DENIED: February 5, 1993 GSBCA 11470 UNIVERSAL DEVELOPMENT CORPORATION, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Kenneth K. Takahashi of Takahashi & Associates, P.C., Rockville, MD, counsel for Appellant. Gerald L. Schrader, Real Property Division, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), LaBELLA, and HYATT. DANIELS, Board Judge. Twelve years after entering into a lease with the Government, Universal Development Corporation (UDC) attempted to enforce a contract clause which permits adjustment of rental payments commensurate with changes in the lessor's costs of services and utilities. We reject the Government's theory that the clause is not part of the lease. Nevertheless, because the adjustments are to be made on the basis of amounts negotiated in advance, and such negotiations never occurred, we cannot calculate any amount of recovery. The appeal is denied. Findings of Fact 1. This case involves a lease for 67,000 net usable square feet of office and related space at a building constructed by UDC in Homewood, Alabama. The term of the lease is January 10, 1977, through January 9, 1997. The annual rental is $280,730. Appeal File, Exhibit 8. 2. This contract came into being on May 12, 1976, when GSA's contracting officer accepted UDC's response to a solicitation for offers. Appeal File, Exhibit 8 at 2. A document entitled "Addendum No. 3" to this solicitation, bearing a date during the period of time that the solicitation was open, appears in the Government's official file for this contract. Transcript at 49-50. The first page of this document states, "The real estate tax escalation clause as provided in Addendum No. 2 . . . is deleted and the attached copy entitled 'Real Estate Escalation Tax Clause'; format dated January 23, 1976, is to be substituted therefor." Appeal File, Exhibit 4. Following this page are two separate clauses, one entitled "Real Estate Escalation Tax Clause" and the other "Service and Utility Escalator Clause." Id. 3. The latter clause provides that "[a]t the end of the first 5 years, and at the end of each additional 5 year period of Government occupancy, the rental will be adjusted to provide for increases or decreases in the lessor's cost of furnishing services and utilities . . . ." Appeal File, Exhibit 4 at 8th unnumbered page. The clause establishes a means of accomplishing this objective: Prior to execution of the lease . . . negotiations will be conducted with the successful offeror to determine his prospective initial base cost of services and utilities in the 5th full calendar year after the date of occupancy. Within 30 days after the end of the 5th calendar year, the lessor will submit to the contracting officer his actual service and utility costs . . . during said 5th calendar year. The actual service and utility costs, or the negotiated prospective initial base cost . . . , whichever is higher, will serve as the initial base cost for these service and utility costs for the next five year period. The lessor and Contracting Officer will then negotiate a prospective initial base cost of services and utilities for the 10th full calendar year after the date of Government occupancy. After a sum has been mutually agreed upon by the lessor and contracting officer, the latter will subtract the initial base cost . . . in the 5th calendar year from it. The difference in the initial base cost of the 5th calendar year and the prospective initial base cost of the 10th calendar year will constitute the service and utility cost increase or decrease for the five year period immediately succeeding the 5th calendar year. The rental payments due the lessor for this five year period succeeding the 5th calendar year will henceforth be adjusted to reflect such an increase or decrease in service and utility costs. . . . . The same procedure will apply to any succeeding five year periods. . . . . The new rates shall be effective at the beginning of the new escalation period. Id. at 9th-10th unnumbered pages. This clause was intended to give lessors a form of relief from costs which were increasing rapidly in the mid- and late-1970's. Transcript at 68. 4. The contracting officer who was responsible for this solicitation is deceased, and GSA was unable to produce at hearing any witness who had personal knowledge of the procurement which led to this contract. Transcript at 74. A woman who worked under this contracting officer testified, however, that during the period of time that this solicitation was issued, GSA included this clause in numerous solicitations for offers (perhaps as many as two hundred) to lease space in the states of Alabama and Mississippi. Id. at 67, 76-77. Two present GSA contracting officials testified that many fewer contracts contain this clause, but neither of these witnesses could state that the clause was not present in this contract. Id. at 10, 168-69. UDC's president testified that he received Addendum No. 3 as part of the solicitation, and that this addendum was one of the amendments he acknowledged in signing the lease. Id. at 58. In light of this testimony, and the fact that Addendum No. 3, containing the clause in question, is a part of the Government's contract file, we find as fact that the clause is a part of the lease. See Finding 2. 5. There is no indication in the record that prior to execution of the lease, or at any other time, negotiations were conducted with UDC to determine its prospective initial base cost of services and utilities in the fifth full calendar year after the date of occupancy. Nor is there any indication that within thirty days after the end of 1982, the fifth calendar year of the lease, UDC submitted to the contracting officer the service and utility costs it actually incurred during 1982. Nor, as best as can be gleaned from the record, did UDC and the contracting officer ever negotiate a prospective initial base cost of services and utilities for 1987, the tenth full calendar year after the date of Government occupancy. See Transcript at 89-97. 6. For the first twelve years of the lease, UDC overlooked the Service and Utility Escalator Clause. Transcript at 96. By the late 1980's, however, the lessor was "borderline with cash flow," so it began to scrutinize its leases to see whether it could find "some way to supplement the income." Id. at 96-97. On November 16, 1988, UDC sent GSA the first piece of correspondence pertaining to the clause. Id. at 88-89, 96. This was an invoice for increased rent, pursuant to the clause, of $128,324.51 for the years 1982 through 1987. The amount was calculated as follows: maintenance costs were said to be $15,431.51 in 1977, $35,846.46 in 1981, and $41,681.27 in 1986; thus, payments for 1982-1986 should have been $20,414.95 per year greater than in the base year of 1977, and payments for 1987 should have been $5,834.81 greater than in the base year of 1981. Appeal File, Exhibit 25. 7. The parties then held discussions regarding increases in payments for services and utilities. On July 3, 1989, the contracting officer wrote to UDC's president, "In lieu of continuing with this [Service and Utility Escalator] clause, we have proposed, and you have agreed, to replace it with our familiar annual CPI [Consumer Price Index] Operating Cost Escalator Clause." If UDC would supply actual costs for the first six months of 1989, she said, GSA would use them to calculate "any additional monies that may be due you for 1987, 1988, and 1989," as well as future lease years. Appellant's Supplemental Appeal File, Exhibit 20; Transcript at 9-10. This letter contains the only indication in the record that the contract might have been modified in the way mentioned. We have no evidence of a response by UDC to the effect that the lessor understood that a modification had been made. By the following January, the contracting officer was lamenting that UDC had still not provided any actual cost data, and she was questioning whether the Service and Utility Escalator Clause was even part of the lease. Respondent's Exhibit 1; Appellant's Supplemental Appeal File, Exhibit 17.[foot #] 1 8. On July 31, 1990, UDC renewed its request for payment of $128,324.51 under the Service and Utility Escalator Clause. Appellant's Supplemental Appeal File, Exhibit 21. The contracting officer responded on August 22 that "We are unable to develop any additional information that indicates that anyone ever attempted to include an operating cost escalator clause in the lease." He consequently rejected the request on the ground that "no such clause is embodied in the lease." Appeal File, Exhibit 26. ----------- FOOTNOTE BEGINS --------- [foot #] 1 The copy of this letter which appears in appellant's records bears the date January 26, 1989; the copy in respondent's files shows the same month and day, but the year 1990. Because the street address on the stationery is one to which the contracting officer moved after January 1989, and because the correspondence file copy shows that the letter was typed and approved in 1990, we conclude that the letter was actually sent in 1990. See Transcript at 11-16, 192-94. ___ ----------- FOOTNOTE ENDS ----------- 9. On May 7, 1991, UDC certified a claim as to this matter in the amount of $220,198.67. Appellant's calculations show an adjustment of $20,414.95 for each of the years 1982 through 1986; $26,249.76 for each of the years 1987 through 1990; and $13,124.88 for the first six months of 1991. Appeal File, Exhibit 21. The contracting officer denied the claim for lack of supporting data, and this appeal ensued. Id., Exhibits 22, 23. Discussion UDC, the appellant in this case, maintains that it is due money under the terms of a Service and Utility Escalator Clause that appears in a lease. Both parties manifest misunderstandings about the clause. GSA, the respondent, maintains that the clause was never made part of the lease. We have already found as fact that the clause was physically present in the instrument at the time of contract award. Finding 4. We also reject two additional arguments advanced by the Government in support of its theory. The first is that the inclusion of the clause must have been inadvertent. This is so, GSA says, because at the time the solicitation that led to the contract was issued, the agency had a policy of not placing the clause in leases for the entirety of buildings, and the whole building in question was leased to the Government. See Transcript at 27, 78-79, 91. Actually, however, the solicitation was not for offers to lease an entire building, but rather for offers to lease a specified amount of office and related space. Appeal File, Exhibit 1, Schedule A at 1. The solicitation contains some provisions which are only to apply "[i]f the Government is the sole occupant of the building," thus further indicating that in writing the lease, GSA did not have in mind restricting offers to such an edifice. See id., Attachment to Schedule A at 6, Schedule B, Part I at 3. The inclusion of the clause in the solicitation was thus not inconsistent with GSA's policy. Further, it was consistent with the purpose of giving lessors relief from rapidly increasing costs, see Finding 3 -- or in other words, of permitting building owners to make offers with the knowledge that the agency will cover certain contingencies, something the Government does in other contexts. See Ace Services, Inc. v. General Services Administration, GSBCA 11331, 92-2 BCA 24,943, at 124,326 (adjustment in price of service contract based on wage increases). The provision is certainly not "so completely contrary to the manifest intention of the parties [that] it must be disregarded." E. H. Sales, Inc. v. United States, 169 Ct. Cl. 269, 274, 340 F.2d 358, 361 (1965). The Government's second argument in support of the theory that the clause was not part of the lease is that the parties' actions of not implementing (or even mentioning) the clause for twelve years after the contract's inception demonstrate that the provision was not intended to have any effect. See Findings 2, 6. In support of this proposition, GSA cites Franklin Co. v. United States, 180 Ct. Cl. 666, 669, 381 F.2d 416, 418 (1967), and John Jennings, Jr., GSBCA 7520, 87-2 BCA 19,824. Both these cases say that the parties' actions may be a guide in choosing between conflicting interpretations of contract provisions. The question of the moment is not how to interpret a provision, however, but whether to give effect to a particular clause which we have already determined is a part of the contract. UDC's having overlooked the provision for twelve years, see Finding 6, does not alter this determination. The Government's position seems better supported by Gresham & Co. v. United States, 200 Ct. Cl. 97, 118-20, 470 F.2d 542, 554-55 (1972), which states that "a contract requirement for the benefit of a party becomes dead if that party knowingly fails to exact its performance, over such an extended period, that the other side reasonably believes the requirement to be dead." Even there, however, the court said that this principle applies only where the other side has changed its position in reliance on the inaction. GSA has not made such a showing here. A fundamental tenet regarding contract interpretation is that instruments should be read to give effect to all of their provisions. E.g., Blake Construction Co., GSBCA 8451, 89-3 BCA 22,114, at 111,228-29 (citing GSBCA and Court of Claims decisions). We follow this rule by applying this clause if possible. Application of the clause is not possible with regard to the period of time covered by UDC's claim, however, for appellant has not shown how implementation of the provision can now be effectuated. UDC understands the clause to grant the lessor full recovery of all increases in costs of services and utilities. The clause is actually predicated, however, on the concept of advance negotiation of the amounts of adjustment in rental payments. Immediately after the end of the fifth, tenth, and fifteen full calendar years after the date of occupancy, the parties are to negotiate a prospective base cost of services and utilities for the fifth year hence. This amount, less the higher of the negotiated or actual costs for the year just concluded, is to be the amount of adjustment for each of the next five years. Finding 3. The subtrahend could be established for each relevant time period (through reference to actual costs). Nevertheless, because UDC failed to negotiate prospective costs, the minuend cannot be determined at this late date. See Finding 5. Thus, there is no way for us to figure out how much money UDC is due. The clause is for the benefit of UDC. By not initiating negotiations, at the end of each of the five-year periods in question, to determine the next prospective base amount, the lessor prevented the Government from participating in those determinations. GSA did not have the sort of information on which its negotiating position might have been based, and at this point, there is no way of telling what the agency's posture might have been. In effect, while the lessor's tardiness in turning its attention to rent adjustments does not remove the clause from the lease, it does preclude UDC from securing its benefits for periods of time that have passed. Powers Regulator Co., GSBCA 4668, et al., 80-2 BCA 14,463, at 71,319-21. The situation is very different from the one in Sky Top Plastics, Inc., GSBCA 7000, et al., 91-1 BCA 23,350, at 117,091-92, where a notice requirement was not enforced; there, the price adjustment was based on Government-published index figures, so the amount of adjustment would have been the same no matter when the issue was raised. We note that even if making the calculation necessary for a recovery by UDC were possible, it would result in a far smaller recovery than the amount of UDC's claim. This is because most of the claim consists of an adjustment for costs that increased markedly during the first five years of the lease, and the formula contained in the clause provides that the initial base year will be the fifth, not the first, full calendar year of the lease. See Findings 3, 9. UDC suggests in its posthearing brief that as an alternative to granting the lessor recovery under the Service and Utility Escalator Clause, we find that the contracting officer's letter of July 3, 1989, modified the contract to replace this clause with a "CPI Operating Cost Escalator Clause." Appellant's Posthearing Brief at 11; see Finding 7. It is true that the letter recites, "[W]e have proposed, and you have agreed," to this replacement. Finding 7. There is no evidence in the record, however, which corroborates this statement. UDC never acknowledged such a modification, attempted to recover money under the CPI clause, or did anything else to indicate that the modification actually occurred. Id. To the contrary, the lessor continued -- even through the hearing and every other page of its posthearing brief -- to press the Government for money in accordance with the Service and Utility Escalator Clause. See Findings 8, 9. On the basis of the record before us, we are unable to find that the latter clause was ever removed from the contract. We note additionally that even if UDC had persuaded us that the modification had been made, it could not recover on it in this case, for a claim based on the CPI Clause is not before us. Decision The appeal is DENIED. _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ VINCENT A. LaBELLA CATHERINE B. HYATT Board Judge Board Judge