Coley Properties Corp. v. United States, 362-74.

• Decision Date: 21 February 1979
• Docket Number: No. 362-74.,362-74.
• Citation: 593 F.2d 380
• Parties: COLEY PROPERTIES CORP. v. The UNITED STATES.
• Court: U.S. Claims Court

593 F.2d 380

COLEY PROPERTIES CORP. v. The UNITED STATES.

No. 362-74.

United States Court of Claims.

February 21, 1979.

Gerald Walpin, New York City, attorney of record, for plaintiff; Joel W. Sternman, Theodore M. Grossman, and Rosenman, Colin, Freund, Lewis & Cohen, New York City, of counsel.

Ray Goddard, Washington, D.C., with whom was Asst. Atty. Gen. Barbara Allen Babcock, Washington, D.C., for defendant.

Before FRIEDMAN, Chief Judge, COWEN, Senior Judge, and SMITH, Judge.

ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

FRIEDMAN, Chief Judge.

This Wunderlich Act case is before the court on cross-motions for summary judgment pursuant to Rule 166(b). Plaintiff Coley Properties Corp. ("Coley") challenges the decision of the Postal Service Board of Contract Appeals insofar as it denied Coley recovery of certain costs and losses it incurred as a result of delays the Post Office Department ("Post Office") caused in the construction of a building by plaintiff for the Post Office. We reverse the Board on one issue and affirm it on the others.

I.

In 1964 the Post Office solicited bids on alternative plans for construction of a postal facility on government-owned land in New York City. Both plans provided for sale of the land to the successful bidder, construction of a postal facility in compliance with Post Office plans and specifications, and lease of the postal facility to the Post Office. All bids were to be stated in terms of annual rent payable for the postal facility; compensation for the construction was to be provided through the rental payment. Bids were sought on an alternative basis. Scheme A provided for construction of a commercial office tower above the postal portion, and Scheme B provided for construction of a Post Office alone.

The plaintiff submitted bids under both plans, and was awarded the contract on its Scheme A bid. Under its bid Coley agreed to (1) purchase the construction site, (2) build on that site a single building, and (3) lease the postal portion of the building for a term to be agreed upon. In practical terms construction of the tower portion could not begin until the postal portion was topped out.

The Post Office anticipated that commercial utilization of the air space above the Post Office would result in lower rentals for the postal portion. In fact, bids for postal rentals under Scheme A were considerably lower than those submitted under Scheme B, and were based in substantial part upon the anticipated cost of construction and date of completion of the tower portion. Any increase in the estimated cost and duration of tower construction necessarily would increase the total rent in the bid.

The basic terms of the postal portion of the contract were embodied in a written Agreement to Lease ("Agreement"). The Agreement provided for completion of the postal portion of the building within 1,260 days from the bid acceptance date and for completion of the tower within 3 years of acceptance of the postal portion by the Post Office. The Agreement allowed Coley considerable latitude in tower construction. Basically, except for the 3-year provision, a requirement that tower construction not interfere with postal space and operations, and limitations upon Coley's discretion to control overall tower size and exterior design, the Post Office had no voice in tower plans and specifications. The Post Office could object to tower plans and specifications only to the extent they were inconsistent with these express, general requirements set forth in the Agreement.

The Agreement established a basic lease term of 30 years for the postal portion, at an annual rental of $1,340,000, followed by eight 5-year renewal terms at reduced rentals beginning with the third renewal term. The Agreement contained a provision, similar to that in most government contracts, permitting the Post Office unilaterally to make changes in the Agreement ("Changes Clause"). That provision authorized the government to order changes in drawings and specifications within the "general scope" of the contract, and provided that plaintiff would receive an equitable adjustment for increased or decreased costs resulting from such changes. It also authorized the government to amortize, over the lease term, any balance due under the Changes Clause, and limited the changes the government could require to those costing not more than a total of $950,000.¹

During the construction of the building the Post Office ordered a large number of changes, which resulted in delay in the completion of construction of both the postal and the tower portions of the building. Coley sought an equitable adjustment for its increased cost and the delays in completion of the building resulting from the changes.

The Postal Service Board of Contract Appeals ("Board"), in decisions dated 1975 and 1977, held (1) that changes in specifications ordered by the Post Office Department resulted in a delay of 164 days in completion of the postal portion, and in an average delay of 91 days in completion of the tower; (2) that the plaintiff was entitled to recover $938,224 for "increased performance costs due to the impact of the changes ordered by respondent" attributable to the postal portion ("impact costs" cover the increased out-of-pocket expenditures the plaintiff incurred, including real estate taxes, premium time, general conditions expense, field and supervisory payroll, and home office overhead); and (3) that the plaintiff was not entitled to recover: (a) impact costs attributable to the tower portion, (b) rentals it would have received from the postal and tower portions during the time for which construction was delayed, (c) construction loan interest paid during the delay period, and (d) interest on the award of the Board.

Plaintiff here does not challenge the Board's findings regarding the length of the delay or the amount of the award for postal portion impact costs, and the defendant does not challenge the latter award. Plaintiff does challenge the Board's denial of recovery for tower impact costs, rentals attributable to the postal and tower portions during the delay period, construction loan interest, and interest on the award.

We reverse the Board's denial of recovery for tower impact costs and affirm its other rulings. In so holding, we apply the settled rule that in Wunderlich Act cases we decide questions of contract interpretation de novo. Cf., e. g., C. H. Leavell & Co. v. United States, 530 F.2d 878, 208 Ct.Cl. 776 (1976); Int'l Tel. & Tel. v. United States, 453 F.2d 1283, 197 Ct.Cl. 11 (1972).

II.

A. The basic issue underlying the plaintiff's claim for tower impact costs is whether the equitable adjustment provision of the Changes Clause of the Agreement applies to construction of the tower as well as to construction of the postal portion. The Changes Clause states in part:

The Contracting Officer may at any time, by a written order, and without notice to the sureties, make changes in the drawings and/or specifications of this Contract if within its general scope. If such changes cause an increase or decrease in the Lessor's cost of, or time required for, performance of the contract, an equitable adjustment shall be made and the Agreement to Lease shall be modified in writing accordingly. Emphasis supplied.

Specifically, the question is whether the words "the contract" apply only to the postal portion of the contract rather than to the entire contract to build an office building and lease the postal portion. The government contends that because the authority in the first sentence to issue change orders is limited to "this Contract," i. e., the Lease Agreement, the plaintiff's right under the second sentence to "an equitable adjustment" in "the contract" covers only the portion subject to change orders; and that since the government could not issue change orders covering the tower portion of the building, the plaintiff is not entitled to an equitable adjustment for impact costs for the tower.

The issue is not that simple, however. The Changes Clause is ambiguous. The first sentence refers to "this Contract." The second sentence, however, refers both to "the contract" and "the Agreement to Lease." The parties presumably intended to distinguish between these two concepts. In order properly to interpret this verbal morass, we must examine the language in light of the basic transaction between the parties.

The two sentences cover basically different issues. The first sentence authorizes the contracting officer to order changes in plans and specifications. The second sentence deals with the liability of the Post Office for impact costs incurred due to such change orders. The first sentence authorizes the contracting officer to change aspects of performance in which the Post Office had some substantial interest. The primary concern of the Post Office in the tower was financial—to reduce the rent it would pay for the postal portion of the structure. Its interest in the physical characteristics of the tower was aesthetic. The Lease Agreement took care of that interest by providing that the tower be within a certain size range, that it be completed within a specified time, and that the exterior design be maintained. The Post Office had no particular interest, however, in other aspects of tower construction which the Lease Agreement did not cover. Accordingly, the first sentence authorized the contracting officer to order only changes affecting the postal portion of the building. This limited authority was given by authorizing changes "in the drawings and/or specifications of this Contract," and in context "this Contract" means the Lease Agreement.

The second sentence of the Changes Clause covers increases or decreases in Coley's "cost of, or time required for, performance of the contract." It authorizes financial relief for Coley for increased costs incurred as a result of change...