirements on the site at 64 Main Street.  The parties entered into a lease on May 15, 2000.  Appellant was not given the January 15, 1999 environmental report and was not advised of its contents before submitting its offer.  (AF 2; Stip. 11, 12; Baer Aff.; Declaration of Paul Senk (“Senk Decl.”)).

            10.  At the time of award, Appellant was an experienced builder, its principals having built about 25 post offices for lease to Respondent in the New England area (Stip. 13).

            11.  Once the lease was executed, Appellant began the process to obtain permits to construct the post office.  It submitted plans for review by local planning officials, the Historical Commission, and the Soil Conservation Commission.  After a number of meetings with the Egremont Planning Board, some of which Respondent also attended, local authorities imposed a number of requirements on the project.  These included an underground storm water retention system consisting of precast concrete structures and large pipes to retain and meter the release of storm water from the site into the existing storm water system under the adjacent highway.  Constructing the features required by local authorities cost substantially more than Appellant had anticipated for these elements of the project.  (AF 3, 4, 22-25; Stip. 14-18; Baer Aff.).

            12.  Construction of the underground drainage structures and piping required substantial excavation and trenching.  In the course of doing the excavation, Appellant encountered rock, the removal of which required blasting and heavy equipment, increasing Appellant’s costs over what it expected.  Additionally, a somewhat simpler and less expensive retention system would have been possible if some of the retained storm water could percolate into the soil, but the presence of substantial amounts of rock prevented this less expensive approach.  (Baer Aff.; Affidavit of James Hannon).

            13.  On December 12, 2003, after a number of exchanges between the parties about responsibility for Appellant’s additional costs (Stip. 19, 21-23; AF 3-8, 10-13), Appellant submitted a certified claim for its “unforeseeable costs” of $407,635.  The claim included costs for “the unforeseeable blasting of trenches, blasting of drainage beds, and 48” pipe totaling $194,394.”  (Stip. 24; AF 14; Senk Decl.).

            14.  By final decision dated February 10, 2004, the contracting officer denied Appellant’s claim (AF 15; Stip. 25; Senk Decl.).  Appellant’s appeal followed (AF 16).

DECISION

            Throughout its correspondence with Respondent before issuance of the final decision, it was Appellant’s position that Respondent was responsible for the extra costs it incurred due to the imposition by local authorities of requirements that Appellant had not anticipated.  We have consistently held that the language used in the solicitation and Construction Rider, most notably the Licenses, Permits, Safety, Indemnification clause of the Construction Rider (Finding 4), require lessors 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 Annuity Investment Properties, Inc., PSBCA No. 5045, 05-2 BCA ¶ 33,045; 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.

            Appellant argues that it reasonably assumed it would be permitted to connect directly to the existing storm water sewer in the highway because a recently constructed building on a neighboring site was permitted to.  Appellant’s reasonableness in assuming what local authorities would or would not permit is not in issue.  As we said in Annuity Investment Properties, Inc., PSBCA No. 5045, 05-2 BCA ¶ 33,045 at 163,775,

“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’  [ ].  See Vasallo Constr., Inc., PSBCA No. 3067, 93-1 BCA ¶ 25,289; Shirley Constr. Co., ASBCA No. 42954, 92-1 BCA ¶ 24,563.”

            Therefore, under the lease’s Construction Rider, the risk was upon Appellant that local permitting authorities would impose conditions to granting necessary construction permission that would increase its costs of construction.

            In its brief, Appellant argues that Respondent breached its duty to disclose superior knowledge regarding the existence of bedrock on the site and the proximity of the site to Karner Brook, which proximity it argues triggered more stringent and costly site drainage requirements as Karner Brook was an environmentally protected stream.  To establish that Respondent had a duty to disclose information, Appellant must show, inter alia, that the information was vital to Appellant's performance and affected its performance costs, that the information was not otherwise reasonably available, and that Respondent was aware that Appellant did not have the information.  See Rounds Constr. Co., PSBCA No. 1366, 85-3 BCA ¶ 18,343, citing, Helene Curtis Indus., Inc. v. United States, 160 Ct. Cl. 437, 444, 312 F.2d 774, 778 (1963); C. M. Moore Div., K.S.H., Inc., PSBCA No. 1131, 85-2 BCA ¶ 18,110 at 90,917, recon. denied, 86-1 BCA ¶ 18,573, aff’d, 818 F.2d 874 (1987).

            Because Respondent was not shown to have had any information as to the depth and extent of bedrock at the site (Findings 7, 8), it is not certain that the bedrock information it had was vital to Appellant in determining its cost of performance and preparing its offer.  However, we need not address that issue because, as discussed below, Appellant has failed to meet at least two requirements necessary to establish a duty to disclose on the part of Respondent.  First, Appellant has not shown that the information it claims was vital was not otherwise available to it.  Respondent’s consultant visually inspected the site.  No investigation of subsurface conditions was undertaken and no subsurface conditions were reported to Respondent.  The consultant obtained information regarding the nature of the bedrock in the area from publicly and readily available sources (Finding 7) that Appellant could have accessed.

            Second, Respondent had no reason to suppose Appellant did not have or would not obtain information regarding the subsurface conditions of the site.  The contract required offerors to visit the site and specifically made the successful offeror responsible for subsurface conditions (Finding 5).  In these circumstances, Respondent could reasonably expect that before submitting its offer, Appellant, as an experienced construction contractor (Finding 10), would perform sufficient investigation of subsurface conditions that would generate at least as much information as Respondent had about those conditions.  See H.N. Bailey & Associates v. United States, 196 Ct. Cl. 166, 449 F.2d 376, 383 (1971); RQ Constr., Inc., ASBCA No. 52376, 01-2 BCA ¶ 31,627 at 156,249, aff’d, 53 Fed. Appx. 935 (2003); Edwards v. United States, 19 Cl. Ct. 663, 672 (1990).

            Appellant also alleges that Respondent knew of the proximity of Karner Brook to the site and its protected status that led local authorities to impose strict drainage requirements on the post office project and breached its duty to disclose that information to Appellant.  First, there is no evidence that Respondent knew of any special environmental status accorded Karner Brook.  Respondent did know Karner Brook was 200 feet southeast of the site and that because of the topography of the area, water from the site could be expected to run towards the brook.  This information came from the consultant’s visual inspection of the site and immediately surrounding area and his review of publicly available maps of the local topography.  (Finding 7).  Even assuming the proximity of the brook was vital information, its discovery was equally within Appellant’s power, and Respondent had no reason to believe Appellant would not discover the brook on its own.  Under the principles discussed above, Appellant has failed to establish entitlement to recover based on Respondent’s failure to advise it of the presence of Karner Brook within 200 feet of the site and of the slope of the site and the immediately surrounding area.

            The appeal is denied.

Norman D. Menegat
Administrative Judge
Board Member

I concur:                                                                      I concur:
William A. Campbell                                                     David I. Brochstein
Administrative Judge                                                  Administrative Judge
Chairman                                                                    Vice Chairman