B-127956, MAR. 6, 1957

B-127956: Mar 6, 1957

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GENERAL SERVICES ADMINISTRATION: FURTHER REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 28. IN SUPPORT OF THE REVISED RECOMMENDATION IT IS STATED THAT THE PRIOR LEASE (GS-03-B-2728. IT IS CONCLUDED THAT THIS MAY BE CONSTRUED AS HAVING PLACED THE CONTRACTING OFFICER ON ACTUAL OR CONSTRUCTIVE NOTICE THAT A MISTAKE HAD BEEN MADE. PARTICULARLY IN VIEW OF THE FACT THAT THE COST OF FURNISHING THE INVOLVED SERVICES IS GREATER THAN THE INCREASE IN RENT OVER THAT UNDER THE PRIOR LEASE AND WOULD. RESULT IN A DECREASE IN RENT AS FAR AS THE LESSOR IS CONCERNED. THAT UNDER THE PRIOR LEASES THE ABOVE SPECIAL SERVICES WERE NOT FURNISHED BY THE LESSOR. THE BIDDER WAS REQUESTED TO REDUCE ITS BID TO THE SAME RENTAL AS UNDER THE PRIOR LEASE.

B-127956, MAR. 6, 1957

TO ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION:

FURTHER REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 28, 1956, TRANSMITTING FOR CONSIDERATION AND DECISION THE CLAIM OF KEYSTONE REALTY COMPANY, INC., ARISING OUT OF AN ALLEGED ERROR IN ITS BID OFFERING TO LEASE THE BUILDING LOCATED AT 315 NORTH CALVERT STREET, BALTIMORE, MARYLAND, TO THE UNITED STATES PURSUANT TO INVITATION NO. GS-03-311.

IN THE ABOVE LETTER OF NOVEMBER 28, 1956, YOU RECOMMENDED THAT THE CLAIM BE DISALLOWED AND THAT THE CLAIMANT'S REQUEST FOR REFORMATION OF THE LEASE (GS-03-B-4066) EXECUTED FOLLOWING ACCEPTANCE OF THE PROPONENT'S BID BE DENIED. HOWEVER, IN YOUR LETTER OF FEBRUARY 21, 1957, YOU REQUESTED THAT THE ORIGINAL ADMINISTRATIVE RECOMMENDATION BE WITHDRAWN AND RECOMMENDED REFORMATION OF THE ABOVE LEASE SO AS TO EXCLUDE FROM PARAGRAPH 6 THE LESSOR'S OBLIGATION TO FURNISH AS PART OF THE RENTAL CONSIDERATION HEAT AND FREIGHT ELEVATOR SERVICE, INCLUDING MAINTENANCE, OPERATION AND POWER. IN SUPPORT OF THE REVISED RECOMMENDATION IT IS STATED THAT THE PRIOR LEASE (GS-03-B-2728, DATED FEBRUARY 2, 1955) WHICH EXPIRED ON DECEMBER 31, 1955, DID NOT PROVIDE FOR FURNISHING THE SPECIAL SERVICES SPECIFIED IN THE BID DATED OCTOBER 22, 1955. IT IS CONCLUDED THAT THIS MAY BE CONSTRUED AS HAVING PLACED THE CONTRACTING OFFICER ON ACTUAL OR CONSTRUCTIVE NOTICE THAT A MISTAKE HAD BEEN MADE, PARTICULARLY IN VIEW OF THE FACT THAT THE COST OF FURNISHING THE INVOLVED SERVICES IS GREATER THAN THE INCREASE IN RENT OVER THAT UNDER THE PRIOR LEASE AND WOULD, IN EFFECT, RESULT IN A DECREASE IN RENT AS FAR AS THE LESSOR IS CONCERNED.

THE RECORD FURNISHED SHOWS THAT THE BUILDING HAS BEEN UNDER LEASE TO THE GOVERNMENT BY THE SAME COMPANY UNDER SEVERAL LEASES FOR A PERIOD OF YEARS, AND THAT UNDER THE PRIOR LEASES THE ABOVE SPECIAL SERVICES WERE NOT FURNISHED BY THE LESSOR. IN RESPONSE TO THE ABOVE INVITATION THE KEYSTONE REALTY COMPANY IN ITS BID OF OCTOBER 22, 1955, OFFERED TO FURNISH THE BUILDING FOR AN ADDITIONAL TERM OF THREE YEARS, BEGINNING WITH DATE OF OCCUPANCY, AT A RENTAL RATE OF $20,000, WHICH REPRESENTED AN INCREASE OF $2,000 OVER THE RENT UNDER THE LEASE EXPIRING ON DECEMBER 31, 1955. THE BIDDER DELETED EACH LINE OF PARAGRAPH 3 OF THE INVITATION, EXCEPT THE FOLLOWING:

"3. SERVICES TO BE FURNISHED BY THE LESSOR, INCLUDED IN THE RENTAL CHARGE:

"ELECTRIC WIRING, FIXTURES AND CONVENIENCE OUTLETS; HEAT TO MAINTAIN A TEMPERATURE OF NOT LESS THAN 72 DEGREES FAHRENHEIT DURING THE HEATING SEASON; * * * FREIGHT ELEVATOR SERVICE, INCLUDING MAINTENANCE, OPERATION AND POWER. SERVICES SHALL BE FURNISHED DURING NORMAL DAYTIME WORKING HOURS, FIVE DAYS PER WEEK UNLESS OTHERWISE SPECIFIED IN THE INVITATION.'

ON OCTOBER 27, 1955, THE BIDDER WAS REQUESTED TO REDUCE ITS BID TO THE SAME RENTAL AS UNDER THE PRIOR LEASE, OR $18,000, FOR THE STATED REASON THAT "FUNDS ARE NOT AVAILABLE AT THIS TIME TO INCREASE CURRENT RENTAL.'

IN ITS LETTER OF NOVEMBER 1, IN RESPONSE TO THE ABOVE REQUEST, THE BIDDER JUSTIFIED THE REQUESTED INCREASE ON ACCOUNT OF INCREASED OPERATING COSTS AND PROPOSED INCREASE IN TAXES. THE BIDDER POINTED OUT THAT IN ITS BID UNDER THE PRIOR LEASE EXPIRING ON DECEMBER 31, 1955, THE APPRAISAL OF THE BUILDING MADE IN 1948 FOR THE PURPOSE OF SHOWING COMPLIANCE WITH THE 15 PERCENT LIMITATION OF SECTION 322 OF THE ECONOMY ACT, 40 U.S.C. 278 (A), WAS USED BECAUSE NO INCREASE IN RENT HAD BEEN REQUESTED AND IT WAS ASSERTED THAT A REAPPRAISAL OF THE PROPERTY WOULD BE SUFFICIENT TO JUSTIFY THE INCREASED RENTAL. ON NOVEMBER 22, THE BIDDER WAS ADVISED THAT ACCORDING TO INFORMATION AVAILABLE TO THE ADMINISTRATION, THE "MAXIMUM RENTAL GOVERNMENT IS PERMITTED TO PAY IS $18,612 PER ANNUM," IT BEING EXPLAINED SUBSEQUENTLY THAT IN VIEW OF THE ABOVE STATUTORY LIMITATION PAYMENT OF RENT IN EXCESS OF 15 PERCENT OF THE FAIR MARKET VALUE WAS NOT AUTHORIZED. AFTER FURTHER NEGOTIATIONS AND AN UNSUCCESSFUL EFFORT ON THE PART OF THE BIDDER TO OBTAIN OTHER QUARTERS FOR THE ADMINISTRATION THE BIDDER BY LETTER OF NOVEMBER 23, 1955, OFFERED TO LEASE THE BUILDING FOR THE NEW TERM AT AN ANNUAL RENTAL OF $19,000 AND STATED THAT IF ITS REVISED BID SHOULD BE ACCEPTED THE BIDDER WOULD BE WILLING TO ENTER INTO A LEASE OTHERWISE IN ACCORDANCE WITH THE PROVISIONS OF THE INVITATION.

THE BIDDER'S COUNTER-OFFER WAS ACCEPTED BY LETTER OF DECEMBER 16, 1955, AND IT WAS REQUESTED TO EXECUTE COPIES OF THE LEASE FORWARDED THEREWITH. IN ITS ACKNOWLEDGMENT OF DECEMBER 21, 1955, THE BIDDER STATED, IN EFFECT, THAT PARAGRAPH 6 OF THE NEW LEASE WAS DIFFERENT FROM THE PRIOR LEASE SINCE IT REQUIRED THE LESSOR TO FURNISH HEAT AND ELEVATOR SERVICE, NEITHER OF WHICH SERVICES HAD BEEN PREVIOUSLY FURNISHED BY THE LESSOR, UNDER THE SEVERAL PRIOR LEASES. THE BIDDER REQUESTED THAT THE NEW LEAST BE MODIFIED TO CONFORM TO THE PRIOR LEASES. BY LETTER DATED JANUARY 16, 1956, THE BIDDER WAS NOTIFIED THAT PARAGRAPH 6 OF THE NEW LEASE CONFORMED TO PARAGRAPH 3 OF THE INVITATION ON WHICH ITS ORIGINAL BID WAS SUBMITTED; THAT ACCEPTANCE OF THE REVISED BID CONSTITUTED A BINDING CONTRACT; AND THAT THEREFORE THE ADMINISTRATION COULD NOT CONSENT TO MODIFICATION OF THE PERTINENT PROVISIONS OF THE LEASE WITHOUT A VALID CONSIDERATION. THEREAFTER, THE LEASE WAS EXECUTED BY THE LESSOR AND RETURNED TO THE CONTRACTING OFFICER.

IN THE LESSOR'S LETTER OF MARCH 26, 1956, ACKNOWLEDGING RECEIPT OF THE ABOVE LETTER OF JANUARY 16, THERE WAS FURNISHED CERTAIN DATA SHOWING THAT THE COST FOR HEATING THE BUILDING DURING THE 1954-1955 SEASON AGGREGATED $4,425.43, OR MORE THAN 20 PERCENT OF ITS ORIGINAL BID OF $20,000 AND MORE THAN TWICE AS MUCH AS THE INCREASE REQUESTED BECAUSE OF INCREASED OPERATING COSTS. THE LESSOR ASSERTED THAT IT WAS NEVER INTENDED BY EITHER PARTY THAT IT WOULD FURNISH AS PART OF THE RENTAL CONSIDERATION ANY SERVICES IN ADDITION TO THOSE FURNISHED UNDER THE PRIOR LEASES. SUPPORT OF SUCH CONTENTION IT IS POINTED OUT THAT THE CONTRACTING OFFICER'S REPRESENTATIVE IN REJECTING THE BID OF $20,000 PER ANNUM REQUESTED THAT CONSIDERATION BE GIVEN TO AMENDING THE BID TO PROVIDE FOR THE SAME ANNUAL RENTAL AS UNDER THE PRIOR LEASE WHICH WAS CONSTRUED BY THE LESSOR AS AN OFFER FOR A RENEWAL UPON THE SAME TERMS AND CONDITIONS AS THE PRIOR LEASE, AN OFFER WHICH WOULD NOT HAVE BEEN MADE HAD THE CONTRACTING OFFICER REGARDED THE KEYSTONE BID AS INCLUDING SPECIAL SERVICES NOT PREVIOUSLY FURNISHED AS PART OF THE RENTAL CONSIDERATION. THE LESSOR FURTHER ASSERTED THAT IN THE LIGHT OF THE FOREGOING AND SINCE THE MATTER OF THE INCREASE HAD BEEN DISCUSSED WITH THE CONTRACTING OFFICER'S REPRESENTATIVE PRIOR TO THE ACCEPTANCE OF ITS BID THE CONTRACTING OFFICER WAS AWARE THAT THE LESSOR NEVER INTENDED TO FURNISH HEAT AND ELEVATOR SERVICE AS PART OF THE RENTAL CONSIDERATION.

IN EXPLAINING HOW THE MISTAKE OCCURRED, THE LESSOR'S VICE PRESIDENT STATED TO US THAT IT FIRST OCCURRED IN THE PREPARATION OF THE BID FOR THE PRIOR LEASE AND THAT IN PREPARING THE BID FOR THE CURRENT LEASE HIS SECRETARY MERELY COPIED THE DATA UNDER THE PRIOR BID. SINCE AS INDICATED ABOVE THE PRIOR LEASE DID NOT OBLIGATE THE LESSOR TO FURNISH THE INVOLVED SPECIAL SERVICES AN EXPLANATION WAS REQUESTED AS TO HOW AND WHY THE MISTAKE MADE IN THE LESSOR'S BID INCIDENT TO THE PRIOR LEASE WAS CORRECTED. THE VICE PRESIDENT EXPLAINED THAT THE CONTRACTING OFFICER HAD CORRECTED THE MISTAKE TO CONFORM TO THE UNDERSTANDING OF THE PARTIES BY MERELY OMITTING ANY REQUIREMENT OBLIGATING THE LESSOR TO FURNISH THE INVOLVED SERVICES AS PART OF THE RENTAL CONSIDERATION. AN EXAMINATION OF THAT BID NUMBERED GS-PBS-03-240 AND EXECUTED BY THE BIDDER ON NOVEMBER 8, 1954, SHOWS THAT IT IS IDENTICAL TO THE BID SUBMITTED BY THE LESSOR FOR THE CURRENT TERM INSOFAR AS CONCERNS THE FURNISHING HEAT AND SUBSTANTIALLY THE SAME REGARDING THE FURNISHING OF ELEVATOR SERVICE. AS STATED BY THE LESSOR, HOWEVER, THE LEASE PREPARED ON THE BASIS OF THE FORMER BID DID NOT CONTAIN ANY REQUIREMENT THAT THE LESSOR FURNISH THE INVOLVED SERVICES. ALSO STATED BY THE LESSOR THE CONTRACTING OFFICER WHO SIGNED THE FORMER LEASE ALSO SIGNED THE CURRENT LEASE.

WHILE IT IS TRUE THAT THE LESSOR'S VICE PRESIDENT EXECUTED THE FORMAL LEASE AFTER BEING FULLY AWARE OF THE MISTAKE, WE DO NOT FEEL THAT THE CIRCUMSTANCES UNDER WHICH HE DID SO AS SET OUT ABOVE, REQUIRE THE CONCLUSION THAT SUCH ACTION CONSTITUTED AN ACCEPTANCE OF THE LEASE AS DRAWN. IF THE INFORMATION GIVEN THE LESSOR ON NOVEMBER 22, 1955, TO THE EFFECT THAT PAYMENT OF RENT IN EXCESS OF $18,612 WAS BASED ON THE 15 PERCENT LIMITATION OF SECTION 322 OF THE ECONOMY ACT, AS APPEARS TO BE THE CASE, THIS IS ANOTHER REASON WHY THE CONTRACTING OFFICER AT LEAST AT THAT TIME SHOULD NOT HAVE CONSIDERED THAT THE LESSOR INTENDED TO FURNISH ANY SPECIAL SERVICES AS PART OF THE RENTAL CONSIDERATION SINCE THE ABOVE 15 PERCENT LIMITATION DOES NOT APPLY TO PAYMENTS MADE FOR SPECIAL SERVICES. 12 COMP. GEN. 546. SINCE A VALID AND BINDING CONTRACT CANNOT RESULT FROM ACCEPTANCE OF A BID WITH EITHER ACTUAL OR CONSTRUCTIVE NOTICE OF ERROR WE BELIEVE THAT THE ADVICE TO THE EFFECT THAT A VALID AND BINDING CONTRACT HAD BEEN CONSUMMATED AS GIVEN TO THE LESSOR'S VICE PRESIDENT PRIOR TO HIS EXECUTION OF THE LEASE AND FOLLOWING HIS REQUEST FOR CORRECTION OF THE ERROR WAS ERRONEOUS. THE LESSOR'S VICE PRESIDENT CONTENDS--- AND NOT WITHOUT REASON--- THAT SUCH ERRONEOUS ADVICE INDUCED HIM TO SIGN THE LEASE.

IT HAS BEEN HELD THAT THE CONTRACTING ACTIVITIES OF THE GOVERNMENT'S AGENTS MUST BE "UP TO THE STANDARD OF FAIR DEALING THAT IS REQUIRED OF COMMON MEN; " THAT A GOVERNMENT CONTRACTING OFFICER CANNOT INDUCE A PARTY TO SIGN A CONTRACT EMBODYING A MISTAKE "AND THEN TURN UPON HIM AND SAY, NOW YOU HAVE SIGNED IT AND YOU ARE CAUGHT.' EDWARD J. RAPPOLI COMPANY, INC. V. UNITED STATES, 98 C.CLS. 499.

FOR THE FOREGOING REASONS WE CONCUR WITH THE CONCLUSION IN YOUR LETTER OF FEBRUARY 21, 1957, THAT THE FACTUAL SITUATION WAS SUFFICIENT TO HAVE PLACED THE CONTRACTING OFFICER ON ACTUAL OR CONSTRUCTIVE NOTICE OF THE BIDDER'S MISTAKE AND WE AGREE THAT THE LESSOR IS ENTITLED TO HAVE THE CURRENT LEASE MODIFIED RETROACTIVELY SO AS TO RELIEVE THE LESSOR FROM THE OBLIGATION OF FURNISHING HEAT AND FREIGHT ELEVATOR SERVICE AS PART OF THE RENTAL CONSIDERATION.

THE FILE TRANSMITTED WITH YOUR LETTER IS RETURNED. ALSO, ENCLOSED IS A COPY OF OUR LETTER OF TODAY ADVISING THE LESSOR OF OUR CONCLUSION.