Appeal of

SUD DES MOINES LLC

PSBCA No. 6263

LEASE AGREEMENT

APPEARANCE FOR APPELLANT:
Suniti R. Sud, Esq.
Sud Des Moines, LLC

APPEARANCE FOR RESPONDENT:
Alfred J. Zwettler, Esq.
Atlanta Law Office
3980 DeKalb Technology Parkway
Atlanta, GA  30340-2887

OPINION OF THE BOARD

            Appellant, Sud Des Moines, LLC, appeals a final decision by Respondent, United States Postal Service, assessing costs associated with the repair of a ruptured water line at a postal facility Appellant leases to Respondent.  Appellant elected the Board’s Small Claims (Expedited) Procedure, and both entitlement and quantum are at issue (August 5, 2009 Order).  The parties have submitted this appeal on the record, pursuant to 39 CFR § 955.12.

FINDINGS OF FACT

            1.  In 1975, Appellant’s predecessor in interest and Respondent entered into a lease for the Charlotte, North Carolina Processing and Distribution Center (P&DC) (Appeal File Tab (AF) 1).  The lease has been renewed twice and presently is scheduled to expire in 2015 (AF 2).  Appellant succeeded to the lease in 2006 (Declaration of P. Lyne (Lyne Decl.) ¶ 4).

            2.  The P&DC is a large postal processing facility, which operates continuously and in which 800 to 1,200 employees work each day (Declaration of R. Hurdt (Hurdt Decl.) ¶ 2; Declaration of R. Tate (Tate Decl.) ¶ 4; Declaration of K. Penland (Penland Decl.) ¶ 2).

            3.  The P&DC lease (AF 1) includes the following provisions:

The Lessor shall furnish to the Postal Service under the terms of this lease, as part of the rental consideration, the following:  Electrical, lighting, heating, air conditioning, ventilating and plumbing systems . . .

Lease, ¶ 6.

The Lessor shall, except as otherwise specified herein and except for damages resulting from the act or negligence of Postal Service agents or employees, 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. . . .  Additionally, the Lessor shall designate emergency repairmen, for electrical emergencies, for plumbing emergencies, for heating, ventilating and air conditioning emergencies and other emergencies (windows, doors, locks, etc.), who may be called by the Postal Service in the event of an emergency situation involving maintenance of the leased property and/or equipment when the Lessor or his agent cannot be contacted within a reasonable time.

Lease, ¶ 11 (a).

When the need arises for maintenance or repair or for restoration to a condition suitable for the purpose for which leased, the Postal Service shall (except in emergencies) give the Lessor written notice thereof, specifying a time for completion of the work which is reasonable and commensurate with the nature of the work required.  If the Lessor . . . fails to prosecute the work with such diligence as will ensure its completion within the time specified in the written notice . . . or fails to complete the work within said time, the Postal Service shall have the right to perform the work, by contract or otherwise, and withhold the cost thereof from payments due or to become due under this lease . . . 

Lease, ¶ 11 (c).

            4.  Appellant did not designate emergency repairmen for plumbing emergencies as required by the lease, and the contact information for such repairmen designated in 1975 by Appellant’s predecessor was obsolete (Lyne Decl. ¶ 11).

            5.  On August 29, 2008, the underground line supplying water to the P&DC unexpectedly ruptured (Hurdt Decl. ¶ 5; Tate Decl. ¶ 8).  The rupture was discovered by Respondent at approximately 6:00 A.M. (Hurdt Decl. ¶ 5).

            6.  The ruptured line was the only source for the P&DC’s drinking water, water for washing, toilets, emergency eye wash stations, and the air conditioning and ventilation system, which required water for cooling towers in order to function (Hurdt  Decl. ¶¶  3, 7, 13; Tate Decl. ¶¶  6-7, 12, 14, 16; Penland Decl. ¶ 2).

            7.  Due to the rupture, water could not be used at the P&DC until repairs were performed (Hurdt Decl. ¶¶ 7, 12-13; Tate Decl. ¶¶ 12, 14).  This required the air conditioning and ventilation system to be shut down (Hurdt Decl. ¶ 13; Tate Decl. ¶ 16).  The inoperable air conditioning and ventilation system, hot weather, and heat generated by mail processing equipment resulted in high temperatures in the P&DC (Hurdt Decl. ¶ 12).

            8.  On August 29, 2008, at approximately 7:00 A.M., Respondent’s maintenance manager at the P&DC contacted a representative of Appellant by telephone to inform Appellant about the problem (Tate Decl. ¶ 9; Affidavit of K. Alexander (Alexander Aff.) ¶ 4).  During that call, Appellant asked whether responsibility for the water line rupture was with the City of Charlotte, and Appellant did not agree to take action to repair the ruptured water line (Tate Decl. ¶ 9; Alexander Aff. ¶ 4; Lyne Decl. ¶ 5; AF 4).  Appellant expected Respondent to notify it concerning whether the City of Charlotte was responsible for the water line rupture (Alexander Decl. ¶¶ 4, 6; AF 4; AF 9). 

            9.  Respondent’s maintenance manager then called a facilities contract specialist at Respondent’s Facilities Service Office, responsible for administration of the P&DC lease.  He informed the facilities contract specialist about the problem and related that Appellant did not accept responsibility to repair the ruptured water line in the telephone conversation he had initiated.  (Tate Decl. ¶ 10; Lyne Decl. ¶ 5).

            10.  The facilities contract specialist then called Appellant and left a message with a secretary asking Appellant’s representative to call the specialist (Lyne Decl. ¶ 5).  The record does not support a finding of any further discussion between the parties until after the work was performed (Alexander Decl. ¶¶  6-7; Lyne Decl. ¶ 6).  

            11.  Also on August 29, 2008, Respondent’s contracting officer transmitted written notice to Appellant of the water line rupture.  The letter identified the situation as an emergency, and the repair costs as Appellant’s responsibility under the lease, citing a maintenance rider that does not appear in the lease.  The contracting officer’s letter stated that due to the emergency situation, Respondent immediately contacted a third party contractor to perform repairs.  (AF 3).

            12.  On August 29, 2008, Respondent requested White and Sons Construction, Inc. (White and Sons), to perform repairs and to provide necessary  emergency accommodations for P&DC employees.^[1]  The work performed by White and Sons included repair of the water line rupture and related work, and provision of emergency accommodations (Penland Decl. ¶¶ 7-8).  The emergency accommodations included provision of portable toilets, toilet paper, hand sanitizer, portable lighting, provision of drinking water, and placement of safety barricades (Hurdt Decl. ¶¶ 8-10, 17; Tate Decl. ¶¶ 15, 17-18; Penland Decl. ¶ 8).

            13.  White and Sons performed this work under a job order contract, which is the equivalent of an indefinite quantity contract.^[2]  The contract had been competitively awarded.  (Penland Decl. ¶¶ 5-6).    

            14.  A Contractor’s Cost Proposal under the job order contract detailed the work performed and its cost, but it was prepared after the work had been completed (AF 12; Penland Decl. ¶ 6).^[3]

            15.  White and Sons repaired the water line rupture, and water was able to be supplied to the P&DC the next day, August 30, 2008.  The remainder of the work was completed within a few days.  (Tate Decl. ¶ 19; Hurdt Decl. ¶¶ 15-19).

            16.  Respondent paid White and Sons $27,750.47 for the work performed and the accommodations provided (Penland Decl. ¶¶ 10-11; Declaration of M. LeGrand (LeGrand Decl.) ¶ 8).

            17.  Respondent evaluated the work performed by White and Sons, and prepared its own estimate of a reasonable cost.  The resulting $32,092.14 estimate was prepared by an experienced engineer in Respondent’s employ, using his own inspection of the P&DC, interviews of postal employees, discussion with White and Sons, and industry references.  The estimate was created on September 15, 2008, after the work was completed.  (Penland Decl. ¶¶ 6, 9-10; AF 11, 14; White and Sons’ backup documentation attached to Penland Decl.; LeGrand Decl. ¶ 8).

            18.  On March 5, 2009, Respondent’s contracting officer issued a final decision, concluding that Appellant owed Respondent $29,079.60, and announcing that this sum would be deducted from rent otherwise due Appellant.  Neither the final decision nor previous correspondence from Respondent included a breakdown of the costs assessed.  (AF 3, 7-10).

            19.  The charges that the contracting officer intended to assess in his final decision included $27,750.47, that Respondent paid White and Sons.

            20.  In addition, Respondent intended to charge Appellant with $541.13, representing a fee paid to The Gordian Group, Inc.  The fee was calculated as 1.95% of the cost of the work, and was for the use of software that created the work order^[4] (AF 6; LeGrand Decl. ¶ 9).

            21.  Respondent also intended to charge Appellant with $768 for internal administrative costs consisting of nine hours of an unnamed project manager’s time for unidentified work, and $20 for external administrative costs, which are unexplained (AF 13; Declaration of C. Schulze, ¶ 2).  Although Respondent’s officials deemed the administrative costs to be fair and reasonable, the record does not indicate whether those costs actually were incurred, or whether and why they were necessary. 

            22.  Appellant elected to utilize the procedures of the Contract Disputes Act of 1978, and timely filed a notice of appeal of the contracting officer’s March 5, 2009 final decision directly with the Board.

DECISION

            Respondent argues that the work at issue was necessary to remedy an emergency situation, that the work was Appellant’s responsibility under the lease, and that the costs associated with the repair were reasonable.  Appellant argues that repair of the ruptured water line was not an emergency, that even if it were an emergency, Respondent did not provide notice required by the lease preventing Appellant from acting, that Respondent did not provide sufficient detail about the repairs performed, and that Respondent should forfeit its ability to recover because of these deficiencies. 

            Although Appellant initially inquired into whether the water line break was the responsibility of the City of Charlotte, (Finding 8), it does not here contend that to be the case and the record does not include any evidence that the ruptured water line was outside the demised premises or that the rupture was caused by the act or negligence of Respondent.  There is no dispute that the repair was Appellant’s responsibility under the lease (Finding 3) and, aside from notice and the lack of details provided, Appellant does not argue to the contrary.^[5]  We find the work to have been an emergency (Findings 5-7), that the repairs and accommodations performed were necessary (Findings 5-7, 12), and that the costs incurred were reasonable (Findings 13-17). 

            As the water line rupture caused the air conditioning and ventilation system to become inoperable in Charlotte, North Carolina in August resulting in high temperatures in the P&DC (Finding 7), we find repair of the water line to have been an emergency situation.  See Edward R. Ester and Lorraine Ester, PSBCA No. 3051, 93-3 BCA ¶ 25,960 (finding necessary repairs to heating system in February in Bellingham, Washington to be an emergency).  The lease’s requirement that the lessor designate emergency repairmen for both plumbing emergencies and air conditioning and ventilation emergencies further demonstrates that the conditions at the P&DC resulting from the lack of water constituted an emergency under the lease (Finding 3).  The emergency situation required Respondent to act quickly to protect its employees at the P&DC.

            With regard to notice, Appellant argues that Respondent should not be permitted to cause repairs to be performed at Appellant’s expense without having provided sufficient notice that may have allowed Appellant to perform the repairs.  Respondent argues that the notice it provided was sufficient under these emergency circumstances, and that Appellant’s failure to follow-up affirmatively after the initial notice of the emergency situation was unreasonable.

            Respondent has demonstrated only a single communication with Appellant before the work was performed^[6], and the parties blame each other for the lack of further communications (Findings 8, 10).  However, we need not resolve that conflict nor determine whether sufficient notice was here provided.^[7]  In J. Leonard Spodek, PSBCA No. 4207, 00-1 BCA ¶ 30,593, we considered a similar situation:

Appellant argues that Respondent's failure to give it notice and an opportunity to accomplish the testing relieves Appellant of any liability for the expenses Respondent incurred.  However, Respondent's performance of Appellant's lease obligation requires Appellant to reimburse Respondent, and Respondent's failure to give Appellant notice does not mean that Respondent is entitled to no reimbursement for the testing. Rather, the failure to give notice limits Respondent's recovery to what it would have cost Appellant to do the work. Appellant has not challenged Respondent's persuasive evidence showing that the charge for removing and reinstalling the meters was reasonable or suggested that the work was not necessary or that it could have performed the work for less. Accordingly, Appellant is responsible for payment . . .

Spodek, 00-1 BCA at 151,079 (internal references and citations omitted). As in Spodek, Appellant has not demonstrated that the cost of the repairs that were performed by Respondent, but for which Appellant was responsible under the lease, was unreasonable.  To the contrary, Respondent has demonstrated the costs incurred, which were less than Respondent’s estimate, were reasonable.^[8]  See Real Properties MLP Limited Partnership, PSBCA No. 3453, 95-2 BCA ¶ 27,829 (appropriate to consider internal estimates in determination of reasonableness of repair costs).  The reasonableness of the costs is supported by the competitive award of the original job order contract to White and Sons.  See J. Leonard Spodek, Wisconsin Postal Holdings, PSBCA No. 4243, 02-1 BCA ¶ 31,705 (work done through the use of a competitively awarded indefinite quantity contract establishes a prima facie case that costs incurred were reasonable).                

            Most fundamentally though, Appellant has offered no evidence at all that it could have performed such repairs at a lower cost if it had been provided the opportunity to do so.  Under such circumstances, Appellant is responsible for the reasonable cost of the repairs.  See Butler Gulch, LLC, PSBCA No. 5353, 08-1 BCA ¶ 33,839; J. Leonard Spodek d/b/a Nationwide Postal Management, PSBCA No. 3710, 96-2 BCA ¶ 28,457.  Appellant does not contest the necessity of the related employee accommodations provided during the repair to allow the property to remain suitable for the purpose for which it was leased and to provide a temporary plumbing system during the emergency period, and we find them to have been appropriately provided.  We therefore deny the appeal with respect to the $27,750.47 that Respondent paid White and Sons.          

            However, we sustain the appeal with regard to the remainder of the costs sought by Respondent.  Respondent has not proved that internal administrative costs of $768 were actually incurred, what those costs were for, when they were incurred, or whether they were necessary or reasonable in amount.  See also J. Leonard Spodek, Nationwide Postal Management, PSBCA Nos. 4158, 4185, 00-2 BCA ¶ 31,032 (allowable administrative costs must directly result from a contract breach).  Respondent’s external administrative costs of $20 are completely unexplained and so, are also denied for lack of proof.                    

            Respondent’s charge of $541.13 for a fee for the use of software that created a work order also fails for lack of proof.  The totality of Respondent’s evidence consists of a single otherwise unexplained sentence in the contracting officer’s declaration (Finding 20).  It has not been proved that software costs were necessary or reasonable.  Particularly, since the Contractor’s Cost Proposal at issue was prepared after the completion of the work performed (Finding 14), we deny this aspect of Respondent’s claim for lack of proof.  The appeal is sustained in the amount of $1,349.13, consisting of disallowed internal administrative costs of $768, disallowed external administrative costs of $20, and disallowed software costs of $561.13.  Otherwise, the appeal is denied.

Gary E. Shapiro
Administrative Judge
Board Member

[1]  The method by which Respondent requested this work on August 29, 2008, and the details of that request are not indicated in the record.

[2]  The contract is not in the record but its characterization is not challenged by Appellant.

[3]  The record does not indicate whether the Contractor’s Cost Proposal was prepared by Respondent or by White and Sons.

[4]  The contractual or other basis for this fee, how it is determined, or why it was necessary, are not indicated in the record.

[5]  Appellant is correct that the contracting officer’s August 29, 2008 notification letter cited a provision that is not in the lease at issue (Finding 11).  However, the erroneous citation is irrelevant to our determination of Appellant’s responsibility under the lease.  Similarly, while Respondent did not provide details about the work, its costs, or the administrative costs imposed until after the contracting officer’s final decision issued (Finding 18), Appellant has not demonstrated how Respondent’s failure to have provided detailed information about the costs charged against it resulted in prejudice or should be of legal significance.

[6]  Respondent maintains that a second facilities contract specialist also called Appellant on August 29, 2008, regarding the problem, and that Appellant denied responsibility for the repairs in that conversation.  However, the second facilities contract specialist did not testify, and the record of this alleged conversation consists only of extremely nonspecific hearsay, uncorroborated by documentary evidence, and we deem it to be insufficiently reliable.  See Lyne Decl. ¶ 7; LeGrand Decl. ¶ 6; Alexander Aff. ¶¶ 5, 7 (attesting to the lack of communications between August 29, 2008 and September 2, 2008).  We find the record insufficient to demonstrate the fact alleged. See West Wilson Enterprises, PSBCA No. 5203, 08-2 BCA ¶ 33,972, recon. denied, 08-2 BCA ¶ 33,977 (internal quotation omitted) (“While the Board may consider hearsay evidence, in order for hearsay evidence to be considered as a basis for the Board's fact findings necessary for the resolution of the dispute, it must be sufficiently convincing to a reasonable mind and reveal sufficient assurance of its truthfulness.”).

[7]  Even if written notice were required for this emergency situation and the notice provided was inadequate, issues that we do not reach, Respondent’s quick actions to address the emergency would not result in Respondent having forfeited its ability to recover the repair costs that otherwise were Appellant’s responsibility, as Appellant argues.  See Washington Development Group-JWB, LLC v. General Services Administration, GSBCA Nos. 15137, 16004, 03-2 BCA ¶ 32,319.  This is particularly so where, as here, Appellant failed to designate emergency repairmen for plumbing emergencies as required by the lease (Finding 4).

[8]  Although Respondent’s estimate was prepared by someone in its employ after completion of the work and therefore is less persuasive than an estimate prepared before the work was accomplished, its reasonableness was not challenged by Appellant, and it appears to have been professionally prepared.  Appellant has submitted no evidence to the contrary.