Appeals of

PHILLIPS DEVELOPMENT CORPORATION

LEASE AGREEMENT
PSBCA Nos. 4928 and 5016

APPEARANCE FOR APPELLANT:
E. B. Chiles, IV, Esq.

APPEARANCE FOR RESPONDENT:
Judith K. Zehner, Esq.

OPINION OF THE BOARD

            Appellant, Phillips Development Corporation, built and leased a building to Respondent, United States Postal Service.  Appellant has appealed from the direction of the contracting officer that it correct deficiencies in the building’s air conditioning system and from the contracting officer’s denial of Appellant’s claim for the cost of doing so.

            A hearing was held in Little Rock, Arkansas, and the parties have submitted briefs and reply briefs in support of their positions.  Only entitlement is at issue (Hearing Transcript, page (“Tr.”) 8).

FINDINGS OF FACT

1.  In a solicitation issued November 4, 1999, Respondent sought proposals for the lease of a post office to be constructed on property controlled by Respondent in Arkadelphia, Arkansas.  The successful offeror was to buy the site, build a post office according to Respondent’s drawings and specifications, and lease the facility to Respondent for a minimum of fifteen years.  (Appeal File, Tab (“AF”) 1, Solicitation Addendum (Controlled Site), Clause 2; Joint Stipulations of Fact and Issues of Law, paragraph (“Stip.”) 2; Tr. 27).

2.  The solicitation included a Construction Rider that required that the post office be built according to specific Postal Service plans and specifications, which were included in the solicitation package (AF 1, Construction Rider – NCL, Clause 1; AF 1, Solicitation Clause 7; AF 30; Hearing Exhibit B; Tr. 33-36; Stip. 8).

3.  The Construction Rider provided,

“Approval by the Postal Service of any drawings and specifications constitutes approval of general arrangement only and is not to be construed as waiving or changing any requirements set forth in this agreement unless a deviation, waiver or other change is specifically identified and approved by the contracting officer.”

(AF 1, Construction Rider – NCL, Clause 22.e; AF 30D, Specification 01330-1.3.G; Tr. 96, 122-123, 146).  Only the contracting officer could change or waive contract requirements; Respondent’s architect had no authority to do so (AF 1, Construction Rider – NCL, Clause 24; AF 9F, 30B; AF 30C, Specification 01115-1.3.B.2; Tr. 88, 132).

4.  The solicitation advised that the awardee would be required to hire its own architect/engineer licensed in Arkansas to prepare drawings, including mechanical drawings, to adapt the design of the building to the site and to meet applicable local, state and national code requirements (AF 1, Solicitation Clauses 7, 16, 25; AF 1, Construction Rider – NCL, Clauses 22.a, f; AF 30C, Specifications 01115-1.4.C.1, 01115-1.11.A; Stip. 9; Tr. 38; Supplemental Appeal File, Tab (“SAF”) 5; Hearing Exhibit B).

5.  The mechanical drawings in the solicitation provided details of the HVAC equipment required, including locations of air handling units (“AHUs”), condensing units, ductwork and diffusers (air outlets).  The drawings depicted four Lennox AHUs and four Lennox condensing units, and schedules on the drawings gave the exact capacity and performance specifications for each.  (Hearing Exhibit B, Drawing M1.1; SAF 5).

6.  The construction specifications addressed the minimum performance requirements for the HVAC system and required that the system be designed to provide a comfort level of 78 degrees maximum in summer (AF 30C, Specification 01115-1.14.E.1).  The lease also required that the lessor maintain air conditioning equipment “at all times so as to be capable of providing a uniform temperature of no greater than 78 degrees Fahrenheit in all enclosed portions of the premises.”  (AF 1, Maintenance Rider, Clause e; Lease General Condition A.24.o; Tr. 94-96).

7.  In preparing a rental offer for the project, Appellant figured in the price proposed by its mechanical subcontractor, who based his price on takeoffs from the solicitation’s mechanical (HVAC) plans and schedules (Tr. 26-27, 29, 34, 36).

 8.  Appellant’s was the successful offer, and on December 7, 1999, Respondent awarded it the contract for construction of the post office and a 20-year basic lease term at an annual rental of $128,088 (Tr. 37; AF 5; Stip. 5,

9.  After award, as required by the contract, Appellant engaged an architect to prepare construction drawings for the project.  Appellant’s architect’s mechanical engineer prepared mechanical drawings that mirrored the mechanical drawings and schedules in the solicitation.  Specifically, the construction plans included four air handlers with the exact specifications that were included in Respondent’s solicitation schedules.  (Tr. 38, 41, 75-76; AF 29; Hearing Exhibit C; Stip. 5, 13).

10.  On June 28, 2000, Respondent approved the plans prepared by Appellant’s architect, with some minor corrections, and authorized Appellant to begin construction on July 5, 2000 (AF 8, 9A, 9B).

11.  In August 2000, Appellant proposed a substitute for the AHUs specified in the contract.  While the proposed substitute Luxaire system had the same number of air handlers (four) specified in the contract, two of the proposed units generated airflow well below that specified in the solicitation’s drawings and Appellant’s construction drawings.  AHUs 2 and 3, as specified in the approved plans, were required to generate 2400 CFM (cubic feet per minute) of airflow, but the substitute Luxaire units were capable, according to the submittal information, of generating only 1911 CFM.  Although the contract required it to point out in its submittals any deviations from the contract requirements (AF 30D, Specification 01330-1.3.G), Appellant’s submittal of the substitute system did not explicitly identify these airflow differences between the AHUs required by the contract and the Luxaire units it proposed.  On August 17, 2000, Respondent’s architect approved the HVAC submittals, including the Luxaire AHUs.  (Tr. 45-50, 54, 63, 84, 115-118, 131, 137; AF 9, PreConstruction Conference Reference Manual, Section IV; AF 9B, 20, 30D; SAF 3; Hearing Exhibit C).

12.  The HVAC system was constructed according to Appellant’s architect’s approved plans but using the substitute air conditioning equipment approved by Respondent’s architect.  During construction, Respondent’s architect performed inspections aimed at confirming that the building was being constructed in conformance with the plans.  (Tr. 40-41, 43-44, 51, 113-114; AF 8, 9F; Stip. 14).

13.  As reflected in a balancing test of the HVAC system required by the contract and performed by Appellant’s consultant after completion of the project, Luxaire air handling units 2 and 3 produced airflows below those required in the solicitation’s plans and incorporated in the contract plans by Appellant’s architect.  Unit 2 produced airflow 400 CFM below the 2400 CFM specified, and AHU 3 produced airflow 235 CFM below that specified.  Airflows at nearly all of the individual diffusers in the post office box and service lobbies and postmaster’s office were below the approximate individual airflow rates specified in the plans.  In the postmaster’s office the airflow was 90% of that specified, and the five diffusers in the service lobbies showed airflows of 87%, 90%, 63%, 75% and 67% of those specified.  The postmaster’s office and service lobbies were served by AHU 3, which for all of its diffusers (14 total) totaled 90% of the CFM specified.  The six diffusers in the box lobbies, served by AHU 2, had airflows of 68%, 90%, 90%, 88%, 115% and 72% of the individually specified airflows.  The total airflow for all of the diffusers served by AHU 2 (12 total) was 83% of the design requirement.  The total diffuser airflows for AHUs 1 and 4 were 96% and 94% of specified, respectively.  (Tr. 53, 62-63, 170; AF 13, 29; Hearing Exhibit C, General Mechanical Note 6).

14.  Respondent accepted the completed building effective April 30, 2001 (Tr. 54, 89; AF 14; Stip. 19). 

15.  In July 2001, it was discovered that the HVAC system installed could not maintain the temperature at 78 degrees or less in certain parts of the building during hot weather.  Temperatures in the service and box lobbies and in the postmaster’s office (all areas served by AHUs 2 and 3 (Finding 13)) exceeded 80 degrees.  (Tr. 54-56, 90, 155-157; AF 15, 16, 17, 18, 29; Stip. 20).

16.  The air conditioning problems were brought to Appellant’s attention.  Although contending any insufficiency of the HVAC system was Respondent’s fault, Appellant installed an additional air conditioning unit in July 2001.  However, the cooling problem was not solved.  (Tr. 56, 60, 90, 158-159, 163; AF 18, 19; SAF 7; Hearing Exhibit A).

17.  In April of the following year, it was again discovered that the system did not keep the interior temperatures in the post office at or below 78 degrees. Temperatures in the lobbies and postmaster’s office reached 80 degrees.  (Tr. 91; AF 21; Stip. 24).

18.  By final decision dated April 24, 2002, the contracting officer directed Appellant to correct the air conditioning problem within 14 days (Tr. 92-93; AF 22; Stip. 25).

19.  In May 2002, Appellant installed another air conditioning unit (Tr. 97, 163; AF 23; Hearing Exhibit A), but temperatures in certain parts of the post office still were above 80 degrees in hot weather (AF 25; Stip. 27).  Finally, in late June 2002, Appellant’s HVAC contractor closed three diffusers in the workroom area, thereby diverting more cool air to the lobby and postmaster areas, and the post office was then sufficiently cool (AF 26, 27; Stip. 28).

20.  On July 1, 2002, Appellant filed an appeal from the contracting officer’s final decision directing it to correct the air conditioning problem in the post office (AF 28; Stip. 29).  The appeal was docketed as PSBCA No. 4928 (Stip. 30).

21.  On March 24, 2003, Appellant filed a claim in the amount of $11,757.76 for the cost of installing the two additional air conditioning units plus certain legal expenses it had incurred (Hearing Exhibit A; Stip. 31).  The contracting officer denied the claim in a final decision dated April 2, 2003 (SAF 6; Stip. 32), and Appellant appealed.  The appeal was docketed as PSBCA No. 5016 (Stip. 34).

22.  The standard plans included in the solicitation were used in a four-state region—Texas, Oklahoma, Louisiana and Arkansas.  They had been used in a number of other post offices in Arkansas and Texas, and in only one were there cooling problems.  (Tr. 109, 128, 133, 150, 164-165)

DECISION

Appellant argues that Respondent’s detailed “design” plans and specifications for the building were defective in that they specified equipment that was unable to cool the building adequately.  Citing United States v. Spearin, 248 U.S. 132, 63 L.Ed. 166, 39 S. Ct. 59 (1918), Appellant urges that Respondent warranted that Appellant could achieve a satisfactory result by following Respondent’s plans and specifications.  Therefore, according to Appellant, Respondent is liable for the extra costs Appellant incurred to achieve proper cooling of the building because the four specified air handlers Respondent called for proved inadequate.  However, under the Spearin doctrine, it is Appellant’s burden to demonstrate that Respondent’s plans were defective by showing that it complied with Respondent’s design plans and specifications and that an unsatisfactory result followed.  See M.A. Mortenson Co., ASBCA Nos. 53062, et al., 2001-2 BCA ¶ 31,573; Christie-Willamette, NASA BCA No. 1182-16, 87-3 BCA ¶ 20,166 at 102,074.  Appellant has not met this burden.

Appellant did not install the HVAC system described in Respondent’s plans and specifications and in its own architect’s plans, which mirrored Respondent’s regarding the HVAC system (Findings 9, 11).  The Luxaire air handlers Appellant substituted for AHUs 2 and 3 provided significantly less airflow than those specified (Findings 11-13), and Appellant has not shown the Luxaire units to be equal in performance to those specified.  While it is plain from the record that the system Appellant installed provided inadequate cooling, Appellant did not rely on or follow Respondent’s plans in installing this portion of the HVAC system.  Therefore, the failure of the installed HVAC system to meet the requirements of the contract does not prove that Respondent’s plans were defective.  See Gulf + Western Precision Eng’g Co. v. United States, 211 Ct. Cl. 207, 217-18, 543 F.2d 125, 131-32 (1976); Christie-Willamette, NASA BCA No. 1182-16, 87-3 BCA ¶ 20,166 at 102,075.

Appellant argues, but has not persuaded the Board, that a system installed to Respondent’s design—specifically the system with only the four specified AHUs—would not have adequately cooled the building.  However, as noted above, Appellant did not install the system Respondent specified or its equal, and we have insufficient evidence to accept Appellant’s argument that the specified system was doomed to failure by requiring only the four specified air handlers.  The same standard plans had been used in a number of other post offices in the area without developing air conditioning problems (Finding 22).  One other post office using these plans had experienced air conditioning problems (Finding 22), but it was not shown that the specified system was installed or what steps were taken to remedy the deficiency.

Furthermore, the step that ultimately achieved an acceptable level of air conditioning at the Arkadelphia Post Office involved adjusting the airflow to the affected areas (Finding 19).  Although this airflow adjustment occurred after two air conditioning units had been added to the system, it still suggests that the substitute Luxaire air handlers installed by Appellant, with airflows below those required by the contract, contributed to, if not caused, the cooling problems.[1]  Thus, Appellant has not shown that Respondent’s plans were defective or that the difficulties in cooling the building stemmed from Respondent’s plans and not from Appellant’s installation of the Luxaire air handlers that did not meet the requirements of the contract.  See Christie-Willamette, NASA BCA No. 1182-16, 87-3 BCA ¶ 20,166 at 102,075.

Respondent’s architect’s approval of the HVAC submittals for the substituted Luxaire AHUs (Findings 11, 12) does not relieve Appellant of ultimate responsibility for their sufficiency.  Appellant was required to point out in its submittal of the Luxaire air handlers any significant deviations from the contract requirements, and this it failed to do (Findings 3, 11).  Thus, Respondent’s approval of Appellant’s plans was for general arrangement only and under specific contract language did not serve to waive any requirement of the contract (Finding 3).  See W.M. Schlosser Co. v. United States, 767 F.2d 870, 875 (Fed. Cir. 1985); Gavosto Assoc., PSBCA Nos. 4058, 4131, 4144, 4333, 2001-1 BCA ¶ 31,389 at 155,036; Ralph Larsen & Sons, PSBCA No. 2164, 89-1 BCA ¶ 21,228 at 107,074.  Finally, Respondent’s architect had no authority to change or waive the requirements of the contract (Finding 3).  For these reasons, the architect’s approval of the substitute Luxaire AHUs did not waive the requirement under the contract that the system cool the building to a maximum of 78 degrees (Finding 6). 

In conclusion, the contracting officer was authorized to direct Appellant to comply with its contract obligations and correct the cooling deficiency, and Appellant is not entitled to recover its additional costs resulting from installation of additional air conditioning units.  PSBCA Nos. 4928 and 5016 are denied.

Norman D. Menegat
Administrative Judge
Board Member

I concur:
James A. Cohen
Administrative Judge
Chairman

I concur:
David I. Brochstein
Administrative Judge
Vice Chairman

[1] In the areas served by AHUs 2 and 3 experiencing elevated temperatures, the airflows at most of the diffusers fell below those individually established in the plans (Findings 13, 15, 16, 19)).