Board of Contract Appeals
General Services Administration
Washington, D.C. 20405
DENIED: October 18, 2005
GSBCA 16377
PARCEL 49C LIMITED PARTNERSHIP,
Appellant,
v.
GENERAL SERVICES ADMINISTRATION,
Respondent.
Richard J. Conway and Robert J. Moss of Dickstein Shapiro Morin & Oshinsky LLP,
Washington, DC, counsel for Appellant.
Catherine Crow and Jeremy Becker-Welts, Office of General Counsel, General
Services Administration, Washington, DC, counsel for Respondent.
Before Board Judges DANIELS (Chairman), NEILL, and HYATT.
DANIELS, Board Judge.
To what markups is Parcel 49C Limited Partnership (Parcel 49C) entitled on the
installation of security bollards at a building most of whose space was leased to the General
Services Administration (GSA)? GSA's contracting officer allowed 10% as "lessor profit."
Parcel 49C, the lessor, maintains that it should receive an additional 23%; the reasonable
markups, according to that party, are 25% for general contractor overhead and profit and 8%
for lessor's overhead and profit, or a total of 33%. The parties have submitted this case for
a decision on the basis of a written record. We are not persuaded that the lessor should
receive more than the contracting officer allowed and therefore deny the claim.
Findings of Fact
Earlier, we denied cross-motions for summary relief which had been filed by the
parties. We determined that Parcel 49C was not entitled to a markup of 24% simply because
a markup with elements totaling that percentage had been added to the cost of work
previously performed to build out the space to suit the tenant. We also determined that the
markup was not 10% simply because that percentage is specified in a clause which is a part
of some GSA contracts but not this one, as urged by GSA. Parcel 49C Limited Partnership
v. General Services Administration, GSBCA 16377, 05-1 BCA 32,835 (2004). The facts
which were uncontested at that time remain uncontested, and we incorporate them by
reference into this opinion. We also summarize them in the next two paragraphs for the
convenience of the reader.
The parties entered into the lease, for office space in a Washington, D.C., building,
in 1994. The lease required Parcel 49C to build out the space to suit GSA, with GSA's
payment for these "special requirements" to include a markup of 29% 8% for contractor's
overhead, 8% for contractor's profit, 5% for design fee, and 8% for developer's overhead.
In 2002, GSA asked Parcel 49C to perform work separate from the build-out project,
which by then had been completed installation of security bollards around the exterior
perimeter of the building and two hydraulic security bollard systems outside specified
entrances. GSA paid the lessor $1,028,722 for this work. This amount included a markup,
unilaterally imposed by the contracting officer, of 10% for "lessor profit" on subcontractor
costs of $984,293. Parcel 49C submitted a claim for an additional markup of 14%,
contending that the appropriate markup was 24% the elements of the markup on build-out
costs, except for the design fee. The contracting officer denied the claim.
The following facts are also relevant to this dispute:
In its claim, Parcel 49C sought a markup of 24% on "all current and future awards for
additional work and services requested by the Government in connection with the Lease,"
as well as the bollard installation work. Appeal File, Exhibit 60 at 4.
In his decision, the contracting officer said that if Parcel 49C would supply
information regarding its "overhead, general conditions, contractor[']s fee, and Lessor's
supervision[] and management of the work," he would "be glad to consider the same, and
perhaps will award the amount sought." Appeal File, Exhibit 63 at 2. The record does not
contain any evidence that Parcel 49C ever presented, to the contracting officer or the Board,
any of the information noted by the contracting officer.
Parcel 49C has included in the record a declaration of David A. Spiegel, the director
of property services of Republic Properties Corporation, the property manager for the
building in question. According to the declaration, "All general contracting services and
general contractor functions relating to the construction of the security bollards was
performed by Parcel 49C." Appellant's Appeal File Supplement, Vol. II, Exhibit 13 at 2.
The declaration does not explain what its maker means by the phrase "general contracting
services and general contractor functions."
GSA included in the record a declaration of Subhash Capoor, its DC Service Center's
realty coordinator. Mr. Capoor compiled, and provided as an exhibit to his declaration, a list
of GSA leases in the Washington, D.C., metropolitan area which became effective between
January 2004 and May 2005. Thirteen of these thirty-four leases are shown as having been
amended to include construction work for which GSA paid a markup to the lessor. The
markups ranged from 10% to 26%. The average markup, as calculated by GSA, was 18.46%.
Respondent's Exhibit A; Respondent's Brief at 4.
GSA provided to Parcel 49C in discovery exemplar change orders under GSA leases
in the Washington, D.C., area. (These leases are apparently some of the ones on the list
appended to Mr. Capoor's declaration.) The parties have included in the record seven of
these change orders, all of which were issued between April 2004 and June 2005.
Appellant's Appeal File Supplement, Vol. II, Exhibits 7-12; Respondent's Exhibit B. The
following information is encompassed in the change orders:
The markup on the Lease No. 1 change order is a "lessor's markup" of 21%.
Two change orders issued under Lease No. 2 are included. The markup on the
first was 18.77% a "contractor's fee" of 11% and a "lessor's administration
fee" of 7% on both subcontractor costs and the contractor's fee. The markup
on the second change order was a "lessor's fee" of 7%.
On Lease No. 3, GSA issued a "partial award" for construction of tenant
alterations. The lessor's pricing proposal, in the total amount of $3,164,737,
included a 25% markup for general conditions, overhead, profit, and fees.
GSA authorized the lessor to make expenditures up to $832,380, "pending [its]
submission of a detailed cost proposal and the negotiation of a firm fixed
price." Whether the negotiation resulted in payment of any particular markup
is not revealed in the record.
The markup on the Lease No. 4 change order, 23%, was specified in the lease.
The markup on the Lease No. 5 change order, 25%, was specified in the lease.
On Lease No. 6, GSA issued a change order which includes markups of nearly
21.8% for the general contractor's general conditions, 6% for the general
contractor's fee, and 8% of the total general contractor's amount as a "lessor's
markup." The combined markup on the direct costs is nearly 39.6%.
[Foot # 1 ]
****************** Footnote Begin **********
[Foot # 1 ] Each party has calculated the markups on this change order as being different
from the numbers we find to be correct (as well as being different from the numbers that the
other parties considers correct). Our calculations, based on our interpretation of the difficult-
to-understand backup materials for the change order, are as follows: The general contractor's
direct costs, as shown by trade, were $367,225. The amount for the general contractor's
general conditions, $80,000, is almost 21.8% of the costs. The amount for the general
contractor's fee, $26,834, is 6% of costs plus general conditions. The general contractor's
worksheet also shows an amount of $6,977 for performance and payment bond. The lessor's
markup of $38,485 is 8% of the total shown for the general contractor (costs plus general
conditions plus fee plus bond). The total markup on the direct costs is almost 39.6%.
Appellant's Appeal File Supplement, Vol. II, Exhibit 12 at 7.
****************** Footnote End ************
Discussion
The issue posed in this case to what markups is the lessor entitled on the bollard
work is an issue of business far more than law. Markups are generally negotiated, as they
should be, between parties to a contract. Parcel 49C and GSA did not negotiate markups on
the bollard work prior to the performance of that work, however, and despite our urgings
after the filing of the case, they have not been able to negotiate markups successfully in the
context of litigation, either. Thus, we are forced to resolve through legal analysis what the
parties should have resolved as a business matter.
The parties agree that as stated by the Court of Claims in Bruce Construction Corp.
v. United States, 324 F.2d 516, 518 (Ct. Cl. 1963), "Equitable adjustments . . . are simply
corrective measures utilized to keep a contractor whole when the Government modifies a
contract." The parties also agree that recovery of both profit and overhead is generally
reasonable to keep a contractor whole. See Bennett v. United States, 371 F.2d 859, 863-64
(Ct. Cl. 1967); Derek & Dana Contracting, Inc. v. United States, 7 Cl. Ct. 627, 639 (1985).
As to the specific markups to be applied to the direct costs of the bollard work, however, the
parties remain in disagreement, with Parcel 49C maintaining that it should receive 33% and
GSA insisting that the contracting officer's allowance of 10% is appropriate. Parcel 49C's
figure includes a markup of 25% for its performance of general contractor functions on this
job and 8% for its performance of lessor functions.
GSA suggests a simple way of resolving this dispute. Under a contract clause
contained in the General Services Administration Acquisition Regulation, 48 CFR
552.243-71 (1993) [Foot # 2 ] (GSAR 552.243-71), "Equitable Adjustments (Apr 1984),"
markups for overhead, profit, and commission on changed work are limited. The markup "to
Contractor on work performed by other than his own forces" such as the bollard work
"in no case shall exceed" a commission of 10% "unless the Contractor demonstrates
entitlement to a higher percentage." As we noted in our earlier decision in this case, GSAR
552.243-71 is not present in the lease at issue in this case. Parcel 49C v. GSA, 05-1 BCA at
162,457. GSA contends that the clause should be read into the lease through the Christian
Doctrine, however, and that because Parcel 49C has not demonstrated entitlement to a higher
percentage markup than 10%, the contracting officer's allowance of that percentage should
stand (even if the contracting officer called the markup "profit" rather than "commission").
****************** Footnote Begin **********
[Foot # 2 ] We cite to the version of the regulation in effect at the time the lease between
GSA and Parcel 49C was entered into. That version remains in effect today.
****************** Footnote End ************
The Christian Doctrine was promulgated by the Court of Claims in G. L. Christian &
Associates v. United States, 312 F.2d 418, 425 (Ct. Cl. 1963), reargument denied, 320 F.2d
345, cert. denied, 375 U.S. 954 (1963), rehearing denied, 376 U.S. 929, 377 U.S. 1010
(1964). The Court of Appeals for the Federal Circuit has explained, "Under the so-called
Christian Doctrine, a mandatory contract clause that expresses a significant or deeply
ingrained strand of public procurement policy is considered to be included in a contract by
operation of law." S. J. Amoroso Construction Co. v. United States, 12 F.3d 1072, 1075
(Fed. Cir. 1993) (citing General Engineering & Machine Works v. O'Keefe, 991 F.2d 775,
779 (Fed. Cir. 1993)). Thus, a clause may be deemed to be included in a contract only if it
is both mandatory and "expresses a significant or deeply ingrained strand of public
procurement policy."
As Parcel 49C points out, GSAR 552.243-71 cannot be read into our lease through the
Christian Doctrine because it fails the first of these tests it is not a mandatory clause. By
its very terms, and by the terms of the GSAR provision which directs its insertion into certain
contracts, GSAR 552.243-71 is to be included in "solicitations and contracts for (1)
dismantling, demolishing, or removing improvements; or (2) construction, when the contract
amount is expected to exceed the small purchase limitation and a fixed-price contract is
contemplated." 48 CFR 543.205(b), 552.243-71. The contract between GSA and Parcel 49C
is a lease for real property, not for dismantling or constructing improvements to a building.
Thus, the clause was not required to be included in this contract. Even if GSA is correct in
asserting that the clause meets the second test for inclusion through the Christian Doctrine
"express[ion of] a significant or deeply ingrained strand of public procurement policy"
it cannot be considered to be a part of the contract. [Foot # 3 ] Whether GSA is correct in
maintaining that Parcel 49C has not demonstrated entitlement to a higher percentage markup
than 10% will have to be determined in another context.
****************** Footnote Begin **********
[Foot # 3 ] In a cogent concurrence in Amoroso, Judge Plager urged that application of
the doctrine be "limited to the special circumstances that called it forth . . . , protect[ing] the
Legislative Branch from encroachment by the Executive Branch." 12 F.3d at 1079. Under
this formulation, GSA's argument would also fail, for no statute requires the inclusion of
GSAR 552.243-71 in a lease contract.
****************** Footnote End ************
Because GSA's Christian Doctrine thesis is wanting, we proceed to examine the other
arguments made by the parties. Parcel 49C contends that once it established the direct costs
of installing the bollards, the burden shifted to GSA to prove that the claimed markups were
unreasonable. The lessor says that the agency has not met that burden. To the contrary,
according to Parcel 49C, the reasonableness of the claimed markups may be shown by
reference to the markups allowed on build-out work under this lease, construction work
generally, construction work under GSA leases in the Washington metropolitan area, and
construction work involved in cases before boards of contract appeals. GSA asserts (in
contradiction to its Christian Doctrine argument) that Parcel 49C may be entitled to
additional markups on the bollard work, but that because the lessor has never provided any
evidence of direct or indirect costs it incurred on this project, no basis exists for allowing any
particular percentage in excess of what the agency already paid.
Parcel 49C's contention as to burden of proof derives from its understanding of a
passage contained in Blake Construction Co., GSBCA 1176, 66-1 BCA 5589, at 26,119:
"[I]f an equitable adjustment is to be accomplished retroactively, . . . if an appellant
establishes its actual costs . . . it would be entitled to recover that amount, plus appropriate
factors for overhead and profit, unless the Government is successful in sustaining the burden
of proving that such costs were unreasonable." We do not read this passage as shifting the
burden of proof, as the lessor urges. Ordinarily, "the law places the burden of proof upon
the party asserting a contention and seeking to benefit from the contention." United States
v. Santee Sioux Tribe of Nebraska, 254 F.3d 728, 733 (8th Cir. 2001). In other words, the
burden of proof is on the party that wants to alter the status quo the party that would lose
if no evidence were presented. Binder v. Bristol-Myers Squibb Co., 184 F. Supp. 2d 762, 768
(N.D. Ill. 2001). A leading treatise makes clear that these standard principles apply to
government contract cases: "In establishing the total amount of an equitable adjustment"
not just the direct costs involved in an equitable adjustment "the burden of proof is
allocated to the party that is claiming the benefit of the adjustment." John Cibinic, Jr. &
Ralph C. Nash, Jr., Administration of Government Contracts 698 (3d ed. 1995). The passage
from Blake, consistent with these principles, shifts to the Government not the burden of
proof, but rather, the burden of presenting evidence as to the reasonableness of "costs" and
even as to that burden of going forward, only after the appellant has presented evidence
which establishes actual "costs." It does not say that a contractor is entitled to whatever
markups it claims unless the Government can prove that those markups are unreasonable.
[Foot # 4 ] The burden remains with Parcel 49C to prove that it should receive the markups
it claims.
****************** Footnote Begin **********
[Foot # 4 ] Parcel 49C also cites, in support of its thesis as to burden of proof, a decision
of another board of contract appeals which references Blake, Wayne L. Grist, Inc., AGBCA
89-135-3, 89-3 BCA 22,073. We read the relevant passage in Grist, 89-3 BCA at 111,018,
the same way that we read Blake. If this understanding is incorrect, we do not believe that
Grist correctly interprets the law.
****************** Footnote End ************
Parcel 49C's "proof" goes only to the reasonableness of allowing markups in a
percentage greater than GSA has paid. It is of course true that the parties agreed to a markup
three of whose elements equaled 24% on build-out work under this lease. As to construction
work generally, the lessor has presented an affidavit of Stephen J. Kiraly, a director with
Navigant Consulting, Inc., who has many years of experience in the construction industry and
government contracting. Mr. Kiraly states in his affidavit that a combined general contractor
markup of between 16% and 21% "is within a range of percentages [he] would consider
reasonable." Appellant's Appeal File Supplement, Vol. II, Exhibit 1 at 8. Mr. Kiraly also
notes that RSMeans, Building Construction Cost Data 521-22 (63d ed. 2005) shows that
average rates for contractor overhead and profit range from 21% to 26%. Id. at 9.
The markups on construction work under recent GSA leases in the Washington
metropolitan area, as shown in the exemplar change orders provided by the parties, range
from 7% to 39.6%. As calculated by GSA, markups on change orders for construction on
similar leases average 18.46%. In the board of contract appeals decisions cited by Parcel
49C, the markups on construction work range from 10% to 30%. Staff, Inc., AGBCA 96-
112-1, et al., 97-2 BCA 29,285, at 145,711 (25% for overhead and profit); Granite
Construction Co., ENG BCA 5849, 93-1 BCA 25,450, at 126,768-69, 126,771 (1992)
(14.79% for field office overhead, 4.75% for home office overhead, and 10% for profit);
Olsberg Excavating Corp., DOT CAB 1288, 84-1 BCA 16,931, at 84,223 (1983) (15% for
general and administrative overhead and 10% for profit); Hensel Phelps Construction Co.,
ASBCA 15142, 71-1 BCA 8796, at 40,874 (30% for overhead and profit of both prime
contractor and subcontractor); Blake, 66-1 BCA at 26,129 (10% for prime contractor's
commission).
Parcel 49C's proof shows that markups within a very wide range between 7% and
almost 40% have been approved by government agencies for construction work. The
relevance of this information to markups on this lessor's bollard work is questionable,
however. As to the markups on the build-out work on the building at issue, we agree with
the Court of Federal Claims that "[t]he fact that [a contractor] was once successful, in
conjunction with a separate [matter], in negotiating a higher percentage commission has no
bearing upon the contractor's burden of proof in this matter to demonstrate the nature, extent
and complexity of th[is] [p]roject also warranted the application of a higher commission
rate." North American Construction Corp. v. United States, 56 Fed. Cl. 73, 83 (2003). As
to the markups on construction work generally, these are helpful in establishing a zone of
reasonableness, but not of assistance in determining the extent of Parcel 49C's costs which
would be encompassed within markups on the bollard work.
The markups on construction work under recent GSA leases in the Washington
metropolitan area are at both extreme ends of the range shown by Parcel 49C's proof. The
fact that they were agreed to does not help us understand why each of them was agreed to,
and without that information, their relevance is uncertain. Further, the markup imposed by
GSA on the bollard work and the markup claimed by Parcel 49C are both within the range,
so the existence of the range does not make one markup more reasonable than the other. The
cases cited by the lessor are not especially useful to us, either. In two of the cases, the
markups were expressly tied to figures presented by the contractor the markups with which
the contractor bid the job (Staff) and percentages which were appropriate "under the standard
and accepted business practice utilized consistently by the prime contractor" (Granite). In
one of the cases, Olsberg, the markups were accepted by the board because the Government
did not object to them. In the other two cases, the markups were assigned by the board
without detailed explanation, but they were much lower than what Parcel 49C claims here
only 10% in Blake and 30% for the subcontractor as well as the prime contractor in Hensel
Phelps.
Parcel 49C has told us neither precisely what it did on the bollard work, beyond the
affidavit statement that it performed "[a]ll general contracting services and general contractor
functions relating to the construction," nor, more importantly, how much those services cost.
As to its activities, the lessor explains in its brief, at 14-15, what contributions general
contractors and lessor/developers generically provide for construction projects under their
purview, but it has not provided any specific evidence as to what it did here. It has similarly
alleged in its brief that the work was "particularly complex," at 11, but has not provided any
specific evidence in support of that assertion.
In response to GSA's demands for information on the basis of which overhead rates
could be calculated first in the contracting officer's decision and then in briefing this case
Parcel 49C has responded:
It does not make sense to suggest that Parcel 49C must submit its electric and
telephone bills, its canceled rent checks, its staff payroll and benefits
payments, its insurance bills, and all of the other myriad data supporting the
myriad costs that comprise overhead. Indeed, the entire purpose of indirect
cost markups is to avoid the need for the contractor to prove each and every
item of its overhead cost, as well as the portion of each cost allocable to the
work in question, on a project-by-project basis. To do as GSA suggests would
require Parcel 49C to submit thousands, if not millions, of pages of cost data
on each project, no matter how small, simply to determine the appropriate
overhead and profit markups to be applied to the direct costs of the project.
This is not what the law requires. . . . Instead, a contractor need only submit
cost data to support its direct costs. . . . Having proven those direct costs,
Parcel 49C is entitled to reasonable and customary markups for overhead and
profit on that amount without submitting any additional cost data.
Appellant's Reply Brief at 5-6.
In our view, this response demonstrates a misunderstanding of both legal and business
principles. No one has ever suggested that the lessor produce all the information described
in order to receive a markup on subcontractor costs on the bollard work. Without any
supporting financial data, however, it is impossible for a contracting officer or a board of
contract appeals to assign any particular percentage markup to these costs. Although we are
confident that Parcel 49C did incur some overhead costs, we cannot even attempt to estimate
their value where no basis for it, other than "everybody else gets some," has been presented.
See Raytheon Co. v. White, 305 F.3d 1354, 1367 (Fed. Cir. 2002) (citing WRB Corp. v.
United States, 183 Ct. Cl. 409, 425 (1968)) ("fair and reasonable approximation" of costs
necessary to permit a jury verdict).
We conclude this opinion with comments on two minor issues raised by GSA. First,
we do not agree with the agency's contention that if the Board awards any money to Parcel
49C, it may not award more than the 24% markup the lessor requested in its claim. This
contention is contrary to the rule that on appeal to a board of contract appeals, a contractor
may increase the amount of its claim as long as the essential nature of the claim remains the
same. Santa Fe Engineers, Inc. v. United States, 818 F.2d 856, 858 (Fed. Cir. 1987);
Whiting-Turner/A. L. Johnson Joint Venture v. General Services Administration, GSBCA
15401, 02-1 BCA 31,708, at 156,622-23 (2001). Second, if Parcel 49C's prayer that it be
granted a markup of not less than 24% or more than 33% on all future awards for additional
work and services requested by the agency in connection with the lease is a claim, the Board
could address the matter now because it was included in the lessor's request for a contracting
officer's decision. We need not decide whether the prayer is a claim because even if it is
one, we would not consider it favorably. As explained with regard to the bollard work, we
will grant markups only where we have a basis for setting percentages. Parcel 49C's prayer
as to markups on any additional work or services under the lease suffers from the same
infirmity as the claim for an additional markup on the bollard work it does not contain a
basis for setting percentages.
Decision
The appeal is DENIED.
_________________________
STEPHEN M. DANIELS
Board Judge
We concur:
_________________________ _________________________
EDWIN B. NEILL CATHERINE B. HYATT
Board Judge Board Judge