Board of Contract Appeals General Services Administration Washington, D.C. 20405 GRANTED IN PART: July 7, 1998 GSBCA 13544, 13545 SAUL SUBSIDIARY II LIMITED PARTNERSHIP, Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Don W. Blevins of Howrey & Simon, Washington, DC, counsel for Appellant. Scarlett D. Grose, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges VERGILIO, DeGRAFF, and GOODMAN. GOODMAN, Board Judge. Appellant, Saul Subsidiary II Limited Partnership, has filed these consolidated appeals from two contracting officer decisions denying appellant s Contract Disputes Act claims under two lease agreements, each dated August 13, 1987, between appellant and respondent, the General Services Administration (GSA), regarding space in the same building in Washington, DC. Both appellant and respondent have filed motions for summary relief. An alternative dispute resolution (ADR) proceeding was held on December 4, 1996; it did not resolve these appeals, but did raise issues of material fact. Accordingly, these appeals were not resolved on the parties' motions for summary relief, and a hearing on the merits was held on June 30, 1997. Post-hearing briefs were filed by the parties. We grant the appeals in part. Findings of Fact Lease number GS-11B-70162 1. Lease number GS-11B-70162 (Lease 70162) was executed on August 13, 1987, between Westminster Investing Corporation (Westminster) (appellant s predecessor in interest), the lessor, and GSA for 15,700 net usable square feet (nusf) of office and related space in a building located at 601 Pennsylvania Avenue, N.W., Washington, DC (the building). The lease was for a term of five years.[foot #] 1 Appeal File, GSBCA 13544, Exhibit 1 at 1. 2. Paragraph 3 of Lease 70162 reads: The Government shall pay the Lessor annual rent of $522,810.00 at the rate of $43,567.50 per month in arrears. Appeal File, GSBCA 13544, Exhibit 1 at 1. 3. Paragraph 6 of Lease 70162 reads, in relevant part: The Lessor shall furnish to the Government, as part of the rental consideration . . . All maintenance, services and utilities as specified in SFO [solicitation for offers] 87-057, as amended. Appeal File, GSBCA 13544, Exhibit 1 at 2. 4. SFO 87-057 contains a document entitled Lessor s Annual Cost Statement, which describes various maintenance, services, and utilities in the building and establishes a total of $78,150 for these costs in the Government-leased area. Appeal File, GSBCA 13544, Exhibit 1 at 9. Elsewhere in the lease, in the SFO, next to the Operating Costs clause set forth below, the lease reads: "Base operating cost [for Lease 70162] is agreed to be $78,150." Id. at 40. 5. Lease 70162 includes the following clause: OPERATING COSTS (A) Beginning with the second year of the lease and each year after, the Government shall pay adjusted rent for changes in costs for cleaning services, supplies, materials, maintenance, trash removal, landscaping, ----------- FOOTNOTE BEGINS --------- [foot #] 1 The lease stated that a supplemental lease agreement (SLA) would establish the date of acceptance of the space by the Government, and the lease would terminate five years thereafter. Appeal File, GSBCA 13544, Exhibit 1 at 1. SLA 5 established the acceptance date of the 15,700 nusf as January 22, 1988, with the resulting termination date in January 1993. Id. ___ at 46. ----------- FOOTNOTE ENDS ----------- water, sewer charges, heating, electricity, and certain administrative expenses attributable to occupancy. . . . Lessor's annual cost statement, when negotiated and agreed upon, will be used to determine the base rate for operating costs adjustment. (B) The amount of adjustment will be determined by multiplying the base rate by the percent of change in the cost of living index. The percent change will be computed by comparing the index figure published for the month prior to the lease commencement date with the index figure published for the month which begins each successive 12-month period. For example, a lease which commences in June of 1985 would use the index published for May of 1985 and that figure would be compared with the index published for May of 1986, May of 1987, and so on, to determine the percent change. . . . Payment will be made with the monthly installment of fixed rent. Rental adjustments will be effective on the anniversary date of the lease. Payment of the adjusted rental rate will become due on the first workday of the second month following the publication of the cost of living index for the month prior to the lease commencement date. Appeal File, GSBCA 13544, Exhibit 1 at 40. 6. Lease 70162 includes the following clause which reads, in relevant part: The Government shall pay additional rent for its share of increases in real estate taxes over taxes paid for the calendar year in which its lease commences (base year). Payment will be in a lump sum and become due on the first workday of the month following the month in which paid tax receipts for the base year and the current year are presented, or the anniversary date of the lease, whichever is later. Appeal File, GSBCA 13544, Exhibit 1 at 39-40. 7. During the lease term, respondent did pay additional rent in lump sum payments as the result of increases in real estate taxes. Various supplemental lease agreements (SLAs) were issued to determine the amounts of these payments. These payments were not designated as annual rent and are not the subject of these appeals. Appeal File, GSBCA 13544, Exhibit 1 at 49, 52, 55, 57. 8. SLA 1 to Lease 70162 was executed on November 12, 1987, to provide for the addition of 13,333 nusf of office and related space to the lease. The terms of SLA 1 relevant to this appeal read: The basic lease is hereby amended as follows: The Government shall pay the lessor an annual rental increase of $450,201 at a rate of $37,517.50 per month in arrears. . . . The base operating cost for purpose of operating cost escalation shall reflect an increase of $66,398. Appeal File, GSBCA 13544, Exhibit 1 at 42.[foot #] 2 9. Appellant states that SLA 1 to Lease 70162 amended the annual rental rate in paragraph 3 of the lease. Appellant's Post-Hearing Brief at 12 n.21. 10. SLA 2 to Lease 70162 was executed on November 11, 1988. It provided for the addition of 7,000 nusf of office and related space to the lease.[foot #] 3 The terms of SLA 2 relevant to this appeal read: The basic lease is amended as follows: The Government shall pay the Lessor an annual rental increase of $233,409.00 at the rate of $19,450.75 per month in arrears. . . . The base operating cost for the purpose of operating cost escalations shall reflect an increase of $35,000. Appeal File, GSBCA 13544, Exhibit 1 at 43. 11. Appellant states that SLA 2 to Lease 70162 amended the annual rental rate in paragraph 3 of the lease. Appellant's Post-Hearing Brief at 12 n.21. 12. SLA 3 to Lease 70162 became effective on January 3, 1989. It reads, in relevant part: [T]he said Lease is amended . . . as follows: To reflect day-time cleaning for the 6th floor, 15,700 net usable square feet (NUSF) at a rate of $13,344.96 per annum . . . . The day-time cleaning is to be the same type of cleaning outlined in the lease. ----------- FOOTNOTE BEGINS --------- [foot #] 2 Pursuant to SLA 5 to Lease 70162, the Government accepted this 13,333 nusf on April 1, 1988, with the rent for this space commencing on November 1, 1988. Appeal File, GSBCA 13544, Exhibit 1 at 46. [foot #] 3 Pursuant to SLA 6 to Lease 70162, the Government accepted this additional 7,000 nusf on June 1, 1989, with the rent for this space commencing on January 1, 1990. Appeal File, GSBCA 13544, Exhibit 1 at 47. ----------- FOOTNOTE ENDS ----------- The cleaning costs are subject to an annual increase. Appeal File, GSBCA 13544, Exhibit 1 at 44.[foot #] 4 13. SLA 4 to Lease 70162 was executed on June 29, 1989. It provided for an additional seven parking spaces and reads, in relevant part: The basic lease is hereby amended as follows: ----------- FOOTNOTE BEGINS --------- [foot #] 4 These costs were not included in the base operating cost, nor were they adjusted annually. This is clear because the total base operating cost used in SLAs 7 and 9 was $144,548 (which is the sum of the original base operating cost of $78,150 and $66,398 established in SLA 1). The operating cost sum in SLAs 11 and 15 was $179,548, which was the previous sum of $144,548 increased by $35,000 as required in SLA 2. ----------- FOOTNOTE ENDS ----------- The Government shall pay the Lessor an annual rental increase of $10,500.00 at a rate of $875.00 per month in arrears, subject to increase after 1st year. Appeal File, GSBCA 13544, Exhibit 1 at 45.[foot #] 5 14. SLA 6 to Lease 70162 was executed on September 15, 1989. It provided, in relevant part: [T]he said Lease is amended . . . as follows: . . . . To reflect an increase in the rent at a rate of $5,950 per year to provide for day-time cleaning in the 7000 nusf of office space on the first floor of the above premises effective July 1, 1989, subject to annual increases in operating costs. Appeal File, GSBCA 13544, Exhibit 1 at 47.[foot #] 6 15. SLA 7 to Lease 70162, effective January 22, 1989,[foot #] 7 adjusted the base operating cost and reads, in relevant part: WHEREAS, the parties hereto desire to amend the above Lease. . . . the said Lease is amended . . . as follows: . . . . Base (CPI-W-U.S. City Average) December 1987 114.2 Corresponding Index December 1988 119.2 ----------- FOOTNOTE BEGINS --------- [foot #] 5 There is no indication that these parking fees were ever increased. The SLA also indicates that it was the intent of the parties not to increase the base operating cost by these parking fees. [foot #] 6 Respondent asserts that "The base operating cost was also increased by $5,950." Respondent's Post-hearing Brief at 2. There is no support in the record for the proposition that this occurred, as the largest amount used to determine base operating cost increases for Lease 70162 is $179,548 (in SLAs 13 and 15), which is the sum of $78,150, $66,398, and $35,000, the original base operating cost and the increases set forth in SLAs 1 and 2. [foot #] 7 The record does not indicate why SLA 7, with an effective date earlier than SLAs 4 and 6, was entered into after these SLAs. ----------- FOOTNOTE ENDS ----------- 119.2/114.2 = .04378284% [sic][[foot #] 8] Base Operating Cost per Lease $144,548.00[[foot #] 9] % Increase in CPI-W x .04378284 Annual Increase in Operating Cost $ 6,328.72 . . . the annual rental is increased by $6,328.72. The n e w a n n u a l r e n t a l i s $979,339.72[[foot #] 10] payable at the rate of $81,611.64 per month in arrears. . . . All other terms and conditions of the lease shall remain in force and effect. Appeal File, GSBCA 13544, Exhibit 1 at 48. 16. SLA 9 to Lease 70162, effective January 21, 1990, adjusted the base operating cost and reads, in relevant part: [T]he said Lease is hereby amended as follows: . . . . Base (CPI-W-U.S. City Average) December 1987 114.2 Corresponding Index December 1989 124.6 124.6/114.2 = 1.091068301 Base Operating Cost per Lease $144,548.00 % Increase in CPI-W x 0.0910683 Less Previous Escalation Paid $ 6,328.72 ----------- FOOTNOTE BEGINS --------- [foot #] 8 The actual result of this calculation is 1.04378284. [foot #] 9 This is the sum of $78,150 (original base operating cost) and $66,398, the increase agreed to in SLA 1. [foot #] 10 This amount is the sum of the annual rent specified in paragraph 3 of the lease, $522,810, plus the increases in annual rent or per annum rent specified in SLAs 1 ($450,201) and 7 ($6,328.72). Only SLAs 1 and 3 preceded SLA 7 in effective date. The intervening SLAs were effective thereafter. There is no explanation in the record why the increase in annual rent in SLA 3 is not included in the annual rent specified in SLA 7, although this amount is included in the annual rent in the subsequent SLAs. ----------- FOOTNOTE ENDS ----------- Annual Increase in Operating Cost $ 6,835.02 . . . the annual rental is increased by $6,835.02. The n e w a n n u a l r e n t i s $1,249,378.70[[foot #] 11] payable at the rate of $104,114.89 per month in arrears. . . . All other terms and conditions of the lease shall remain in force and effect. Appeal File, GSBCA 13544, Exhibit 1 at 50. 17. SLA 13 to Lease 70162, effective January 22, 1991, adjusted the base operating cost and reads, in relevant part: [T]he said lease is hereby amended as follows: . . . . Base (CPI-W-U.S. City Average) December 1987 114.2 Corresponding Index December 1990 132.2 Base Operating Cost per Lease $179,548.00[[foot #] 12] % Increase in CPI-W x 0.15761821 Less Previous Escalation Paid $ 13,163.74 Annual Increase in Operating Cost $ 15,136.29 . . . the annual rental is increased by $15,136.29. T h e n e w a n n u a l r e n t i s $1,264,514.99[[foot #] 13] payable at the rate of $105,376.25 per month in arrears. . . . All other terms and conditions of the lease shall remain in force and effect. ----------- FOOTNOTE BEGINS --------- [foot #] 11 This amount is the sum of the annual rent specified in paragraph 3 of the lease ($522,810) and the increases in annual rent as the result of SLAs 1 ($450,201), 2 ($233,409), 3 ($13,344.96), 4 ($10,500), 6 ($5,950), 7 ($6,328.72), and 9 ($6,835.02). [foot #] 12 This amount is the sum of the original base operating cost, $78,150, and the increases in operating costs specified in SLA 1 ($66,398) and SLA 2 ($35,000). [foot #] 13 This amount is the sum of the annual rent specified in paragraph 3 of the lease ($522,810) and the increases in annual rent as the result of SLAs 1 ($450,201), 2 ($233,409), 3 ($13,344.96), 4 ($10,500), 6 ($5,950), 7 ($6,328.72), 9 ($6,835.02), and 13 ($15,136.29). ----------- FOOTNOTE ENDS ----------- Appeal File, GSBCA 13544, Exhibit 1 at 54. 18. SLA 15 to Lease 70162, effective January 22, 1992, adjusted the base operating cost and reads, in relevant part: [T]he said lease is hereby amended as follows: Base (CPI-W-U.S. City Average) December 1987 114.2 Corresponding Index December 1991 135.9 Base Operating Cost per Lease $179,548.00 % Increase in CPI-W x 0.19001751 Less Previous Escalation Paid $ 28,300.03 Annual Increase in Operating Cost $ 5,817.23 . . . the annual rental is increased by $5,817.23. The n e w a n n u a l r e n t i s $1,270,332.22[[foot #] 14] payable at the rate of $105,861.02 per month in arrears. . . . All other terms and conditions of the lease shall remain in force and effect. Appeal File, GSBCA 13544, Exhibit 1 at 56. Lease number GS-11B-70163 19. Lease number GS-11B-70163 (Lease 70163) was executed on August 13, 1987, between Westminster and GSA for 9,200 nusf of office and related space in the building. The lease was for a term of five years.[foot #] 15 Appeal File, GSBCA 13545, Exhibit 1 at 1. 20. Paragraph 3 of Lease 70163 reads: ----------- FOOTNOTE BEGINS --------- [foot #] 14 This amount is the sum of the annual rent specified in paragraph 3 of the lease ($522,810) and the increases in annual rent as the result of SLAs 1 ($450,201), 2 ($233,409), 3 ($13,344.96), 4 ($10,500), 6 ($5,950), 7 ($6,328.72), 9 ($6,835.02), 13 ($15,136.29), and 15 ($5,817.23). [foot #] 15 The lease stated that an SLA would establish the date of acceptance of the space by the Government, and the lease would terminate five years thereafter. Appeal File, GSBCA 13545, Exhibit 1 at 1. No SLA appears in the record establishing the acceptance date of the 9,200 nusf. Based upon SLA 12 of Lease 70163 (the extension SLA), apparently this lease terminated on the same date as Lease 70162 -- January 21, 1993. Id. at 78. ___ ----------- FOOTNOTE ENDS ----------- The Government shall pay the Lessor annual rent of $306,360.00 at the rate of $25,530.00 per month in arrears. Appeal File, GSBCA 13545, Exhibit 1 at 1. 21. Paragraph 6 of Lease 70163 reads, in relevant part: The Lessor shall furnish . . . as part of the rental consideration . . . All maintenance, services and utilities as specified in SFO 87-059, as amended. Appeal File, GSBCA 13545, Exhibit 1 at 2. 22. SFO 87-059 contains a document entitled Lessor's Annual Cost Statement, which sets forth various maintenance, services, and utilities in the building and establishes a total of $45,480 for these costs in the Government-leased area. Appeal File, GSBCA 13545, Exhibit 1 at 41. 23. Lease 70163 included the following clause: Beginning with the second year of the lease and each year after, GSA shall pay adjusted rent for changes in costs for cleaning services, supplies, materials, maintenance, trash removal, landscaping, water, sewer charges, heating, electricity, and certain administrative expenses attributable to occupancy. The amount shall be determined by multiplying the total first year's estimated costs of these items, as negotiated and established prior to the lease award, by the percent of change in the cost of living index from the base figure. The base figure shall be the index figure published for the month prior to the lease commencement date. The percent change shall be computed by comparing the base figure with the index figure published for the month which begins each successive 12-month period. For example, a lease which commences in June of 1981 would have as the base figure the index published for May of 1981, and that figure would be compared with the index published for May of 1982, May of 1983, and so on, to determine the percent change. . . . Payment shall be made with the monthly installment of fixed rent. . . . . The base for the operating costs adjustment will be $45,480. Appeal File, GSBCA 13545, Exhibit 1 at 34. 24. While not in the record of this appeal, apparently Lease 70163 contained a clause to compensate the lessor for increases in real estate taxes similar to the clause contained in the other lease. During the lease term, respondent did pay additional rent in lump sum payments as the result of increases in real estate taxes. Various SLAs were issued to determine the amount of these payments. These payments were not designated as annual rent and are not the subject of these appeals. Appeal File, GSBCA 13545, Exhibit 1 at 63, 69, 75. 25. SLA 1 to Lease 70163 became effective on January 3, 1989. It reads, in relevant part: [T]he said Lease is amended . . . as follows: To reflect day-time cleaning for the 6th floor, 9,200 net usable square feet (NUSF) at a rate of $7,820.04 per annum ($651.67 monthly). The day-time cleaning is to be the same type of cleaning as outlined in the lease. The cleaning costs are subject to an annual increase. Appeal File, GSBCA 13545, Exhibit 1 at 62.[foot #] 16 26. SLA 4 to Lease 70163, effective January 22, 1989, adjusted the base operating cost and reads, in relevant part: [T]he said Lease is hereby amended as follows: Base (CPI-W-U.S. City Average) December 1987 114.2 Corresponding Index December 1988 119.2 119.2 /114.2 Base Operating Cost per Lease $ 45,480.00 % Increase in CPI-W x 0.04378283 Less Previous Escalation Paid $ 0.00 Annual Increase in Operating Cost $ 1,991.24 ----------- FOOTNOTE BEGINS --------- [foot #] 16 Respondent asserts: "The base operating cost was also increased by $7,820.04." Respondent's Post-Hearing Brief at 4. There is no indication in the record that this occurred, as the original base operating cost of $45,480 was used to calculate all the operating cost increases in SLAs 4, 5, 8, and 10. There is also nothing in the record that suggests that these cleaning costs were actually increased annually. ----------- FOOTNOTE ENDS ----------- . . . the annual rental is increased by $1,991.24. The new annual rent is $316,171.24[[foot #] 17] payable at the rate of $26,347.60 per month in arrears. . . . All other terms and conditions of the Lease shall remain in force and effect. Appeal File, GSBCA 13545, Exhibit 1 at 64. 27. SLA 5 to Lease 70163, effective January 22, 1990, adjusted the base operating cost and reads, in relevant part: [T]he said Lease is hereby amended as follows: . . . . Base (CPI-W-U.S. City Average) December 1987 114.2 Corresponding Index December 1989 124.6 124.6 /114.2 Base Operating Cost per Lease $ 45,480.00 % Increase in CPI-W x 0.0910683 Less Previous Escalation Paid $ 1,991.24 Annual Increase in Operating Cost $ 2,150.55 . . . the annual rental is increased by $2,150.55. The new annual rent is $318,321.79[[foot #] 17] payable at the rate of $26,526.82 per month in arrears. . . . All other terms and conditions of the Lease shall remain in force and effect. Appeal File, GSBCA 13545, Exhibit 1 at 67. 28. SLA 8 to Lease 70163, effective January 22, 1991, adjusted the base operating cost and reads, in relevant part: [T]he said lease is hereby amended as follows: ----------- FOOTNOTE BEGINS --------- [foot #] 17 This amount is the sum of the annual rent originally specified in paragraph 3 ($306,360), plus the increases in SLAs 1 ($7,820) and 4 ($1,991.24). [foot #] 17 This amount is the sum of the annual rent originally specified in paragraph 3 ($306,360), plus the increases in SLAs 1 ($7,820), 4 ($1,991.24), and 5 ($2,150.55). ----------- FOOTNOTE ENDS ----------- . . . . Base (CPI-W-U.S. City Average) December 1987 114.2 Corresponding Index December 1990 132.2 Base Operating Cost per Lease $ 45,480.00 % Increase in CPI-W x 0.15761821 Less Previous Escalation Paid $ 4,141.79 Annual Increase in Operating Cost $ 3,026.69 . . . the annual rental is increased by $3,026.69. The new annual rent is $321,348.48[[foot #] 18] payable at the rate of $26,779.04 per month in arrears. . . . All other terms and conditions of the Lease shall remain in force and effect. Appeal File, GSBCA 13545, Exhibit 1 at 73. 29. SLA 10 to Lease 70163, effective January 22, 1992, adjusted the base operating cost and reads, in relevant part: [T]he said Lease is hereby amended as follows: . . . . Base (CPI-W-U.S. City Average) December 1987 114.2 Corresponding Index December 1991 135.9 Base Operating Cost per Lease $ 45,480.00 % Increase in CPI-W x 0.19001751 Less Previous Escalation Paid $ 7,168.48 Annual Increase in Operating Cost $ 1,473.52 ----------- FOOTNOTE BEGINS --------- [foot #] 18 This amount is the sum of the annual rent originally specified in paragraph 3 ($306,360) plus the increases in SLAs 1 ($7,820), 4 ($1,991.24), 5 ($2,150.55), and 8 ($3,026.69). ----------- FOOTNOTE ENDS ----------- . . . the annual rental is increased by $1,473.52. The new annual rent is $322,822.00[[foot #] 19] payable at the rate of $26,901.83 per month in arrears. . . . All other terms and conditions of the Lease shall remain in force and effect. Appeal File, GSBCA 13545, Exhibit 1 at 77. Calculation of annual rent 30. All of the SLAs for both leases contained a clear statement that the SLAs amended the leases. As each SLA was issued, for additional parking, daytime cleaning, or escalation in operating costs, the annual rental was increased by the amount of additional cost set forth in the SLA, and either an increase "per annum" or an increase in the annual rental with a "new annual rent" set forth. The "new annual rent" stated in the SLAs was the total of the previous annual rent plus the current increase as stated in the SLA. The arithmetic derivation of the annual rent is set forth in the footnotes in the previous findings. It is clear that the annual rent stated in SLA 15 for Lease 70162 and SLA 10 for Lease 70163 (the SLAs immediately prior to the extension SLAs) was the sum of all previous increases for additional parking, daytime cleaning, or escalation in operating costs. The lump sum payments for increases in real estate taxes were not included in any of the increases of annual rent. Findings 8-18, 25-29. 31. Appellant's Manager of Office Industrial Properties (appellant's manager) testified that with regard to SLA 7 for Lease 70162 or any other SLA involved in these appeals, he had not come to any conclusion prior to the hearing as to whether the dollar amount specified as "new annual rent" included the dollar amounts that resulted from the prior SLAs involving cleaning and parking or operating costs, nor did he know the arithmetic derivation of the amounts designated as "new annual rent" in the SLAs. He had not performed any arithmetic to confirm what costs were included in the annual rent set forth in the SLAs. Transcript at 37-39, 53-54. 32. Appellant's manager interpreted the leases such that the annual rent specified in paragraph 3 of the lease was less than the "gross rent received" under the leases. Transcript at 49-50. ----------- FOOTNOTE BEGINS --------- [foot #] 19 This amount is the sum of the annual rent originally specified in paragraph 3 ($306,360) plus the increases in SLAs 1 ($7,820), 4 ($1,991.24), 5 ($2,150.55), 8 ($3,026.69), and 10 ($1,473.52). ----------- FOOTNOTE ENDS ----------- 33. Appellant's manager believed there was a difference between SLA 1 to Lease 70162 and the other SLAs, because this SLA added net usable square feet to the lease. Transcript at 52. When questioned by respondent's counsel as to whether he believed SLA 1 amended paragraph 3 of the lease, appellant's counsel objected to the question as calling for a legal conclusion, and then appellant's manager responded: To be honest with you, I mean, I didn't work on this so I don't know. I didn't really have a conclusion on this one. Id.[foot #] 21 34. Appellant's manager did not believe that the term annual rent as used in the SLAs was the same as "the defined term 'annual rent' in the lease." Transcript at 48. "I do not think that this form intends to use annual rent as a defined term, referring back to the lease." Id. at 139. 35. On further examination, appellant's manager testified that it was possible that the amount stated as annual rent in SLA 15 to Lease 70162 was an all-inclusive number. "In other words, GSA would take all of the various things they're paying under -- the base rent, the additional cleaning, the parking, total it all up and say, 'Here it is, this is 12 months rent. You'll get a check every month for X.'" Transcript at 136. 36. Appellant's manager characterized the SLAs which increased annual rent as the result of operating cost escalation as just a form we get every year, that the Government says, "Okay, we do agree with your escalation, and here's the new calculation, and this is the rent number." There's really nothing in here that is negotiated by the parties. It's simply an -- it's an accounting of what we're doing for the year. Transcript at 137. Similarly, he testified with regard to these SLAs: I think this form is simply ease of accounting for both parties in assessing, here's all the things you're going to be paying this year, divide it by 12; this will be your monthly rent check. Both accounting staffs agree to it, and off you go for the year. ----------- FOOTNOTE BEGINS --------- [foot #] 21 However, appellant has taken the position in its Post-Hearing Brief that SLAs 1 and 2 to Lease 70162 did amend the annual rent in paragraph 3 of the lease. See Finding 37. ___ ----------- FOOTNOTE ENDS ----------- Id. at 140. Calculation of operating cost escalation 37. Appellant describes the calculation of the operating cost escalation as follows: GSA's operating cost adjustment calculations in earlier SLAs did not strictly follow the formula prescribed in the escalator clauses, but they led to the same (and proper) results, so Saul had no reason to object. Specifically, GSA's calculations, say, for the second year of adjustment, can be expressed algebraically as follows: A2 = A1 + B(CPI2-CPI0) - B(CPI1-CPI0). See GSBCA No. 13544, Appeal File, Ex. 1, at 48, 50. That calculation avoids double counting and leads to the same result as A2 = X + B(CPI2-CPI0). Thus: A2 = A1 + B(CPI2-CPI0) - B(CPI1-CPI0); A1 = X + B(CPI1-CPI0); so A2 = X + B(CPI1-CPI0) + B(CPI2-CPI0) - B(CPI1-CPI0); and A2 = X + B(CPI2-CPI0). Regardless of the algebra, X (the Paragraph 3 rent) remains fixed until amended, and it was never amended (aside from additions of space) until the parties executed the Extension SLAs. When the Extension SLAs specifically amended Paragraph 3, Saul had every reason to understand that that amendment was different from an amendment in the total rent; that Paragraph 3 was the only rent component being amended; and that the other components remained the same. Appellant's Post-Hearing Brief at 12 n.21. 38. Appellant's manager testified concerning his belief as to the calculation used in the Operating Costs Escalator clause: When you adjust the rent, you go back to -- every year you adjust this rent, you go back to this base number, [it] has to be part of it. Paragraph 3, the [$]522[,810].[[foot #] 22] You don't adjust the number and then go back the next year and adjust the adjusted number. You adjust the operating costs, part of it, and then you add it to paragraph three every year of the five years. JUDGE GOODMAN: And you're clear that that's what happened here in all of these SLAs? They always went back and added it to? ----------- FOOTNOTE BEGINS --------- [foot #] 22 The witness is referring to the amount originally specified as annual rent for Lease 70162. ----------- FOOTNOTE ENDS ----------- THE WITNESS: I can't say I've done the math on all of them, but that's what's supposed to happen. JUDGE GOODMAN: Okay. But you don't know whether -- THE WITNESS: I mean, that's how the language of the lease works and that's how it's supposed to work. JUDGE GOODMAN: But you, sitting here today, don't know whether that's the way it happened, because you haven't done the math; correct? THE WITNESS: I feel pretty sure we would have caught it. JUDGE GOODMAN: But you haven't done the math? THE WITNESS: No, I haven't done the math. JUDGE GOODMAN: Okay. And the math hasn't been done before you walked into this courtroom today, to your knowledge? THE WITNESS: Not by myself, no. JUDGE GOODMAN: Not by yourself or anybody representing you or anybody with you here in this room? I mean, you didn't discuss the math before you walked in here, correct? THE WITNESS: I think it's safe to say that our accounting office would have picked it up if it hadn't been done that way, but I don't know. I didn't ask that. Transcript at 140-41. 39. Respondent's contracting officer and real estate specialist explained their understanding of the Operating Costs Escalator clause as follows: The term "adjusted rent" in the clause signified the annual rent that has been adjusted by an increase in the operating cost, which is the compensation for the services supplied by the landlord. The initial annual rent was considered the fixed rent for purposes of calculation, to which the adjustment of operating costs is added, and this yields the adjusted rent, which is now the annual rent, i.e., the amount due the lessor for the use of the building and services provided. For purposes of the Operating Costs Escalator clause, the adjusted rent is now the "fixed rent" for the next calculation, to be adjusted again the next time there was an increase in the operating costs pursuant to the Operating Costs Escalator clause. Therefore, the term "fixed rent" did not designate a dollar amount that remained fixed throughout the lease term. Rather, both "fixed rent" and "adjusted rent" are synonymous with annual rent, but at different times during the escalation calculation. The annual rent is referred to as "fixed rent" at the beginning of the calculation, and after the calculation, annual rent is referred to as "adjusted rent." Transcript at 68-69, 76-77, 123- 24, 127-28. The extension SLAs 40. As the leases were about to expire, GSA attempted to have appellant enter into a Standstill Agreement, but appellant did not agree to execute the agreement. Transcript at 59. GSA then decided to negotiate additional SLAs for the leases. According to the parties, the items to be negotiated were term and price; and whether or not the costs at issue in these appeals were to be included in the negotiated annual rent for the extension period was not discussed. Id. at 60, 62, 93, 112; Appellant's Post-Hearing Brief at 14-15. The negotiations were characterized by the contracting officer as "contentious." Transcript at 111. 41. Appellant submitted offers that were too high for GSA to consider, and GSA therefore commenced condemnation proceedings. Transcript at 61. However, negotiations continued in an attempt to enter into extension SLAs. The only items discussed were the length of the extension term and the price. Id. at 62. 42. The extension SLAs were negotiated on behalf of the Government by GSA's realty specialist and the contracting officer. The realty specialist believed that all prior costs were included in the annual rent in the extension SLAs, including the costs for parking and cleaning. Transcript at 63. The contracting officer also understood that the prior costs were included in the amounts negotiated as annual rent in the extension SLAs, based upon his communication with the realty specialist. Id. at 113. 43. Negotiation of the extension SLAs on behalf of appellant was conducted by appellant's manager. When the extension SLAs were negotiated, appellant's manager held the same position as Manager of Office Industrial Properties at Westminster, the appellant's predecessor in interest. Transcript at 11-12. He was not involved in the negotiation of the leases or any of the previous SLAs under the leases. Id. at 29-30. 44. Appellant's manager was involved in the administration of the leases before the negotiation of the extension SLAs. He was not involved in the accounting and was not aware as to how many checks per month appellant received with regard to the lease payments for the leases. He speculated that appellant "probably got one check." Transcript at 32. 45. SLA 17 to Lease 70162 was executed on April 28, 1993. It provided for the extension of the lease from January 22, 1993, through January 21, 1995, and reads, in relevant part: The first sentence of Paragraph 3 of Standard Form 2 is hereby amended to read as follows: 3. Effective January 22, 1993, the Government shall pay the Lessor annual rent of $1,341,148.26 at the rate of $111,762.36 per month in arrears. Paragraph 4 is hereby added to Standard Form 2 and reads as follows: 4. The execution of this Supplemental Lease Agreement, and the rent provided hereunder, is full accord and satisfaction of any and all claims of Lessor against the Government arising out of or related to the Government's occupancy of the leased premises from January 22, 1993 through the date of execution of the Supplemental Lease Agreement. Appeal File, GSBCA 13544, Exhibit 1 at 58. The agreed-upon amount was an increase of $70,816.04 over the annual rent specified in SLA 15. See Finding 18. 46. SLA 18 to Lease 70162 provided for the change in lessor from Westminster to Saul Subsidiary II Limited Partnership. Appeal File, GSBCA 13544, Exhibit 1 at 59. 47. SLA 12 to Lease 70163 was executed on April 28, 1993. It provided for the extension of the lease from January 22, 1993, through January 21, 1995, and reads, in relevant part: The first sentence of Paragraph 3 of Standard Form 2 is hereby amended to read as follows: 3. Effective January 22, 1993, the Government shall pay the Lessor annual rent of $342,424.00 at the rate of $28,535.33 per month in arrears. Paragraph 4 is hereby added to Standard Form 2 and reads as follows: 4. The execution of this Supplemental Lease Agreement, and the rent provided hereunder, is full accord and satisfaction of any and all claims of Lessor against the Government arising out of or related to the Government's occupancy of the leased premises from January 22, 1993 through the date of execution of this Supplemental Lease Agreement. Appeal File, GSBCA 13545, Exhibit 1 at 78. The agreed-upon amount was an increase of $19,602 over the annual rent specified in SLA 10. See Finding 29. 48. SLA 13 to Lease 70163 provided for the change in lessor from Westminster to Saul Subsidiary II Limited Partnership. Appeal File, GSBCA 13545, Exhibit 1 at 79. 49. Appellant characterizes the increase in annual rent for both leases pursuant to the extension SLAs as "modest." Appellant's Post-Hearing Brief at 2. 50. Analysis of values statements for both leases were prepared by GSA's realty specialist and signed by the contracting officer. The statements' itemization of the cost of services to be furnished by the lessor does not refer to additional parking or daytime cleaning. While additional parking spaces are provided in only one of the two leases, the analysis of values statements arrive at precisely the same prices per square foot and the same cost of services for the two leases.[foot #] 23 Supplemental Appeal File, Exhibits 14, 15; Transcript at 87. Additional SLAs for Lease 70162 during the extension period 51. No SLAs were issued for Lease 70162 to compensate appellant for escalation in operating costs. Respondent has informed the Board that this is the result of "administrative oversight." Respondent's Reply to Appellant's Supplemental Submission (Apr. 20, 1998). Relevant additional SLAs for Lease 70163 during the extension period 52. After the extension SLAs were negotiated, respondent issued additional SLAs to Lease 70163. 53. SLA 14 to Lease 70163, effective January 1, 1994, increased the amount of nusf to 10,502, amended the annual rental in paragraph 3 of the lease to $390,884.44 at the monthly rate of $32,573.70 in arrears, and stated that the "base cost for ----------- FOOTNOTE BEGINS --------- [foot #] 23 The analysis of values statement for Lease GS- 11B-70162 contains an appraised fair annual rental value of $1,333,581.33 for 36,033 nusf. That amounts to $37.01 per net usable square foot. The analysis of values statement for Lease GS-11B-70163 contains an appraised fair annual rental value of $340,492 for 9,200 nusf. That again amounts to $37.01 per net usable square foot. ----------- FOOTNOTE ENDS ----------- operating cost escalation purposes will be increased to $51,916.00." Appeal File, GSBCA 13545, Exhibit 1 at 80. 54. SLA 15 to Lease 70163, effective January 22, 1993, adjusted the base operating cost and reads, in relevant part: [T]he said Lease is amended . . . as follows: . . . . Base (CPI-W-U.S. City Avg) December 1987 114.2 Correspond[ing] Index December 1992 139.8 1.224168126 Base Operating Cost per Lease $ 45,480.00 % Increase in CPI-W x 0.224168126 Less Previous Escalation Paid $ 8,642.00 Annual Increase in Operating Cost $ 1,553.17 . . . the annual rental is increased by $1,553.19 [sic]. The new annual rent is $343,977.17[[foot #] 24] payable at the rate of $28,664.76 per month in arrears. . . . All other terms and conditions of the Lease shall remain in force and effect. Appeal File, GSBCA 13545, Exhibit 1 at 82. SLA 15 was issued on June 20, 1994, but was not accepted by appellant. Appellant's Supplemental Submission (Mar. 27, 1998). 55. SLA 16 to Lease 70163, effective January 22, 1994, adjusted the base operating cost and reads, in relevant part: [T]he said lease is amended . . . as follows: . . . . Base (CPI-W-U.S. City Avg) December 1987 114.2 Correspond[ing] Index December 1993 143.3 1.254816112 ----------- FOOTNOTE BEGINS --------- [foot #] 24 This amount is the sum of the annual rent established in SLA 12 ($342,424), plus the increase determined by SLA 15 ($1,553.17). ----------- FOOTNOTE ENDS ----------- Base Operating Cost per Lease $ 45,480.00 % Increase in CPI-W x 0.254816112 Less Previous Escalation Paid $ 10,195.17 Annual Increase in Operating Cost $ 1,393.87 . . . the annual rental is increased by $1,393.87. The new annual rent is $393,831.48[[foot #] 25] payable at the rate of $32,819.29 per month in arrears. . . . All other terms and conditions of the lease shall remain in force and effect. Appeal File, GSBCA 13545, Exhibit 1 at 83. SLA 16 was issued on June 17, 1994, but was not accepted by appellant. Appellant's Supplemental Submission (Mar. 27, 1998). Appellant's claims 56. According to appellant, by letter dated July 7, 1993, Westminster issued a notice of default to GSA, objecting to GSA's discontinuance of its payments for daytime cleaning, parking, and operating cost escalations. It was the contention of appellant that after execution of the extension SLAs, GSA discontinued or refused to pay daytime cleaning expenses and parking fees, and refused to carry forward and add to the fixed rent the operating cost adjustments accumulated during the leases' base terms. Appellant's Post-Hearing Brief at 16. 57. Appellant alleges that for its performance under the period covered by the extension SLAs (January 22, 1993, through January 21, 1995), GSA paid $2,794,059 under Lease 70162 and $770,500.86 under Lease 70163. Appellant's Post-Hearing Brief at 16.[foot #] 26 ----------- FOOTNOTE BEGINS --------- [foot #] 25 This amount is the sum of the annual rent established in SLA 14 ($390,884.44), less the increase determined by SLA 15 ($1,553.17), plus the increase granted in SLA 16 ($1,393.87). This appears to be an erroneous calculation, and does not take into consideration the increase in base operating cost established in SLA 14. After the hearing was concluded, respondent informed the Board that this SLA contains an "administrative error." Respondent's Reply to Appellant's Supplemental Submission (Apr. 20, 1998). [foot #] 26 The record in these appeals contains no documentation concerning actual payment of rent by respondent. ----------- FOOTNOTE ENDS ----------- 58. Pursuant to appellant's interpretation of the lease agreements as modified by the extension SLAs, GSA should have paid $2,944,975.50 under Lease 70162 and $804,796.73 under Lease 70163 over that same period. By letters dated November 20, 1995, appellant filed Contract Disputes Act claims for $150,916.50 under Lease 70162 and $35,295.87 under Lease 70163, for a total claim of $185,212.37 plus interest. The claim under Lease 70162 was certified. Appeal Files, GSBCA 13544, 13545, Exhibit 3. 59. GSA did not state when a decision would be issued on the first claim, and did not render a contracting officer's decision on the second claim within the times prescribed under the Contract Disputes Act. Appellant treated its claims as having been constructively denied and filed a notice of appeal with this Board on February 26, 1996. Appeal Files, GSBCA 13544 (Lease 70162), 13545 (Lease 70163), Exhibit 4. Thereafter, on April 1, 1996, the GSA contracting officer rendered decisions denying appellant's claims. Id., Exhibit 5. Appellant filed notices of appeal from those decisions on April 30, 1996. 60. In October 1996, the parties filed motions for summary relief. An ADR session was held on December 4, 1996, with the panel chairman providing neutral case evaluation. The ADR session did not resolve these appeals. It became clear to the panel chairman that issues of material fact existed as to the knowledge of the individuals involved in the negotiation of the extension SLAs. Accordingly, neither party was entitled to summary relief, and a hearing on the merits was held on June 30, 1997. 61. At the hearing on the merits, the parties stipulated that for the sake of economy, the arguments presented for Lease 70162 were also applicable to Lease 70163. Transcript at 27. 62. After the hearing, the Board requested that appellant submit documentation supporting its claims for damages in these appeals, as the record did not contain a breakdown of the calculation of the claimed amounts. Appellant submitted a spreadsheet calculation of its claims by month for the extension period. Supplemental Appeal File, Exhibit 17. The total claim for Lease 70162 (exclusive of interest) is $145,590.50 and for Lease 70163 is $34,815.90.[foot #] 27 For Lease 70162, parking fees are claimed in the amount of $875 per month.[foot #] 28 Daytime cleaning in the amount of ----------- FOOTNOTE BEGINS --------- [foot #] 27 Appellant explains that the total claim is "slightly less than the amount stated in Claimant's post-hearing brief" as the result of mathematical error. Supplemental Appeal File, Exhibit 17. [foot #] 28 This is the amount for parking fees stated in SLA 4. Finding 13. ----------- FOOTNOTE ENDS ----------- $1,607.91 per month is aslo claimed for that lease.[foot #] 29 In calculating the amounts allegedly due for operating cost escalation, appellant bases its calculations on its allegation that the annual rent set forth in the extension SLAs for the leases did not include the previous operating cost escalations set forth in the prior SLAs. Supplemental Appeal File, Exhibit 17; Appellant's Supplemental Submission (Mar. 27, 1998). Discussion The Leases and the SLAs While this dispute arises from SLAs which extended two leases, in order to understand appellant's claim, we must first review the underlying leases, the prior SLAs, and the actions of the parties before the dispute arose. Paragraph 3 of each lease initially established an "annual rent" in a specific dollar amount. Findings 2, 20. Each lease also established an amount for base operating cost, set forth in the lessor's statement of costs included in the lease. Findings 4, 22. Included in the payment of the first year's annual rent was compensation to the lessor for the base operating cost, as the services which resulted in the base operating cost were furnished by the lessor to GSA as part of the "rental consideration." Findings 3, 21. The lessor was also entitled to be compensated for the increase in operating costs in subsequent years, and the Operating Costs Escalator clause established a formula for determining the amount of the increase, with such amounts to be determined every year beginning with the second year of the lease term and paid in monthly increments during the year. Findings 5, 23. The lessor was also entitled to, and received, in addition to annual rent, periodic payments for assessments of real estate taxes. Findings 6, 24. During the original five-year term of the leases, the parties entered into SLAs for various reasons. Each SLA contained a statement that the lease was "amended." Finding 30. With regard to Lease 70162, SLA 1 increased the nusf and the base operating cost, with "an annual rental increase" as the result of the increase in nusf, as well as an increase of the base operating cost. Finding 8. SLA 2 again increased the nusf, and made "an annual rental increase" as the result of the increase in nusf, as well as an increase of the base operating cost. Finding 10. SLA 3, for daytime cleaning, increased the rent "per annum." Finding 12. SLA 4, for additional parking, states that there will be an "annual rental increase." Finding 13. SLA 6, for additional daytime cleaning, resulted in "an increase in the rent ----------- FOOTNOTE BEGINS --------- [foot #] 29 This amount is derived from the annual amounts for daytime cleaning in SLAs 3 and 6 ($13,344.96 + $5,950 = $19,294.96; $19,294.96/12= $1,607.91). ----------- FOOTNOTE ENDS ----------- at a rate . . . per year." Finding 14. SLAs 7, 9, 13, and 15, increasing the base operating cost, all contain the statement that "annual rental is increased by [the incremental increase] and the new annual rental is [a sum certain]." Findings 15-18. In SLA 7, the new annual rental is the sum of the annual rent stated in paragraph 3 of the original lease plus the increases in SLAs 1 and 7, since these increases were effective before those arising from SLAs 4 and 6. Finding 15. In SLAs 9, 13, and 15, the new annual rental was the sum of the annual rental originally specified in paragraph 3 plus all subsequent rental increases in the aforementioned SLAs and the incremental increase granted by the subject SLAs. Findings 16-18, 30. Similarly, in Lease 70163, each SLA contained a statement that the lease was "amended." Finding 30. SLA 1, for additional daytime cleaning, resulted in an increase in the rent "at a rate . . . per annum." Finding 25. SLAs 4, 5, 8, and 10, increasing the base operating cost, all contain the statement that "annual rental is increased by [the incremental increase] and the new annual rental is [a sum certain]." Findings 26-29. In these SLAs, the new annual rental was the sum of the annual rental originally specified in paragraph 3 plus all subsequent rental increases in the aforementioned SLAs and the incremental increase granted by the subject SLA. Findings 26-30. With regard to the amounts for annual rent determined in the aforementioned SLAs, the lump sum payments for real estate tax expenses were not included in any of the increases of annual rent. Finding 30. Also important is the calculation method used to determine the increase in operating costs for Lease 70162 in SLAs 7, 9, 13, and 15 and for Lease 70163 in SLAs 4, 5, 8, and 10. The CPI for the month prior to the lease commencement date was compared to the CPI published for the month which began each successive twelve-month period, and the percent of change (in all instances an increase) was multiplied by the base operating cost. Findings 15-18, 26- 29. For Lease 70162, the base operating cost used to calculate SLAs 7 and 9 was $144,548 (the total of the initial base operating cost, $78,150, and the increase of $66,398 per SLA 1). Findings 4, 8, 15, 16. The base operating cost used to calculate SLAs 13 and 15 was $179,548 (the total of the initial base operating cost, $78,150, the increase of $66,398 per SLA 1, and the increase of $35,000 per SLA 2).[foot #] 30 ----------- FOOTNOTE BEGINS --------- [foot #] 30 Respondent's allegation that the operating costs for Lease 70162 were adjusted to include the sum for daytime cleaning in SLA 6 is not correct. That sum is not included in the base operating cost for purposes of calculating increases in operating costs, and apparently was not adjusted annually as agreed in SLA 3. Finding 12. Similarly, SLA 4, for additional parking, also contained an agreement that such costs (continued...) ----------- FOOTNOTE ENDS ----------- Findings 4, 8, 10, 17, 18. For Lease 70163, the base operating cost used in the calculation of SLAs 4, 5, 8, and 10 was the original base operating cost of $45,480. Findings 22, 26-29. After the initial increase in operating cost was calculated for Lease 70162 by SLA 7 and for Lease 70163 by SLA 4, the subsequent incremental increase in operating cost was determined by comparing the applicable indexes, multiplying the percentage deviation by the base operating cost, and subtracting the previous escalation.[foot #] 31 This incremental increase in operating cost was denoted as an increase in the "annual rental" and added to the previously determined annual rental, with a new sum stated as the "new annual rental." Findings 15-18, 26-29. During the entire time of the original lease terms, no objection was made to the terms of the SLAs. The record of this appeal does not indicate any claims with regard to underpayment by respondent under the original five-year term of the leases. When the extension SLAs were executed for both leases, both SLAs contained "accord and satisfaction" clauses. Findings 45, 47. The leases were extended for a two-year period beyond the first five-year term by negotiation of what the parties call the extension SLAs (SLA 17 for Lease 70162 and SLA 12 for Lease 70163). Findings 45, 47. These extension SLAs were negotiated by appellant's manager and the GSA realty specialist and contracting officer. Appellant's manager did not sign the original leases or any of the prior SLAs. He was involved in the administration of the underlying leases, but not in the ----------- FOOTNOTE BEGINS --------- [foot #] 30(...continued) were subject to annual increase. These costs, as well, were not included in the base operating cost for purposes of calculating increases in such costs. Finding 13. However, no claim has been made for failure to adjust these parking and cleaning costs during the original lease period. SLA 17, the extension SLA, contained an accord and satisfaction clause with regard to all claims of lessor arising out of the original lease term. Finding 45. [foot #] 31 Respondent's allegation that the operating costs for Lease 70163 were adjusted to include the sum for daytime cleaning in SLA 1 is not correct. Finding 25. That sum is not included in the base operating cost for purposes of calculating increases in operating costs, and apparently was not adjusted annually as agreed in SLA 1. However, no claim has been made for failure to adjust these costs, and SLA 12, the extension SLA, contained an accord and satisfaction clause with regard to all claims of lessor arising out of the original lease term. Finding 47. ----------- FOOTNOTE ENDS ----------- accounting aspect. Findings 43, 44. According to the negotiators for the parties, the only terms to be negotiated were the annual rent and the length of the extension. Whether or not the costs at issue in this appeal were to be included in the annual rent was not discussed. Finding 40. The negotiations resulted in an extension of each lease for a two-year period and amended the annual rent specified in paragraph 3 to a specific dollar amount. Findings 45, 47. The dispute The dispute arises from the extension SLAs and the parties' interpretations of the original lease, the prior SLAs, and the extension SLAs. Appellant contends that except for Lease 70162 SLAs 1 and 2, which increased the net usable square footage under that lease and resulted in an increase in the annual rent under paragraph 3, no other prior SLA in either lease had amended paragraph 3 of the leases and increased the annual rent. Findings 33, 37. Therefore, according to appellant, the dollar amounts negotiated in the extension SLAs as the annual rent in paragraph 3 did not include the additional dollar amounts for cleaning, parking, and increase in base operating cost pursuant to the Operating Costs Escalator clause. Appellant demanded these amounts during the two-year extension terms, and was not paid these amounts by GSA. Appellant therefore filed claims pursuant to the Contract Disputes Act claiming entitlement to these amounts. Appellant sets forth its argument as follows: More than five years after the lease agreements' initial execution, on April 28, 1993, the parties executed SLAs (the "Extension SLAs") extending the leases for a period of two years (effective January 22, 1993 through January 22, 1995) and, for the first time, amending Paragraph 3 of the leases to reflect a modest increase in the annual fixed rent. The Extension SLAs make no mention of the service fees and operating cost escalations prescribed in prior SLAs, and each expressly states: "All other terms and conditions of the lease shall remain in force and effect." Appellant's Post-Hearing Brief at 2. In support of this argument, appellant contends: Many SLAs preceding the Extension SLAs reflected adjustments to the total annual rent that GSA would pay under the leases, including operating cost escalations, parking fees, and daytime cleaning fees. None of those SLAs limited their adjustments to the "fixed rent" referred to in Paragraph 3 of the lease. Rather, they calculated rent adjustments and typically specified a new "adjusted rent," which GSA's own realty specialist acknowledged to be different from the "fixed rent," in Paragraph 3. At no time in their negotiations leading to the Extension SLAs did the parties discuss amendment of fees for daytime cleaning or parking, nor the adjustment of base operating costs for the operation of the operating cost escalator clause. . . . Accordingly, when the Extension SLAs adjusted only Paragraph 3, Saul had every reason to believe that GSA shared its understanding -- that only Paragraph 3 was being amended, and that the lease otherwise would operate as it had done before. Appellant's Post-Hearing Brief at 14. Appellant's position is that the amount stated as annual rent in paragraph 3 of the original leases was the "fixed rent" referred to in the Operating Costs Escalator clause. According to appellant, the annual rent in paragraph 3 remained fixed or unamended during the course of the leases (except for SLAs 1 and 2 of Lease 70162, which increased the nusf). Appellant asserts that all subsequent SLAs for parking, additional cleaning services, and increases in operating costs, which stated an increase in rent "per annum" or that "the annual rental was increased . . . with a new annual rent of . . . .," did not amend the annual rent in paragraph 3 of the original lease. Appellant argues that it believed the annual rent stated in these subsequent SLAs to be "total annual rent" (as quoted in its brief above) or "gross rent received" (by its manager at the hearing, Finding 32), i.e., an amount greater than the annual rent in paragraph 3 of the leases. Accordingly, when the extension SLAs were negotiated, appellant believed that the annual rent stated in these extension SLAs did not include the amounts previously determined for additional parking, cleaning, and operating cost escalation, as the extension SLAs made no mention of these costs. The Government does not dispute that appellant is entitled to the costs determined by the prior SLAs for cleaning, parking, and operating cost escalation32 However, it contends that the effect of the prior SLAs was to amend the annual rent specified in paragraph 3 of the leases to include these costs. According to the Government, each time one of the SLAs was signed, the annual rent in paragraph 3 of the lease was amended and increased to an amount which was the sum of the original annual rent specified in paragraph 3, plus all previous and current increases. Therefore, when the parties agreed upon the last SLAs prior to the extension SLAs (SLA 15 for Lease 70162 and SLA 12 for Lease 70163), the amounts stated as annual rent in those ____________________ 32 Appellant has cited Plaza East Limited Partnership, ________________________________ GSBCA 5991, 84-1 BCA 17,002, at 84, 685 (1983), and Twelfth & L ___________ Streets Limited Partnership, GSBCA 7409, 85-2 BCA 18, 067, ____________________________ reconsideration denied, 85-3 BCA 18,385, for the principle that ______________________ "[u]nder . . . analogous circumstances, the Board has held that rent components added to the base rent during a lease's initial term carry forward into subsequent terms." Appellant's Post- Hearing Brief at 21-22. Neither the factual nor legal circumstances of these cases are similar to the instant appeals. Respondent in the instant case does not dispute that the cost increases in the prior SLAs should carry over into the extension period. The dispute is whether the negotiated annual rental in the extension SLAs included such costs. Respondent claims it did; appellant claims it did not. SLAs, which were the amounts of rent to be paid in the last year of each lease, included compensation for all previous increases. When the extension SLAs were negotiated, the Government therefore considered the annual rent specified in those SLAs to include the prior increases. Respondent contends: [E]ach of the SLAs subject to this appeal amended the leases and the annual rent. . . . [T]here is only one type of rent provided for in this [sic] leases -- annual rent. This term is inclusive of all fees and charges under the lease. The annual rent stated in the extension SLAs is inclusive of all services and space provided for under the lease, including services and space added through SLAs. Respondent's Post-Hearing Brief at 7. Appellant's interpretation of the original lease and the SLAs prior to the extension SLAs is not reasonable Appellant's interpretation is not reasonable because it does not comport with either the plain meaning of the leases and the SLAs prior to the extension SLAs or the parties' concurrent interpretation of the leases and SLAs before the dispute arose. The plain meaning of "annual rent" is that which is to be paid during the year, as is clearly shown by the fact that the annual rent is made in twelve monthly payments. The original amount stated for annual rent in paragraph 3 included compensation for usage of specified amounts of nusf plus compensation for base operating costs. Findings 2, 3, 20, 21. During the course of these appeals, appellant has used the terms "total annual rent" and "gross rent received" to characterize the sum of the amounts originally stated as annual rent in paragraph 3 of the leases and the incremental increases in parking fees, daytime cleaning costs, and operating costs which were subsequently added to the annual rent. However, no such terms appear in either lease. Appellant relies on its own interpretation of the terms "fixed rent" and "adjusted rent" which appear in the Operating Costs Escalator clauses. As discussed below, its interpretation of these terms does not comport with the parties' interpretation during the original lease terms. As discussed in detail above, the structure of the lease was that the Government would pay 1) annual rent in monthly installments in arrears (which included payment for use of nusf plus services, i.e., operating costs) plus 2) additional lump sum payments for real estate taxes as they became due. The SLAs prior to the extension SLAs all followed the same procedure. An adjustment to the rent was determined, either for additional parking spaces, additional cleaning services, or additional operating fees. The SLAs all stated that this increased the annual rent, resulted in an increase "per annum," or, in the instance of operating costs, stated that there would be an increase in the annual rent and the new annual rent would be a sum certain. By the time that the last SLA for each lease was negotiated immediately prior to the extension SLAs, the new annual rent stated in those SLAs was a total amount which included all prior increases in annual rent established by prior SLAs. What clearly occurred was that each time the SLAs prior to the extension SLAs added costs for which appellant now contends it has not received compensation during the extension period, the annual rent as stated in paragraph 3 of each lease was amended.33 As the parties agreed to additional operating costs, for which the lessor required compensation (such as additional parking, daytime cleaning, or the annual increases in operating costs which are the subject of these appeals), there is no reason to believe that the term "annual rent" in the SLAs which required respondent to pay for these costs was not meant to be the annual rent to be paid during the year as stated in paragraph 3 of the lease, as the dollar amounts in the SLAs for annual rent equaled the sum of all prior increases in annual rent and the current increase as stated in the SLA. During the original lease term, there was no dispute that such sum was the amount to be paid during the year -- hence the annual rent. In light of the above, appellant's arguments fail. First, appellant asserts that the SLAs prior to the extension SLAs did not specifically say that annual rent in paragraph 3 of the leases is amended. This argument lacks merit. The SLAs all state that the lease is "amended" and state a new annual rent or an increase per annum. It is unreasonable to assert that the annual rent as stated in paragraph 3 is not amended, as the term annual rent appears in paragraph 3. Thus, a plain reading of the SLAs and the leases makes it quite clear that paragraph 3 was amended. Appellant also argues that the SLAs prior to the extension SLAs state "All other terms and conditions of the lease shall remain in force and effect," and since paragraph 3 is not mentioned, there was no amendment of paragraph 3. Since the new ____________________ 33 Appellant's manager testified that SLAs 1 and 2 for Lease 70162 are different from the other SLAs because they added square footage space to the lease, not services. Finding 33. Appellant reiterates this argument in its brief, stating that these SLAs amended the annual rental in paragraph 3 of the leases. Findings 9, 11, 37. However, appellant fails to offer a plausible explanation to support its argument that SLAs 1 and 2 amended the annual rent, but the subsequent SLAs did not amend the annual rent. All the SLAs state that the lease is amended and refer to annual rental or per annum rent . annual rental is stated, and annual rental is the term used in paragraph 3, it is plain that paragraph 3 was amended. Another argument posed by appellant is that "annual rent" as stated in the SLAs prior to the extension SLAs is not annual rent as stated in paragraph 3 of the leases, because it was a figure for "total annual rent" or "gross rent received." This argument lacks merit for several reasons. It is unreasonable to assume that the term "annual rent" as used in the SLAs is anything other than "annual rent" as stated in paragraph 3 of the leases. Also, there is no such term as "total annual rent" or "total rent received" in the leases. In further testimony, appellant's manager concedes that the term annual rent signified the "12 months rent." He proceeds to espouse the position that the SLAs which established the operating cost increases and established new annual rents were "just a form we get every year" and were not anything "negotiated by the parties" and were for "ease of accounting . . . here's all the things you're going to be paying this year, divide by it by 12; this will be your monthly rent check." Findings 36, 37. In fact, he admits that the amounts stated in the SLAs are indeed annual rents, since "total rent received" in a given year would include both the annual rent and the lump sum amounts collected for tax escalation, which are not included in the monthly rent check, but are made in lump sum payments. The figure set out as annual rent in the SLAs did not include the amounts for tax escalation, so there is no basis for interpreting the amounts for annual rental as "total annual rent." Appellant's manager's attempts to minimize the import of these documents do not negate the fact that the SLAs clearly stated that they were amending the lease, were issued pursuant to the Operating Costs Escalator clause, and increased the annual rent to be received by appellant. The dollar amounts determined were not negotiated because the Operating Costs Escalator clause did not call for negotiation -- it required an increase based upon mathematics, which was calculated in the relevant SLAs. Appellant did not challenge the calculation method during the original lease terms, and accepted the increases determined by the SLAs. Appellant attempts to buttress its argument by its interpretation of the terms "fixed rent" and "adjusted rent" in the Operating Costs Escalator clause, and its attempt to equate the term "fixed rent" in the Operating Costs Escalator clause to the term "annual rent" in paragraph 3 of the leases. The adjustments called for in the Operating Costs Escalator clause were made several times in both leases during the original term. Neither party contested or objected to the method used to make such adjustments during the original lease terms. The doctrine of concurrent interpretation, or contemporaneous construction, holds that great, if not controlling, weight should be given to the parties' actions before a dispute arises in order to interpret a contract. J.W. Bateson Co., GSBCA 4816, 80-1 BCA 14,265. Before the dispute arose, the language in the leases and SLAs had not been disputed or claimed to be ambiguous by appellant. Appellant equates the annual rent in paragraph 3 to the term "fixed rent" in the Operating Costs Escalator clause. Thus, it argues that since the annual rent was "fixed" and not amended, the SLAs which purport to increase the annual rent did not amend the annual rent in paragraph 3 of the leases, and therefore resulted in an amount which was actually "total annual rent" in excess of the annual rent specified in paragraph 3. We find this argument strained and unconvincing. As stated above, it ignores the plain meaning of the term annual rent. Appellant's manager asserts that the annual rent in paragraph 3 must be "fixed rent," because the calculation used to determine the increase in operating cost "always goes back to the base operating cost." Finding 38. According to appellant, the calculation as specified in the clause should result in a sum which is the total operating cost escalation (without subtracting previous escalation after the first increase is made), and that this amount is then added to the annual rent in paragraph 3, which always remains "fixed." Finding 37. Thus, according to appellant's manager's testimony, the amount in paragraph 3 must remain a constant amount in order for the calculation in the Operating Costs Escalator clause not to result in double counting. The term annual rent as used in the SLAs therefore, according to appellant, is not the same term as "annual rent" in paragraph 3. This method of calculation is based upon appellant's manager's assumption as to what he believed was "supposed to happen" when the clause was used. He did not review the mathematical calculations and assumed that his accounting department would have informed him if another method had been used. Finding 38. Contrary to appellant's manager's assumptions, the calculation which was actually used, after the first determination of operating cost escalation, subtracted all previous escalations to arrive at the new incremental increase, and this adjustment was added to the prior annual rent as specified in the previous SLA. This avoided double counting; the annual rent was increased only by the annual increase. Findings 15-18, 26-29. In its Post-Hearing Brief, appellant makes an argument that this calculation method deviated from the method specified in the Operating Costs Escalator clause. Finding 37. We find no deviation in result. The purpose of the Operating Costs Escalator clause was to determine the incremental increase. This purpose was met by the calculation employed by the parties, as evidenced by the admission of appellant that the proper result was achieved, even though appellant alleges that the actual method used "did not strictly follow the formula prescribed." Id. It is clear from the actual calculations used to determine the incremental increase in operating cost, and the resulting amendments to the annual rent, that the parties acted such that the "fixed rent" was the previously adjusted annual rent, and the incremental increase in operating cost over the last increase was payable monthly with this incremental increase. Appellant's interpretation of "fixed rent" conflicts with the concurrent interpretation of the parties. The parties' concurrent interpretation does comport with the interpretation offered by respondent's contracting officer and real estate specialist. Finding 39. In summary, appellant's interpretation of the leases and the SLAs prior to the extension SLAs does not comport with the plain meaning of the leases and the SLAs, nor the parties' concurrent interpretation before the dispute arose. Respondent's interpretation is consistent with the plain meaning of the leases and the parties' interpretation before the dispute arose. Appellant's interpretation of the extension SLAs is not reasonable This dispute as to the interpretation of the extension SLAs has its origin in the parties' interpretation of the original lease and the SLAs prior to the extension SLAs, and the parties' failure to discuss their differing interpretations before or during the negotiation of the extension SLAs. Finding 40. Appellant states: At no time in their negotiations leading to the Extension SLAs did the parties discuss amendment of fees for daytime cleaning or parking, nor the adjustment of base operating costs for the operation of the operating cost escalator clause. . . . Accordingly, when the Extension SLAs adjusted only Paragraph 3, Saul had every reason to believe that GSA shared its understanding -- that only Paragraph 3 was being amended, and that the lease otherwise would operate as it had done before. Appellant's Post-Hearing Brief at 14-15. Thus, it is clear that the parties did not discuss whether the costs at issue were to be included in the annual rent in the extension SLAs. The parties proceeded to negotiate the extension SLAs, which established new annual rents. However, all the information concerning the past administration of the leases was at the disposal of the individuals who negotiated the extension SLAs. The parties present credible testimony as to the basis of their understandings during the negotiation. The Government representatives intended the dollar amount negotiated as annual rental in the extension SLAs to include the prior costs of parking, cleaning, and operating costs because of the past practice of the parties in the administration of both leases in amending paragraph 3 of the lease by the SLAs to include these costs. Finding 42. The Government negotiators were not aware, nor did they have any reason to be aware, that appellant did not consider the annual rent negotiated in the extension SLAs to include the costs at issue. Appellant implies that the Government negotiators could not have taken into account the value of additional services during negotiations of the extension SLAs by characterizing the increases in annual rent negotiated in the extension SLAs as "modest." Finding 49. Additionally, appellant points out that Government-prepared analysis of values statements prior to the negotiations of the SLAs contained identical value analyses for both leases without mentioning the value of additional services, Finding 50, and therefore "it cannot credibly be suggested that GSA considered the additional services provided under the leases and intended to incorporate those services into its Paragraph 3 rent amendment in the Extension SLAs." Appellant's Post-Hearing Brief at 15-16. Neither argument is convincing. The negotiations took place under the threat of condemnation proceedings and were contentious. Finding 40. The SLAs were negotiated in this atmosphere. The Board does not find that the Government failed to take into account the costs of the additional parking, cleaning, and previous escalation in operating costs by the size of the increase in annual rental, or the fact that the analysis of values statements did not specifically mention these costs. Rather, both Government negotiators testified that the increases in annual rent that were negotiated included these costs, based upon the fact that prior SLAs had included these costs in the annual rent. Finding 42. This testimony is highly credible, in light of our holding that the prior SLAs amended paragraph 3 of the leases and increased the annual rents. Even if appellant's manager mistakenly believed that such costs were not included in the new annual rents, respondent negotiated with the understanding that such costs were included. Appellant has not demonstrated that a correctable mistake occurred. Appellant's manager committed an error in business judgment, which does not afford appellant relief. See, e.g., Digicon Corp. v. Department of the Treasury, GSBCA 13607-P, 96-2 BCA 28,506; George A. Harris Enterprises, Inc., GSBCA 9888, 90- 1 BCA 22,405 (1989). According to his testimony, he did not intend that the annual rent include the costs at issue, as he did not believe that the prior SLAs had amended paragraph 3 of the leases. However, he failed to take into account 1) the plain meaning of the leases; 2) the actual methodology used to adjust rent pursuant to the Operating Costs Escalator clause;34 3) the mathematical derivation of the annual rent stated in the prior SLAs, which had included all previous increases for parking, daytime cleaning, and escalation in operating costs; and 4) the plain meaning of the prior SLAs, which clearly amended the annual rent in paragraph 3 of the lease and served as binding amendments (rather than a form for "ease of accounting," as he characterized them, Finding 36). Even as of the date of the hearing, appellant's manager had not checked the arithmetic and did not understand the mathematical derivation of these amounts. Finding 31. It was unreasonable for appellant to believe that the Government negotiators shared appellant's understanding, as appellant's understanding failed to take into account the legal import of the prior SLAs and actions of the parties. The Restatement (Second) of Contracts 154 (1979) holds a party to its bargain if it knowingly entered into a contract with insufficient knowledge: A party bears the risk of mistake when . . . [it] is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats [this] limited knowledge as sufficient. Even a cursory mathematical review of the prior SLAs for both leases would have revealed that the new annual rental stated in the SLAs included the costs at issue, and that the methodology used to determine operating cost escalation yielded the correct result, despite the fact that this calculation was not performed the way appellant's manager assumed. The failure of appellant's manager to perform this mathematical review even as of the day of the hearing highlights the error in business judgment of proceeding in negotiations without being fully informed. Appellant must accordingly bear the risk of this mistake. Accordingly, it is unreasonable for appellant to interpret the extension SLAs for either lease as excluding the costs at issue from the annual rental. ____________________ 34 Appellant's manager testified as to how he believed the calculation to determine operating cost escalation was "supposed to happen," but admitted that he did not know as of the date of the hearing how the calculation had actually been performed. He opined that it was "safe to say that [appellant's] accounting office would have picked it up if it hadn't been done that way, but I don't know. I didn't ask that." Finding 38. Appellant has been paid for the additional amounts claimed for daytime cleaning and parking during the extension period Appellant claims that respondent failed to pay for parking and daytime cleaning during the extension period of January 22, 1993, through January 21, 1995. For Lease 70162, parking fees are claimed in the amount of $875 per month. This is the amount for parking fees stated in SLA 13. Daytime cleaning in the amount of $1,607.91 per month is also claimed. This amount is derived from the annual amounts for daytime cleaning in SLAs 3 and 6 ($13,344.96 + $5,950 = $19,294.96; $19,294.96/12 = $1,607.91). For Lease 70163, daytime cleaning is claimed monthly in the amount of $651.67. This is the amount stated in SLA 1. Findings 25, 62. As stated above, these costs for daytime cleaning and parking were included in the annual rent established in the extension SLAs, and payment of this annual rent fulfilled respondent's obligation to pay for these costs. Appellant has been paid for the additional amounts claimed for operating cost escalation during the extension period which had been granted by previous SLAs and included in the annual rent in the extension SLAs Appellant claims that respondent failed to pay for operating cost escalation during the extension period of January 22, 1993, through January 21, 1995. In calculating the escalation allegedly due, appellant bases its calculations on its allegation that the annual rent set forth in the extension SLAs for the leases did not include the operating cost escalations established in the previous SLAs. Finding 62. As discussed above, the annual rent in the extension SLAs did include the operating cost escalations established in the previous SLAs. Therefore, payment of the annual rent as stated in the extension SLAs fulfilled respondent's obligation to pay for these costs. Appellant is entitled to unpaid operating cost escalation While appellant has already been paid for the additional amounts claimed for operating cost escalation established in the previous SLAs, as such costs were included in the annual rent established by the extension SLAs, appellant is entitled to operating cost escalation during the extension period pursuant to the terms of the leases. This is accomplished by the same methodology as used in prior SLAs, establishing a new annual rent which includes the increase, and paying the increase in monthly increments as part of the annual rent. As of the date of this decision, as the result of "administrative oversight," no SLAs have been issued with regard to operating cost escalation for Lease 70162 during the extension period of January 22, 1993, through January 21, 1995. Finding 51. The Board therefore grants in part the appeal in GSBCA 13544, to the extent that appellant is entitled to operating cost escalation for Lease 70162 during the extension period pursuant to the terms of the lease. With regard to Lease 70163, SLAs 15 and 16 have been issued for operating cost increases during the extension period of January 22, 1993, through January 21, 1995, using the appropriate methodology. Findings 54, 55. However, respondent asserts that SLA 16 contains an "administrative error." Apparently, the calculation in this SLA did not take into account the increased base operating cost established in SLA 14. Finding 55. The Board therefore grants in part the appeal of GSBCA 13545 to the extent that the correction of this administrative error results in additional payment to appellant. Decision These appeals are DENIED with regard to the claims for additional parking and daytime cleaning. The appeals are GRANTED IN PART with regard to the claims for increased operating costs as stated herein. ___________________________ ALLAN H. GOODMAN Board Judge We concur: _______________________________ ___________________________ JOSEPH A. VERGILIO MARTHA H. DeGRAFF Board Judge Board Judge