DENIED: November 30, 1992 GSBCA 11468 UNIVERSAL DEVELOPMENT CORPORATION, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Kenneth K. Takahashi of Takahashi & Associates, P.C., Washington, DC, counsel for Appellant. Martin A. Hom, Real Property Division, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges LaBELLA, Acting Chief Judge, DANIELS, and HYATT. DANIELS, Board Judge. Respondent, the General Services Administration (GSA), entered into a contract with appellant, Universal Development Corporation (UDC), to lease large portions of an office building. Under this contract, overtime utility services -- including heating, ventilating, and air conditioning (HVAC) -- were to be billed at the rate of $31.13 per hour. Over a period of several years, however, the Government ordered overtime HVAC services only for particular zones within the leased space, and UDC billed for the utilities at the rate of five dollars per hour per zone. We deny UDC's appeal that the lessor is now entitled to payment for those services at the higher rate. Findings of Fact 1. On March 4, 1980, UDC and GSA entered into a contract under which the former would lease to the latter office and related space in a building to be constructed in Gulfport, Mississippi. As amended, the lease covers 32,400 net usable square feet of space and extends from November 15, 1982, through November 14, 2002, at a rental rate of $383,320 per year. Universal Development Corp. v. General Services Administration, GSBCA 11252 (Oct. 19, 1992) (UDC v. GSA), Finding 1.1 The contract was signed by UDC's president on behalf of the firm. Appeal File, GSBCA 11252, Exhibit 1 at 2d unnumbered page. The Government occupies all of two, and most of a third, of the building's six floors. UDC v. GSA, Finding 1. 2. The contract makes UDC responsible for installing, operating, and maintaining an HVAC system in the building. UDC v. GSA, Finding 2. To meet this requirement, UDC put a water source heat pump system in the structure. This design involved a central boiler and cooling tower, from which water is circulated through fifty-five individual units, each with a separate temperature control, that were arranged throughout the building. Id., Finding 4. Of these units, twenty-six or twenty-seven are in the areas leased by the Government. Transcript at 48; Appellant's Supplemental Appeal File, Exhibit 9. 3. The HVAC system is configured so that whenever any of the units is operating, the boiler or cooling tower must also operate. Transcript at 54, 95. When UDC officials were asked about the relative costs of running the central parts of the system and the individual units, they could be no more specific than to say that "the cost of running the boiler house is really greater than the cost of running one unit." Id. at 96; see also id. at 55, 95. 4. UDC is required to provide heating and cooling for the Government's space during normal working hours, which are eight hours daily (except Saturdays, Sundays, and federal holidays). Appeal File, GSBCA 11252, Exhibit 1 at Schedule C, 1. The lessor is also required to give the Government access to the leased space at other hours. Id. at Schedule A, 19, Schedule C, 1(g). The contract states, "If heat, and/or airconditioning are required on an overtime basis beyond normal working hours, they will be furnished by the lessor on the Government's request and payment made to the lessor. A rate is to be established for this overtime use of heating and/or airconditioning." Id. at Schedule A, 19; see also Schedule C, 1(g). That rate was negotiated between the parties and included in the contract as follows: "Payment for overtime services provided by the Lessor in excess of five (5) days each week, eight hours a day will be accomplished upon presentation of an invoice submitted monthly, as certified by the using agency, on the basis of an hourly rate of: $31.13 - utilities . . . ." Id. at 2d unnumbered page ( 6.B); Transcript at 8-10. ____________________ 1 GSBCA 11252 and the instant case involve two separate claims which arose under the same contract. The Board heard testimony relating to these two cases (and three others) over a three-day period, June 24-26, 1992, in Birmingham, Alabama. 5. At some time after the Government first occupied the building, but before UDC had billed the Government for any overtime HVAC services, GSA employees contacted UDC's building engineer to discuss the possibility of having the lessor bill for such services "only . . . for the spaces as they were used rather than [at] the total rate for the building." Transcript at 47, 77, 84-85. The building engineer agreed to speak with appellant's president about the request "because [the GSA employees] didn't feel like . . . the overall cost was what they should pay for one space and I didn't either. I didn't think it was fair at that time." Id. at 79. 6. UDC's president also understood that the contract rate was "based on running all of the units for the entire GSA area." Transcript at 55; see also id. at 40. He instructed his engineer to determine how many square feet of area were being used by each agency that had offices in the building and to compare the space allocation to the plan of the HVAC system. Id. at 16-17. The engineer determined that for the most part, the agency areas were coterminous with zones served by HVAC units; some agencies were located in as many as five zones, however. Id. at 19, 79-81; Appellant's Supplemental Appeal File, Exhibit 9. The two men then attempted to "work out some way to . . . make the thing palatable to us and fair to us . . . and yet meet the request that GSA had asked for." Transcript at 82; see also id. at 31. 7. After securing the agreement of UDC's president, on October 29, 1984, the building engineer sent to GSA a proposal for overtime HVAC billing by zones and an invoice, supported with figures calculated in accordance with this proposal, for all HVAC overtime hours previously ordered. Appeal File, Exhibit 39; Transcript at 29. UDC showed, for each agency, (a) the percentage of the leased space being occupied and (b) an hourly rate consisting of that percentage multiplied by $31.13, which UDC identified as the "[t]otal overtime rate." For example, the Social Security Administration was shown as occupying 21.06 percent of the space; its HVAC overtime hourly rate was consequently $6.56. Where the calculated rate was less than five dollars per hours, UDC specified, "All agencies marked thus to be charged at the minimum rate of $5.00 per hour each due to the cost of operating the cooling tower." UDC also noted, "In no event shall the total cost of all GSA space exceed $31.13 per hour." Appeal File, Exhibit 39; Transcript at 97-99. 8. For the next six years, UDC billed GSA for overtime HVAC services at a rate of five dollars per hour per zone -- an arrangement somewhat different from the one described in UDC's proposal of October 1984. Some of the invoices are signed by UDC's president, and others are signed by the firm's building engineer. Appeal File, Exhibits 2-28; Transcript at 47, 73-74. Throughout this period, GSA did not discuss this billing practice with UDC, either orally or in writing; it simply made payment against the invoices. Transcript at 30. 9. During the late 1980's, UDC's president reviewed his company's operations and determined that the firm was losing money. Transcript at 32. By letter dated August 9, 1990, he wrote to an employee of the GSA field office in Mobile, Alabama, as follows: We have noted that we continue to lose money on the overtime rate the way it has been billed in the past. . . . We are, therefore, reverting to the overtime rate defined in paragraph 6.B. of the lease contract, which is $31.13 per overtime hour for utilities . . . . Please advise us if the initial overtime rate of $31.13 should not have been escalated annually in accordance with the Annual CPI [Consumer Price Index] adjustments made to the lease contract.2 All future overtime will be invoiced at $31.13 per hour or the adjusted CPI if applicable. Appeal File, Exhibit 29. ____________________ 2 The phrase "Annual CPI adjustments made to the lease contract" is apparently a reference to this clause of the contract: The Government shall also pay to the lessor, as additional rent, for the second lease year and each lease year thereafter an amount determined by multiplying the total first year[']s estimated cost of the following items as negotiated and established for the first lease year prior to award of the lease contract: . . . Heating, Electricity, Insurance, and Administration expenses for building engineers and/or building managers by the percentage of increase, if any, in the cost of living index over and above the cost of living index . . . at the commencement of the lease term. Such increases in the cost of living index shall be measured by the U. S. Department of Labor Revised Consumer Price Index for Wage Earners and Clerical Work[er]s. Appeal File, GSBCA 11252, Exhibit 1 at Schedule A, Attachment 2. 10. This letter was forwarded to the contracting officer, who took it to be a request for a decision by him. On October 23, 1990, he determined that the $31.13 per hour rate is for providing overtime utilities to the entire leased space; that the Government would continue to pay for overtime HVAC services at the rate of five dollars per hour per zone, as requested through UDC's billing practices; and that the rate for the entire space was not subject to annual adjustment. Appeal File, Exhibit 41. 11. This decision was appealed to the Board. We dismissed it for lack of jurisdiction, on GSA's unopposed motion which stated that UDC had not certified a claim and that the amount in dispute was $190,000. Universal Development Corp., GSBCA 10950 et al., 91-2 BCA 24,000. 12. A certified claim was submitted to the contracting officer on May 9, 1991. Appeal File, Exhibit 44. UDC claimed that it was due $175,417.88 for overtime HVAC services. This amount was calculated as follows: 6,448.74 overtime hours incurred, at $31.05 per hour (total, $200,233.38), less 4,963.10 hours for which payment had been made at five dollars per hour (total, $24,815.50). The claim does not mention any sort of cost or price escalation. Id. The contracting officer denied this claim on September 18, 1991, saying, "In the absence of any additional material to support your claim, . . . I . . . have determined that the original final decision of October 23, 1990 is again my final decision in this matter." Id., Exhibit 34. UDC appealed this decision on September 26, 1991. 13. At hearing, UDC adjusted the amount of its claim to $105,251.19, based on (a) a recognition that duplicate authorization slips were used in calculating the larger amount and (b) a correction in the hourly rate to $31.13. Appellant's Exhibit 2; Transcript at 43-44, 68-72. Discussion The contract provides that when the Government orders overtime utility services, it shall pay for them at a negotiated hourly rate of $31.13. Finding 4. The utility services at issue here are those associated with operation of the building's HVAC system. UDC maintains in its posthearing brief that because the contract does not qualify this rate by reference to a particular part (or all) of the space leased by GSA, it says in effect that the rate pertains to the provision of services to any portion of the space. This construction is inconsistent with the position taken by the only two witnesses UDC presented at hearing, its president and building engineer. Each of these gentlemen testified that he understands -- and understood from the moment the issue arose -- that the rate is for HVAC services for the entire space leased by GSA. Findings 5, 6. That is also the position taken by the Government in this case -- and the one this Board has ascribed to similar clauses in other lease contracts where, as here (Finding 2), an HVAC system consisted of units that were susceptible to individual control. C & H Investment Co., GSBCA 7947, 89-1 BCA 21,454, at 108,113 (1988); Joseph A. Mentor, GSBCA 6757, 86-2 BCA 18,810, at 94,785 (1986); Hubert N. Hoffman & Hubert N. Hoffman III, Partners, GSBCA 5882, et al., 84-2 BCA 17,386 at 86,614 (1984). Before any billings were made for overtime HVAC services, GSA asked UDC to propose a series of charges for the provision of such services to portions of the space leased by the Government. Finding 5. UDC clearly understood that this request addressed a matter not contemplated in the contract. Findings 5, 6; see Mentor ("The clause thus contains no language to tell us what the charge is to be for less than full use."). UDC proposed a zone- based billing system which it believed was equitable to both the lessor and the Government. Findings 6, 7. Although there is no evidence that GSA ever made a formal, written response to this proposal, we do know that during the following six years, UDC billed GSA for overtime HVAC services in accordance with an arrangement much like the one proposed, and GSA made payment against the invoices. Finding 8. UDC would have us believe, according to the testimony of its president and building engineer, that the lessor never intended to be bound by the arrangement, which was entered into on a trial basis, to be used until a "cost history" regarding HVAC services had been developed -- something which would take about a year to do. See Transcript at 16, 21, 30, 50, 100. We reject this theory, and the testimony supporting it, as not credible. The arrangement was proposed two years after the lease began, Findings 1, 7 -- more than enough time, by UDC's reckoning, to develop a cost history. At the time that the proposal was made, the lessor did not suggest that it was intended to be temporary. UDC did not ask, after the plan had been in effect for a year (supposedly sufficient time for generating the cost history), that the arrangement be revisited. Indeed, the lessor never even suggested that the plan was impermanent until, in the summer of 1990, it realized it was losing money and attempted to exact more money from the Government. Finding 9. Alternatively (or perhaps additionally) UDC maintains in its posthearing brief that the arrangement has no legal existence because it was proposed by the firm's building engineer, who had no authority to enter into it. This theory is made up of whole cloth. The evidence shows that UDC's president was a principal architect of the proposal, and that the engineer made it with his approval. Finding 7. Furthermore, the president signed many of the invoices which were sent to GSA in accordance with the version of the plan which was implemented, and the firm accepted payment against those invoices. Finding 8. The president was the individual who signed the contract on UDC's behalf, Finding 1, and thus was held out to GSA as having authority to enter into contractual arrangements. The corporation is therefore bound by his acts, including those with regard to the zone billing plan. Rachelle Enterprises, Inc. v. United States, 144 Ct. Cl. 701, 169 F. Supp. 266 (1959). A principle stated in the Uniform Commercial Code is particularly instructive in reflecting on the legal consequence of the arrangement followed by the parties and in question here: If a lease contract involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is relevant to determine the meaning of the lease agreement. U.C.C. 2A-207(1) (1992). Course of performance is similarly "relevant to show a waiver or modification of any term inconsistent with the course of performance." U.C.C. 2A-207(3) (1992); see also id. 2A-208 (1992). The unquestioned pattern of performance over the period from the fall of 1984 to the summer of 1990, Finding 8, demonstrates that both parties understood that they had entered into an arrangement, separate from the contract provision regarding payment for overtime HVAC service to the entire leased space, for payment for such service to portions of the space. Having interpreted the contract in this way when relations between the parties were harmonious, UDC may not now arbitrarily abandon this constructive modification. J. A. Maurer, Inc. v. United States, 202 Ct. Cl. 813, 824, 485 F.2d 588, 594 (1973); see also Gresham & Co. v. United States, 200 Ct. Cl. 97, 470 F.2d 554-55 (1972); Gene McIntyre & Associates, GSBCA 5366, 81-2 BCA 15,282 (1981); Towncenter Management Corp., GSBCA 4574-R, 80-1 BCA 14,363, at 70,804-05 (1980). Furthermore, although UDC has alleged that it is losing money under the arrangement in question, Finding 9, appellant has offered no proof of this contention. Nor has it advanced any evidence as to the true cost of providing overtime HVAC service; all we know in that regard is that operating any individual HVAC unit requires operating the boiler or cooling tower as well, and running the central parts of the system costs more than running a single unit. Finding 3. This information is not inconsistent with a charge of five dollars per hour for operation of one unit, where the charge for operation of all twenty-six or twenty-seven units in the Government's space is $31.13 per hour. See Findings 3, 4. The only remaining issue is whether the five dollar per hour charge for overtime HVAC service to a particular zone is subject to adjustment in accordance with changes in the Consumer Price Index. See contract clause set out at n.2. This matter was not placed before the contracting officer in the claim the denial of which is the subject of this appeal. Finding 12. Although the subject was broached in an earlier letter from UDC to a GSA employee, Finding 9, that letter was in no way a claim. It was phrased as a statement of policy and a request for advice, rather than as a "written demand or written assertion . . . seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract." 48 CFR 33.201 (1991). Although the contracting officer issued a decision in response to the letter, this decision was a legal nullity. Universal Development Corp. Because the issue has never properly been presented to the contracting officer, this Board has no jurisdiction to consider it. 41 U.S.C. 605(a) (1988); Natural Landscape Contractors, Inc., GSBCA 9187, et al., 91-2 BCA 23,886, at 119,656 (1991). Decision The appeal is DENIED. _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ VINCENT A. LaBELLA CATHERINE B. HYATT Acting Chief Board Judge Board Judge