ABCD GRANTED: July 31, 1992 GSBCA 11333 ROCK CREEK ASSOCIATES K LIMITED PARTNERSHIP, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Neil I. Levy and Pamela L. Sherman of Melrod, Redman & Gartlan, Washington, DC, counsel for Appellant. Steven M. Stomski, Real Property Division, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges NEILL, DANIELS, and HYATT. DANIELS, Board Judge. This appeal arises under a contract which obligates Rock Creek Associates K Limited Partnership (Rock Creek or lessor) to lease office space to the General Services Administration (GSA). The lease requires Rock Creek to subdivide the space by constructing partitions at a prescribed ratio of linear feet of partitions to square feet of space. Rock Creek maintains that because GSA directed it to construct more partitions than specified in that ratio, GSA must compensate the lessor (under the changes clause) for resultant, additional costs. These costs are $71,186 for additional light fixtures, sprinkler work, and fireman's hose valves, and $5,822 annually to cover the increased cost of electrical consumption. The parties have submitted the case for a decision on the record, pursuant to Rule 11. The record includes a comprehensive set of joint stipulations of fact. We find for the appellant. Findings of Fact 1. On November 7, 1989, GSA, on behalf of its client, the Food and Drug Administration, issued a Solicitation for Offers (SFO) to lease approximately 60,000 square feet of office and related space in Montgomery County, Maryland. Consent Stipulation of Fact (Stipulation) 1; Appeal File, Exhibit 15. The SFO specified that the office space was to be subdivided with partitions which would extend from floor to ceiling. Stipulation 1; Appeal File, Exhibit 15 at 15 of 46. The partitions "must be provided at a ratio of one linear foot for each ten square feet of space provided." Id. 2. A lease based on this SFO was entered into between Rock Creek and GSA on August 3, 1990. Stipulation 2. The lease covers part of the first floor and all of the second and third floors of a four-story building known as Metro Park North, Phase IV. Appeal File, Exhibit 2 at 1; Stipulation 3. 3. The partition requirement contained in the lease is identical to the one stated in the SFO, except that it mandates the provision of partitions at a ratio of one linear foot for each fifty (rather than ten) square feet of space. Stipulation 4; Appeal File, Exhibit 2 at 15 of 47. For purposes of this appeal, the change is immaterial, because Rock Creek based its offer on costs associated with dividing the office space in accordance with the ratio stated in the SFO, and it seeks only costs resulting from the increase in the amount of partitioning from that ratio. Appeal File, Exhibit 3; Appellant's Memorandum in Support of Appeal at 7 n.3. 4. The lease provides that the actual partitions will be paid for by unit, at a rate of $36.27 per linear foot of partitioning with vinyl wall covering and vinyl base. Stipulation 5; Appeal File, Exhibit 2 at 6 of 47. Other items for which a per-unit cost is specified are electrical and telephone outlets and interior doors. Appeal File, Exhibit 2 at 6 of 47. 5. The lease prescribes a procedure to be followed with regard to interior construction in the building. GSA was to submit "design intent drawings" to Rock Creek in three phases, each involving approximately 20,000 net usable square feet. The lessor was then to respond, within twenty days of receipt of each phase of design intent drawings, by giving GSA an architect's "working drawings." Within the same time constraint, the lessor was to "submit pricing data for items included in the proposed build out which are above minimum requirements and performance specifications of this solicitation (SFO)." Appeal File, Exhibit 2 at page 6 of Amendment Number 6, page 1 of Rider Number Two; see also id. at page 4 of GSA Form 3517 (each proposal for adjustment in an amount that exceeds $25,000 must be submitted "in a timely manner"). 6. The design intent drawings for the three phases were provided by GSA on August 3, September 5, and October 19, 1990. Appeal File, Exhibits 5 at 7; 25-27. Rock Creek responded with working drawings on August 20, September 19, and November 8. Id., Exhibit 5 at 7. GSA approved appellant's drawings and gave notices to proceed on September 4, October 16, and November 26. Id., Exhibits 28-30. The letters from GSA accompanying the drawings indicate that lighting and fire safety plans were among those that were approved with the working drawings. Id. 7. As designed by GSA and implemented by Rock Creek, the actual ratio of linear feet of partition to the total area was one linear foot of partition for every 7.25 square feet of leased space. Stipulation 16. Rock Creek admits that the Government paid the cost of the additional partitions at the negotiated unit price. Appellant's Memorandum in Support of Appeal, at 3-4. 8. The lease requires that Rock Creek provide a uniform lighting level of fifty footcandles at a working surface height throughout the space. Stipulation 11; Appeal File, Exhibit 2 at 24 of 47. 9. The lease requires the lessor to comply with all codes and ordinances applicable to the ownership and operation of the building. Stipulation 7; Appeal File, Exhibit 2 at 10 of 47, page 6 of GSA Form 3517. The Fire Safety Code of Montgomery County, Maryland requires that to receive a building permit, the building must have a sprinkler system in accordance with National Fire Protection Association (NFPA) standard 13 and a standpipe control system in accordance with the standards prescribed in NFPA standard 14. Stipulation 9; see Appeal File, Exhibits 20 and 21 (NFPA standards), and Montgomery County Code, ch. 22 (especially 22-2, 22-3(a)). Rock Creek received all necessary permits from the county. Stipulation 10. 10. The lease requires Rock Creek to make certain changes to the sprinkler system already present in the building. Appeal File, Exhibit 2 at page 1 of Rider Number One. Appellant made these corrections. Stipulation 8. After the lease was signed, GSA required that the existing sprinkler system be modified to accommodate the new space build-out. Appeal File, Exhibit 19 at 1. 11. NFPA 14 provides that a building contain enough fireman's hose valves that all portions of each story are within thirty feet of a nozzle that is attached (or may be attached) to not more than one hundred feet of hose. Appeal File, Exhibit 21 at chs. 3-2, 4-2. 12. Section 90 of the lease provides that "[w]henever required in the building, automatic sprinklers shall conform to NFPA No. 13." Stipulation 13; Appeal File, Exhibit 2 at 29 of 47. This section also states, "[W]hen the Government leases space on the 6th floor or above, all floors up to and including the floor of occupancy must be sprinklered." Stipulation 13; Appeal File, Exhibit 2 at 26 of 47. Section 89 of the lease states that "standpipes shall be provided when Government occupancy is four or more floors above grade and shall conform to NFPA Standard No. 14." Stipulation 12; Appeal File, Exhibit 2 at 28 of 47. 13. The lease contains the changes clause set out at 48 CFR 552.270-21 (1989), which provides that the contracting officer may make changes within the general scope of the instrument with regard to specifications, work or services, amount of space, and facilities or space layout. The clause further provides that if any of these changes causes an increase or decrease in the lessor's costs, "the Contracting Officer shall modify the lease by (1) making an equitable adjustment in the rental rate, (2) making a lump sum price adjustment, or (3) revising the delivery schedule." Stipulation 15; Appeal File, Exhibit 2 at page 3 of GSA Form 3517. 14. The parties agree that Rock Creek "incurred costs for the associated build-out for additional light fixtures, sprinkler work, fireman's hose valves and an increase in electrical consumption." Stipulation 17. The additional costs incurred by the lessor, as a result of the increased ratio of partitions to space, are stipulated to be $25,908 for additional light fixtures, $30,582 for additional sprinkler work, $14,696 for additional fireman's hose valves, and $5,822 per year for increases in electrical consumption due to the presence of the extra light fixtures. Stipulations 18-21. 15. By certified claim dated November 19, 1990, and amended on November 26, 1990, Rock Creek requested compensation for the increased costs specified in the previous paragraph. Stipulation 22; Appeal File, Exhibit 3. 16. On April 18, 1991, the contracting officer denied this claim on the merits. She based her decision on four assumptions: (1) "The Government acted in good faith by presenting and negotiating all available data to all responding offerors in a like manner and at the same time." (2) Performance requirements, such as the footcandle specification for lighting, must be met regardless of the configuration of space prescribed by the Government. (3) The difference between one linear foot of partitions for every ten square feet of space and one linear foot of partitions for every 7.25 square feet of space is not significant. (4) "The Government has awarded the lease and therefore cannot address any changes to the negotiated 'Base Operating Cost Adjustment.'" Appeal File, Exhibit 1. 17. The contracting officer gave deposition testimony which further explained her position. She maintained that the design intent drawings, which GSA did not provide until after the lease was signed, were part of the lease itself. Appeal File, Exhibit 6 at 23-24. "I'm maintaining that the design intent drawings are designed for part of the lease because they are referred to in the rider." Id. at 26. 18. The contracting officer also stated, in her deposition, that she understood that offers in response to the SFO were developed to meet minimum requirements for a stated rental price. Appeal File, Exhibit 6 at 18. She acknowledged that under the lease, payment for certain items is specified in unit prices, but payment for other items, such as lighting, is not. Id. at 17. Her assistant, a senior realty specialist, understood more particularly that offerors do not include in their unit price for partitions other costs that might be associated with building those structures, such as increased lighting. The price should relate to the partitions alone, in his view. Id., Exhibit 8 at 39-41. 19. The contracting officer's decision was appealed to this Board on July 15, 1991. Stipulation 24. Discussion Rock Creek, the lessor of the building in question, prepared its offer on the understanding that the lease would require it to subdivide office space by constructing partitions which "must be provided at a ratio of one linear foot for each ten square feet of space provided." Finding 1.1 After the lease was awarded, GSA designed, and Rock Creek built, offices which resulted in the construction of one linear foot of partition for each 7.25 square feet of space. Finding 7. GSA paid Rock Creek for building the additional partitions, apparently at the price specified in the lease. Id.; see also Finding 4. Because more partitions were required by GSA's design than stated in the lease, however, Rock Creek incurred additional costs not only for the partitions themselves, but also for light fixtures, sprinkler work, fireman's hose valves, and consumption of electricity. Finding 14. The parties disagree as to which of them should pay for these other costs. Rock Creek maintains that by increasing the amount of partitions to be constructed, relative to total space, GSA has changed contract requirements. The change in the ratio is substantial, Rock Creek notes; one-to-7.25 requires thirty-eight percent more partitions than one-to-ten. GSA has admitted that the consequence of this change is extra work for the specified other items. Finding 14. In this situation, appellant contends, the changes clause of the lease mandates that an equitable ____________________ 1 The lease itself says that the ratio is one to fifty, but the parties agree that the ratio of one to ten, which is stated in the solicitation against which Rock Creek made its offer, is the only one relevant to this appeal. Findings 1, 3. For ease of understanding, we refer to the one-to-ten ratio as the lease ratio. monetary adjustment be made. See Finding 13. GSA insists to the contrary that the lease ratio of one to ten is simply an estimate which Rock Creek should have understood would be refined through the provision of design intent drawings stating the Government's actual requirements. GSA believes that any costs which may result from construction that follows those drawings are to be paid by the agency only if a unit price for a particular item is specified in the lease; otherwise, the lessor must absorb the costs. See Finding 4. In our view, the lessor's argument makes considerably more sense. The solicitation/lease is definitive in stating that the one-to-ten ratio "must be provided." Findings 1, 3. The document does not hedge by saying that the ultimate ratio will be approximately one to ten, or that the Government reserves the right to fix the ratio at some other number or within a certain range of numbers. The solicitation's forceful, precise language induces each prospective lessor to prepare its proposal with the expectation that only the specified ratio of partitions (and other items whose number varies in proportion to the amount of partitions) will be ordered; the price need not include a "fudge factor" to cover a Government directive to increase the amount of partitions relative to total space. Plaza Maya Limited Partnership, GSBCA 9086, 91-1 BCA 23,425, at 117,499-500 (1990). Although the lease clearly indicates that construction will be based on design intent drawings which will be provided by the Government, the instrument contains no indication that these drawings may vary the ratio of partitions to space. Finding 5. Nor can we find any support whatever for the contracting officer's theory that the drawings themselves -- which were not to be provided (and indeed were not provided) until after the lease was signed -- are part of the lease as awarded. Findings 5, 6, 17. To the extent that they increase the ratio, they constitute modifications to the lease. The consequence of GSA's inclusion of the definitive ratio in the lease is that the agency must pay the lessor for costs which result from these significant, Government-mandated increases. (Similarly, the agency is entitled to a credit for cost savings which result from significant, Government-mandated decreases in the ratio. Plaza Maya.) Whether the Government acted in good faith in stating the one-to-ten ratio, as suggested by the contracting officer, is irrelevant. See Finding 16. We agree with Rock Creek that a thirty-eight percent increase is significant. Cf. Cherry Hill Construction, Inc. v. General Services Administration, GSBCA 11217 (June 9, 1992), slip op. at 16-17 and cases cited therein (in differing site condition cases, twenty to thirty-nine percent differences from amounts stated in solicitation found significant). We also agree with appellant that the changes clause requires the contracting officer, once additional work is ordered, to modify the lease to compensate the lessor for that work. See Finding 13. This clause requires the Government to pay for all extra work; the only difference between items for which charges are specified in the contract and other items is that when the former kind of work is ordered, a price need not be specially negotiated. The specified charge for constructing the partitions on its face includes nothing more than covering the walls and installing baseboard along them, and the GSA senior realty specialist who was responsible for the lease understood the charge in this way. See Findings 4, 18; see also Trustees of Devonshire West Realty Trust, GSBCA 9650, 90-2 BCA 22,875, reconsideration denied, 90-3 BCA 22,981. There is no evidence in the record that supports GSA's contention that the additional light fixtures, sprinkler work, and firemen's hose valves for which Rock Creek incurred costs were for the benefit of the lessor and not the Government. See Respondent's Position Paper at 4. To the contrary, the parties have stipulated that the costs were "for the associated build-out." Finding 14. In effect, when GSA ordered construction of partitions in excess of the ratio prescribed by the lease, it was necessarily ordering additional amounts of the other items. GSA has suggested, as a fallback position, grounds for finding that each of the additional costs incurred by Rock Creek should not be paid by the Government. For the reasons stated below, we reject these contentions as well. As to the lighting fixtures, the contracting officer suggests that because the lease contained a performance specification for lighting, the lessor must comply with that specification at its own cost. Findings 8, 16. Rock Creek maintains that this conclusion does not apply here because the lessor had to provide more fixtures than planned because the space was divided by the agency into more offices than provided in the lease. Appellant's view is intuitively correct; a lessor cannot light one office with fixtures located in another if the partitions between the two offices run from the floor to the ceiling. The contracting officer's position could support an argument that Rock Creek should receive less than claimed because the fixtures it has installed are excessive in number, due to inefficiently designed distribution. GSA does not make such a contention, however; it made no objection to Rock Creek's lighting plans and has accepted the amount proposed by the lessor for this item. Findings 6, 14. As to the sprinklers and firemen's hose valves, GSA maintains that lease provisions do not require any of these items, so the Government should not be obligated to pay for additional quantities. The agency points to sections 89 and 90 of the lease, which specify that sprinklers are required "when the Government leases space on the 6th floor or above" and that standpipes (to which the valves are attached) are required "when Government occupancy is four or more floors above grade." Finding 12. This lease, GSA notes, is for space on only the first three floors of the building. Finding 2. We agree with Rock Creek that these provisions do not vitiate the lease's separate requirement that the lessor comply with all codes and ordinances applicable to the ownership and operation of the building. See Finding 9. Rather, the provisions delineate qualifications that are additional to the requirement for compliance with local code; GSA mandates sprinklers and standpipes wherever local code does not. The county in which the edifice is located directs that a building permit will be issued only if sprinkler and standpipe control systems that comply with NFPA standards are installed. Id. The NFPA standard regarding firemen's hose valves specifies sufficient valves that water from hoses of a stated length can be generated throughout the building. Finding 11. Additional partitions could easily present obstructions to compliance with this standard, unless additional valves were also supplied. The lease itself requires sprinklers, and GSA specifically ordered Rock Creek to make modifications to the system as a result of the partitioning. Finding 10. The record establishes that the extra sprinkler and valve work performed by Rock Creek was caused by GSA's design of more partitions than stated in the lease. As to the increase in annual costs of electricity, the contracting officer's decision implies that GSA is contractually prohibited from modifying the lease to pay these charges. Finding 16. This position is flatly contradicted by the changes clause, which says that if an agency-mandated change causes an increase in the lessor's costs, the contracting officer shall modify the lease in any of three ways, including "by . . . making an equitable adjustment in the rental rate." Finding 13. In its reply brief, GSA advanced one new argument in an effort to defeat this appeal: Rock Creek's attempt to recover the costs was untimely because it was not made within twenty days of receipt of each phase of design intent drawings, as the lease required. Respondent's Reply Brief at 2-3; Findings 5, 6. In approaching this matter, we note preliminarily that introducing an argument for the first time in a reply brief is almost without exception highly inappropriate. It does not permit the opposing party to marshal the facts and legal analysis necessary to a response, and thereby impairs the tribunal's ability to consider the matter fully. For that reason, failure to plead an affirmative defense or other form of avoidance in a timely fashion generally results in the waiver of that defense. Fed. R. Civ. Pro. 8(c); Board Rule 7(c); Todd v. United States, 155 Ct. Cl. 87, 94, 292 F.2d 841, 845 (1961); Crocker v. United States, 130 Ct. Cl. 567, 575, 127 F. Supp. 568, 573 (1955). We need not decide whether GSA's effort is an affirmative defense or avoidance, however, because it founders on a well- established principle to which Rock Creek has directed us in the response we permitted to this new contention. The Court of Claims has consistently held that where a contracting officer decides a contractor's claim on the merits, the Government has waived the application of any notice requirement barring the claim for lack of timeliness. E.g., Whittaker Corp. v. United States, 195 Ct. Cl. 161, 171-72, 443 F.2d 1373, 1378 (1971); Blount Brothers Corp. v. United States, 191 Ct. Cl. 784, 787-88, 424 F.2d 1074, 1076 (1970); Morrison-Knudsen Co. v. United States, 184 Ct. Cl. 661, 697, 397 F.2d 826, 848 (1968); Dittmore- Freimuth Corp. v. United States, 182 Ct. Cl. 507, 511, 390 F.2d 664, 668 (1968). By reaching the merits of a claim, the contracting officer is implicitly admitting that late notice did not prejudice the Government. Joseph Penner, GSBCA 4647, 80-2 BCA 14,604, at 72,027 (1980); Powers Regulator Co., GSBCA 4668, et al., 80-2 BCA 14,463, at 71,319-22 (1980). The contracting officer's decision on Rock Creek's claim was clearly on the merits; it did not even mention a notice requirement. Finding 16. GSA has not demonstrated how it might have been prejudiced by any tardiness Rock Creek displayed in seeking additional compensation. (Rock Creek asserts, to the contrary, that if the Board were to reopen the record for the presentation of evidence on this matter, appellant would show that the contracting officer's representative specifically instructed it to wait until the build-out had been completely designed to make a claim. Response to GSA Reply Brief at 2-3.) Decision The appeal is GRANTED. GSA is directed to pay Rock Creek a lump sum of $71,186 to compensate for the costs of additional light fixtures, sprinkler work, and fireman's hose valves. The agency is further directed to increase annual rental payments by $5,822 to compensate for increased costs of electrical consumption. Interest shall be paid from the date on which GSA received the claim, in accordance with 41 U.S.C. 611 (1988). _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ EDWIN B. NEILL CATHERINE B. HYATT Board Judge Board Judge