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Contract InterpretationBegins With theContract: ACase Study

This article examines a recent contractdisputeamongseveral landlords who rent office space to the federal government in Arlington,Virginia,andtheGeneral ServicesAdministration(GSA).The article will summarize the case, thefactualbackground,theGSAs arguments, the rules of contract interpretation, and the findings. Somecontractingpartiesputtheir contractintoadeskdrawer,andonly refer to it once the relationship has broken down. This article recommends that contracting parties put the contract on top of the desk and sit next to each other to determine the most reasonable meaning for all terms during the solicitation period and during performance.

CaseSummary

In CESC Mall, LLC v. GSA (CESC),CBCA7359,7360,7361,7362,7363,7364,the

Civilian Board of Contract Appeals (CBCA) issued a landmark decision on what constitutes a reimbursable real estate tax in a GSA lease. On November 10, 2022, the CBCA held that transportation (public roadconstruction tax) and sanitation (operating and capital expenses toexpandandupgradethestorm drainage system) taxes constituted realestatetaxesforwhichlessors are entitled to reimbursement by the GSA under the terms of GSA leasesand are not special assessments. As a result of this ruling, federal landlords are eligible to file claimsfor reimbursement for the costs of similar transportation and sanitation taxes under leases with the GSA with similar terms.

Background

CESCwas brought by landlords with GSA leases in Arlington County, Virginia. All the leases contained tax adjustment clauses that made GSA responsible for real estate taxes, as specified in the lease contract provisions, which stated: Taxes which are assessed against the building and/or the land upon which the buildingis located, without regard to benefit to the property, for the purpose of fundinggeneralgovernmentservices; taxesthatareassessedonanadvalorem basis against the building and/orthe land upon which the building is located, without regard to any benefit to the property, for the purpose of funding general government services; and taxes that are levied upon the owners of real property by a taxing authority (as hereinafter defined) ofa state or local government on an ad valorembasistoraisegeneralrevenue for funding the provision of government services.

2014PolicyLetter

In 2014, GSA issued a policy letter stating that such taxes were not real estate taxes but instead were special assessments for which GSA would not pay. GSA refused to pay the taxes inthe future and demanded repaymentof taxes previously paid under thelease.

In response, multiple landlordsfiled claims with GSA for reimbursement of the transportation tax and sanitary district tax paid in Arlington CountypursuanttotheirGSAlease tax adjustment clauses.

The GSA denied the claims in a contracting officers final decision in March 2022. The six landlord claims were then consolidated on appeal to the CBCA.

GSAArguments

The GSA argued that the taxes werenot real estate taxes because they funded specific, not general, purposes. Specifically, the GSA reasoned that the taxes were not assessed against specific property owners to fund services or improvements specific to thosepropertiesbutratherwereusedto fund general government services that benefit the county as a whole. The GSA additionally argued that the taxes did not raise general revenue becausetheyraisedfundsforspecific purposes and general revenue mustbeusedtofundanygovernment services.

Rules of ContractingInterpretation

1. Contract interpretation begins withthelanguageofthewritten agreement.
2. Incontractinterpretation,developthe plan and the unambiguous meaning of the contract controls.
3. A court will interpret a contract ina manner that gives meaning to all its provisions and makes sense.
4. A court will seek to avoid conflict or make language irrelevant.
5. Acourtwillattempttoharmonize and give reasonable meaning to all parts of the contract instead ofleavingpartsofthecontract useless, inexplicable, void, or superfluous.
6. Contract provisions should not be interpreted as being in conflict with one another unless no other reasonable interpretation is possible.

CBCARuling

The CBCA rejected each of the GSAs arguments premised on the language of the leases and prior case law. The board found that the transportationtax and sanitary district taxes satisfy the criteria for real estate taxesbased on the definitions in the leases.

On November 10, 2022, the CBCAjudgesunanimouslygranted summary judgment in favor of the sixlandlordsbecausetheArlington Countystransportationandsanitary district tax were real estate taxes basedonthedefinitionsintheleases.

TipsforFederalAgencies

1. Whenapplyingnewheadquarters directives, ensure that the directives align with the existing contract definitions.
2. Forchangestothewrittenterms ortothecourseofperformance, provide a modification and an opportunity to reach a bilateral agreement on the change.
3. Use the rules of contract interpretationstatedinthisarticleto resolve ambiguities.
4. Attempttoresolveambiguities during the solicitation period byreviewingrequeststoclarify language.

TipsforContractors

1. When receiving new direction from the agency, ensure the direction aligns with existing contractlanguage.Ifnot,submita request for equitable adjustment.
2. Use the rules of contract interpretation stated in this article to spot ambiguitiesduringthesolicitation period and to resolve ambiguities during contract performance.
3. Submitrequeststoclarifylanguageduring the solicitation period.
4. Trade associations or prime contractors with identical or similar contract terms may work together to determine areasonableinterpretationoftermsthatappearinpublicprocurement contracts.CM

IrvinGray,JD,MBA,LLM,CPCM,CFCM,CCCMis the Assistant General Counsel forContractsatHoneywellFederalManufacturing& Technologies, LLC, and is an adjunctprofessorforGovernmentProcurementattheUniversityofDaytonSchoolofLaw.HeearnedhisLL.M(WithHighestHonors)inGovernmentProcurement Law at The George WashingtonLaw School. He provides legal advice toexecutives, buyers, and contract managers onfederalprimecontractsandcommercialsubcontracts.

MarcJ.Soss,JD,LLMisa governmentcontracts attorney, retired U.S. Navy SupplyCorps Officer, and serves as the treasurer ofthe NCMA Sun Coast Chapter.

Questions:

1. What type of contract is this (i.e., a lease for space)?

2. Based on the outcome and the CBCAs ruling, describe the basic issues of the case and what was missing or wrong in the leases that caused the CBCA to rule the way it did.

3. Do you agree with the CBCAs decision? Why or why not?

4. Based on what youve read and learned so far, do you think there was a better way to set up this contract (i.e., a different kind of contract, lease, or agreement)? If so, what would you suggest?