_________________________________ DENIED : March 17, 1993 _________________________________ GSBCA 11296 GILROY-SIMS & ASSOCIATES, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Robert D. Wallick, Agnes P. Dover, and Jerald S. Howe, Jr., of Steptoe & Johnson, Washington, DC, counsel for Appellant. Telo M. Braswell, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges LaBELLA, BORWICK, and VERGILIO. BORWICK, Board Judge. This appeal, filed June 18, 1991, concerns a dispute between appellant, Gilroy-Sims & Associates, and respondent, General Services Administration (GSA), over the amount of the rent to be paid for four years and four months of the final five-year period of the respondent's building lease with appellant. The lease was for 357,373 square feet of space, for a twenty-year term commencing September 22, 1970, and ending September 21, 1990. The lessor provided building services (heating, air-conditioning, and janitorial), and the cost of those services was included in the rent paid by respondent. The original lease included specified janitorial services. Shortly after the lease commenced, additional janitorial services were incorporated into the lease. On May 28, 1986, the Government took over operation of the building, the parties having failed to agree on operating expenses for the final five-year period. After the takeover of the operation of the building, respondent reduced the rent to account for its assumption of operating responsibility. In an earlier opinion, while reserving the issue now before us, the Board upheld rental reductions taken by the respondent. Gilroy- Sims & Associates v. General Services Administration, GSBCA 10934, 92-2 BCA 25,002. After respondent took over operation of the building, it also reduced the rent by $28,472 ($6,600 on an annual basis) for the additional janitorial services no longer performed by appellant from May 28, 1986, through September 21, 1990, the end of the lease term. Appellant contends that the deduction violates the deduction formula specified in the lease, i.e. the deduction could not be less than the preceding five-year period's base rate. Appellant also contends that the earlier reduction encompassed these additional services, such that respondent here seeks to double deduct. Respondent contends that the deduction of the $28,472 is allowable because it represents the actual amount it had been paying appellant during the preceding period for the additional janitorial expenses, an amount distinct from the earlier deductions. The parties submitted their dispute on the record pursuant to Rule 11. We deny the appeal. The Government's rental deduction for additional janitorial expenses fully complied with the terms of the lease and does not represent a double deduction. Findings of Fact 1. On September 17, 1968, appellant entered into a twenty year lease with respondent for a building at 210 North Tucker Boulevard, Saint Louis, Missouri. Appeal File, Exhibit 1. The lease provided in pertinent part: At the end of the first 5 years, the end of the first 10 years, and at the end of the first 15 years of Government occupancy, the annual rental rate will be adjusted (unless the Government elects to take over performance of such services as hereinafter provided) to provide for increases or decreases in the operating costs (see Schedule C) furnished by the Lessor in the Government's leased area as a part of the rental consideration. . . . Said operating costs, and the initial base from which adjustments shall be made [for the specified services] is $1.18632 per net usable square foot per annum. The base from which upward or downward adjustments in the rent will be made shall be the "per net usable square foot" costs as above provided or as amended for each 5-year period. . . . . In the event an agreement has not been reached between the Lessor and the Government as to the amount of escalation and the new rental rates by the above anniversary dates, the Lessor shall continue to provide services until such time as the Government can make arrangements to provide the services, however, in no event shall this period exceed 90 days. . . . In any event, the new rates shall be effective at the beginning of the new escalation period. . . . . Any upward or downward adjustment in each instance will be limited to the Government's estimated cost for providing such service during the ensuing 5-year period. New rates, if any, for a succeeding period as established by agreement between the parties shall automatically result in increases or decreases to the above rates. . . . . If, in the opinion of the Contracting Officer, the requested adjustment is unreasonable, the Government . . . shall have the right to perform any one or all of those services and to deduct from the annual rental an amount based upon the actual average cost to the Lessor during the immediately preceding period; however, the deduction shall in no event be less than the immediately preceding period's base rate. Appeal File, Exhibit 1, 15. 1. SLA 7, effective October 30, 1970, added janitorial services to the services to be provided under paragraph 12, Schedule C of the lease. Appeal File, Exhibit 1 (SLA 7). The total annual rental was increased to $1,693,717.07. The parties did not change the operating cost base rate of the lease, which remained at the amount--$1.18632 per square foot--set at the inception of the lease. Id. Although the original lease and SLA 7 established total annual rental figures without detailing the constituent elements, the Board concludes that one discrete component of the annual rent as a result of SLA 7 is $6,600--for the additional janitorial services added under that SLA. This conclusion is reached based upon a cover letter sent from the agency to the lessor with SLA 7, which treats the $6,600 as an distinct component of the rental amount added to particular square footage charges, and upon a contemporaneous justification prepared by the agency in treating the additional janitorial services as a sole-source modification to the lease, which recognizes a charge of $6,600 for the additional services. Id., Exhibits 2, 3. As noted in the following findings, subsequent changes to the annual rental were made without altering the underlying rental amount which included the $6,600 component. That is, increases in the operating costs were simply added to the annual rental figures such that the $6,600 was carried forward apart from adjustments to the operating cost base rate. The ultimate deduction taken by the respondent, Findings 6-7, treated the $6,600 amount as distinct from the operating cost base rates (original and as adjusted). 2. On October 9, 1975, the parties negotiated SLA 18 which set a revised annual rental of $2,363,983.65, comprised of the previous annual rent, a tax increase, an operating cost increase for the next five year period, and a special equipment increase ($1,693,716.96 + $2,404.85 + $621,000 + $46,861.84 = $2,363,983.65). Appeal File, Exhibit 1 (SLA 18). SLA 18 changed the operating cost base rate from $1.18632 to $2.924 per square foot. Id. 3. During the third five-year period of the lease, appellant and respondent entered into SLAs (32 through 45) which increased the annual rental to $2,675,487.65 (or $2,675,750.95 on a rounded basis), and increased the actual operating cost base rate to $3.74 per square foot, or $1,337,536.35. Appeal File, Exhibit 1. 4. On May 14, 1986, GSA informed appellant that it would not accept the appellant's proposal for operating costs of the building as submitted. Appeal File, Exhibit 4. Appellant and respondent were unable to agree on an increase in the operating cost component of the annual rent for the fourth five-year period. On May 28, 1986, GSA assumed operation of the building. Appellant ceased performing the janitorial services (both the original services and those added under SLA 7). 5. On August 12, 1986, GSA submitted its adjustment to the annual rent as follows: (1) Total rent per Contracting Officer's letter to Lessor dated 3/2/71 $1,693,716.96 (2) Operating Costs per lease (357,373 sq ft. X $1.18632) - 423,958.74 NET RENT (including $6,600 janitorial services) $1,269,758.22 (3) Plus tax escalations: SLA #18 2,404.85 SLA #30 18,926.30 SLA #48 53,141.14 TOTAL RENT $1,344,230.51 Less janitorial services -6,660.00 TOTAL NET RENT $1,337,630.51 Appeal File, Exhibit 5. 6. While expressly reserving consideration of payment for the janitorial services added under SLA 7, in a previous decision concerning the same lease, the Board established the proper method of calculating rent. The method of calculating annual rent, with an operating cost base of $3.74 per square foot, is as follows: $2,675,750.95 (Previous annual rent) plus $53,141.14 (Final tax escalation) minus $1,337,536.35 (Operating cost base rate) minus $46,861.84 (Extra equipment operating costs) [=] $1,344,493.90 TOTAL Gilroy-Sims & Associates, 92-2 BCA 25,002 at 124,620. 7. On March 29, 1991, appellant submitted a claim disputing the Government's rent reduction of $6,600 per year for the costs of janitorial services assumed by the Government. Appeal File, Exhibit 6. On May 29, 1991, appellant filed its notice of appeal from a "deemed denial," which was docketed as GSBCA 11274. Appeal File, Exhibits 7, 8. 8. On June 3, 1991, the contracting officer issued a decision denying appellant's claim. Appeal File, Exhibit 9. On June 18, 1991, appellant filed an appeal of that decision, which was docketed as GSBCA 11296. Discussion This dispute involves the treatment of the $6,600 in annual janitorial expenses, which totals $28,427 over a four year and approximately four month period, that respondent withheld from appellant. The contract provides that the Government may: deduct from the annual rental an amount based upon the actual average cost to the Lessor during the immediately preceding period; however, the deduction shall in no event be less than the immediately preceding period's base rate. Finding 1. Appellant maintains that the Government took a double deduction in subtracting the operating costs ($423,958.74) and the $6,600 for janitorial services. We do not agree. SLA 7 established the annual rent at $1,693,716.96. Although SLA 7 does not delineate how this figure was computed, contemporaneous documentation provides an explanation. One discrete component of the annual rent is $6,600--for additional janitorial services added under SLA 7--as evidenced in a cover letter sent from the agency to the lessor with SLA 7, and in a justification prepared by the agency in treating the additional janitorial services as a sole-source modification to the lease. Finding 2. At the same time that SLA 7 increased the annual rent and added specific janitorial services, it incorporated the additional janitorial services into paragraph 12 of the lease agreement. Subsequent SLAs increased the lease price with specific reference to the paragraph 15 operating cost adjustments. Thus, although adjustments may well have been made for increased costs to perform the original as well as the additional janitorial services, the annual charge of $6,600 remained in the base lease rate carried forward with each SLA. The lessor here contends that the $6,600 charge was subsumed fully at some point into the operating cost base rate. It was not subsumed in the base rate at any time. SLA 18 adjusted the base rate from the rate established at the inception of the lease, independent of the additional annual rental figure established by SLA 7. The operating cost base rate, was changed from $1.18632 to $2.924 per net usable square foot. Finding 3. Under SLA 18, the $6,600 implicitly was carried forward as a separate cost--the rental amount from the previous period was the starting point for calculations; to that figure adjustments were made for escalations in general operating costs, taxes, and special equipment. The record and calculations thus demonstrate that the $6,600 was not included in the operating cost base rate. When the agency took over performance of the additional janitorial services, it was entitled (under paragraph 15) to deduct at least the immediately preceding period's base rate. The only rate established for those services is $6,600 annually. The agency has not attempted to deduct any more; thus, one need not be concerned with the actual average costs to the lessor for performing the additional services. Paragraph 15 expressly entitles the agency to assume performance of any or all services under the lease. Also, the paragraph establishes a minimum amount to be deducted from the rental payments. The lease does not commit the agency to pay for the additional janitorial services regardless of whether or not the lessor is providing them. Decision The appeal is DENIED. _________________________ ANTHONY S. BORWICK Board Judge We concur: _________________________ _________________________ VINCENT A. LaBELLA JOSEPH A. VERGILIO Board Judge Board Judge