B-400107; B-400107.2, Exec Plaza, LLC, August 1, 2008
DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective Order. This redacted version has been approved for public release.
Decision
Fernand
A. Lavallee, Esq., Jeffery R. Keitelman, Esq., and
Eric M. O’Neill, Esq., DLA Piper US LLP, for the protester.
Edith Toms, Esq., and Elizabeth Johnson, Esq., General Services Administration,
for the agency.
Jonathan L. Kang, Esq., and Ralph O. White, Esq., Office of
the General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest challenging terms of a solicitation for lease of office space that apply only to the incumbent lessor is denied where the agency demonstrates that the requirements are reasonable, despite imposing unequal burdens on the protester.
DECISION
BACKGROUND
The SFO seeks offers for the lease by GSA of approximately
574,164 square feet of office space in
The SFO was issued on
Exec filed this protest on April 25. The agency subsequently received [deleted] offers
by the April 28 closing date, including Exec.
In its protest, Exec argued that the SFO was unduly restrictive of
competition because it placed numerous requirements on Exec as an incumbent
lessor that did not apply to other offerors.
On May 28, the agency submitted its report on the protest. On June 6, Exec submitted its comments on the
agency report, arguing that the agency’s report did not provide a reasonable
basis for the restrictive SFO provisions.
On June 19, GSA submitted a supplemental agency report addressing the
protester’s initial arguments, as well as its comments on the initial agency
report. As part of this supplemental
report, GSA stated that it had issued amendment No. 2 to the SFO, which revised
the solicitation regarding certain of the requirements challenged in Exec’s
protest. GSA’s June 19 supplemental
report also contained a justification and approval (J&A) for extension of
the
Based on the revisions to the SFO, GSA argued that certain of Exec’s arguments were rendered moot. In its comments on the agency’s June 19 supplemental report, as well as in other briefings to our Office, Exec argues that the changes in SFO Amendment No. 2 do not resolve its protest grounds, and that the solicitation remains unduly restrictive of competition.[2]
The solicitation, as amended, contains general requirements that apply to all offerors, as well as specific provisions in SFO amendment No. 2 sect. 1.20 that apply only to the incumbent lessors. The SFO requires offerors to propose office space as a “warm lit shell,” meaning that the space must provide basic construction elements such that the base structure, common areas such as lobbies, stairwells and elevators, power, heating, cooling, and ventilation systems, garages, and restrooms.[3] SFO amend. 2 sect. 1.9, 1.20. The warm lit shell does not include “tenant improvements,” i.e., completed interior office space required to meet the tenant agency’s program of requirements (POR). SFO sect. 1.10. After award, the SFO anticipates that GSA and the lessor will negotiate construction of new tenant improvements to meet the POR, utilizing a tenant improvement allowance of $42.08 per square foot. SFO sect. 1.10. The tenant improvement allowance is an amount per square foot that a lessor must provide for construction of improvements for the tenant agency. Although the lessor must perform the work at the outset of the lease, the government pays the lessor the allowance amortized over a period set forth in the lease. SFO sect. 1.8(E); see also, 41 C.F.R. sect. 102-85.90-.100 (2008).
With respect to non-incumbent offerors who propose buildings with existing tenant improvements, the SFO states that these offerors must assume that the existing improvements will be demolished, as follows:
Demolition. All required demolition is at the Lessor’s expense and offers should be priced accordingly. Notwithstanding sect. 1.11(A)(4) [concerning credits towards the tenant improvement allowance], any offeror proposing an existing building with existing tenant improvements must assume that all existing improvements must be demolished in order to provide for the Government’s new POR.
SFO amend. 2 sect. 1.9(A)(15).
With respect to incumbent offerors, the initial SFO explained
that the “majority of this requirement is currently located at 6116, 6120 and
6130
The SFO also advised the incumbent offerors to “assume that all existing tenant improvements must be demolished in order to provide the Government’s new POR.” SFO amend. 2 sect. 1.20(A). Because the modernization of the incumbent offerors’ properties will require all or portions of the building to be vacant from time to time during modernization, the incumbent offerors must also propose, at their own expense, swing space for the NCI staff, as follows:
During modernization, the Lessor(s) of the Executive Boulevard Properties will be responsible for providing and paying for swing space (temporary alternate space) equal in size to the amount of space vacated from time to time in the Executive Boulevard Properties (“Swing Space”).
SFO sect. 1.20(B).
Additionally, the incumbent-specific solicitation provisions state that “the Executive Boulevard Properties must meet all of the requirements of the SFO, including all security requirements outlined in Section 9.0 of this SFO.” SFO amend. 2 sect. 1.20(G).
DISCUSSION
The protester argues that the SFO is unduly restrictive of competition because it contains numerous requirements which unreasonably place Exec at a competitive disadvantage.[4] As discussed in detail below, we address the protester’s arguments that the terms of the SFO unreasonably: (1) require Exec to demolish its existing tenant improvements, (2) apply materially different and unequal security requirements to Exec, (3) require Exec to provide swing space during the renovation of Executive Plaza, and (4) require offerors to have single ownership of the proposed properties. We find no merit to any of the protester’s arguments.[5]
While a contracting agency has the discretion to determine
its needs and the best method to accommodate them, those needs must be
specified in a manner designed to achieve full and open competition. Mark Dunning Indus., Inc., B-289378,
As a general matter, we have previously addressed arguments
by incumbent lessors that requirements in a solicitation that apply only to the
lessor are unduly restrictive of competition.
While we recognize that, in certain instances, incumbent lessors may
face unique and unequal burdens as compared to non-incumbent offerors when
solicitations require demolition and renovations, such disadvantages are not
necessarily unreasonable or unduly restrictive of competition. See Paramount Group, Inc.,
B-298082,
The government is also not required to perpetuate a
competitive advantage that an offeror may enjoy as the result of its
performance of the current, or a prior, government contract. Inventory Accounting Serv., B-286814,
Demolition of Existing
Tenant Improvements
Exec argues that the requirement to demolish existing tenant improvements is unreasonable. The protester contends that (1) the SFO requires Exec, but not non-incumbent offerors, to demolish its existing tenant improvements, and (2) the demolition requirement is prejudicial to the protester’s ability to compete for the lease because it imposes additional costs and does not allow Exec to take advantage of existing, high-value tenant improvements in Executive Plaza. The agency argues that the SFO demolition requirements apply equally to all offerors, and that the requirements are a reasonable way to meet the agency’s requirements. For the reasons below, we conclude that the record does not support Exec’s arguments, and that the demolition requirement is reasonable.
The SFO, as amended, requires offerors to propose office space as a warm lit shell, without tenant improvements. The SFO states that offerors must assume that existing tenant improvements will need to be demolished. The demolition requirements are set forth in two provisions, one that applies generally to all offerors, and one that applies to Exec:
Demolition. All required demolition is at the Lessor’s expense and offers should be priced accordingly. Notwithstanding sect. 1.11(A)(4), any offeror proposing an existing building with existing tenant improvements must assume that all existing improvements must be demolished in order to provide for the Government’s new POR.
SFO amend. 2 sect. 1.9(A) (generally applicable requirements).
In addition, all required demolition will be at the Executive Boulevard Properties expense and its offer should be priced accordingly. Notwithstanding sect. 1.11(A)(4), since the Executive Boulevard Properties will be proposing to offer an existing building with existing tenant improvements, the Executive Boulevard Properties must assume that all existing tenant improvements must be demolished in order to provide the Government’s new POR.
SFO amend. 2 sect. 1.20(A) (incumbent-specific
requirements).
First, the protester contends that because SFO sect. 1.20(A) specifically states that “the Executive Boulevard Properties must assume that all existing tenant improvements must be demolished,” the incumbent offeror is being treated unequally from other offerors. As the agency notes, however, the demolition requirement clearly applies to all offerors with existing tenant improvements. Both the general and incumbent-specific requirements use identical language, stating that offerors must “assume that all existing improvements must be demolished in order to provide for the Government’s new POR.” SFO sect. 1.9(15), 1.20(A). Although the requirement regarding the incumbent lessors is duplicative, we find no basis to conclude that the requirements are unequal or impose different obligations on incumbent and non-incumbent offerors.
Next, the protester argues that it is specifically
disadvantaged by the requirement to demolish existing improvements. Exec states that it has recently made
improvements at
GSA argues that
demolition of existing improvements is required to meet the warm lit shell
requirements. The agency states that the
warm lit shell approach “allows the tenant agency to design the interior spaces
to its own unique needs and to increase its flexibility by not being
constrained to existing space configurations.”
In a similar
protest, our Office determined that GSA’s rationale for requiring a warm lit
shell was reasonable in light of the agency’s requirement to have flexibility
in configuring its office space requirements and the need to have a common
basis for comparison of offerors’ proposed properties. Paramount Group, supra, at
4-5. We think the rationale in Paramount
Group applies here as well, and therefore conclude that the agency’s
requirement for demolition of existing improvements is reasonable. Further, the
record does not support the protester’s argument that its existing improvements
will be “wasted,” as the SFO does not require offerors to demolish all
improvements, but instead requires offerors to assume for purposes of their
offers that demolition will be required.[6]
Applicability of Security
Requirements to Exec
Next, the protester argues that the SFO imposes certain security requirements on Exec that do not apply to other offerors. GSA argues that SFO amendment No. 2 removed any potentially unique or prejudicial requirements that applied solely to Exec, and that all offerors must meet the same security requirements. We agree with the agency.
The initial SFO stated that
The Executive Boulevard Properties must undergo a complete modernization to meet the requirements of the SFO. This must include a new building façade, new windows, and new mechanical and electrical systems. All security requirements outlined in Section 9.0 of this SFO must also be met.
SFO sect. 1.20(G).
This requirement was revised in SFO amendment No. 2 as follows:
Requirements of Modernization: the Executive Boulevard Properties must meet all of the requirements of the SFO, including all security requirements outlined in Section 9.0 of this SFO.
SFO amend. 2 at 1.
The agency argues that the revised provision merely states
that
We think that the protester’s interpretation of the revised SFO provision is unreasonable. While we agree that amended SFO sect. 1.20(G) is duplicative in stating that Exec must meet the requirements of SFO sect. 9.0, there is no basis to conclude that the protester is being treated any differently from other offerors. Specifically, there is no basis to conclude that SFO sect. 1.20(G) relieves other offerors from the requirements of SFO sect. 9.0, nor is there any basis to conclude that additional requirements apply to Exec. On this basis, we find no merit to the protester’s argument.
Swing Space
Requirement
Next, Exec argues that the swing space requirements are
unduly restrictive of competition because they apply only to incumbent lessors,
and create significant costs and burdens.
The protester also argues that the requirement for swing space is
unreasonable because, it argues, Exec may not be an incumbent lessor when the
lease commences. The agency contends
that the swing space requirements are reasonable in light of the unique status
of the incumbent offeror, and that the agency expects to continue occupying
The SFO requires the incumbent lessors to propose swing
space, i.e., alternative office space, for NCI during the renovation of
GSA acknowledges that the solicitation, by design, imposes
a swing space requirement solely on incumbent offerors. The agency argues that this requirement is
reasonable because the solicitation requires offerors to propose the office
space as a warm lit shell, and because
We think that a swing space requirement is an example of a legitimate disadvantage faced by an incumbent lessor due to its circumstances, and is not a disadvantage caused by unfair action by the agency. See Paramount Group, supra. In this regard, requirements for swing space are the logical consequences an incumbent lessor, such as Exec, must face when its building must be renovated to meet new lease requirements. While we recognize that potential non-incumbent lessors may receive a competitive advantage by not having to address the need for swing space in their offers, we think an agency is not required to remove the advantage unless it results from preferential treatment or other improper actions by the government. See, e.g., id. at 5; Norvar Health Servs.--Protest and Recon., B-286253.2 et al., Dec. 8, 2000, 2000 CPD para. 204 at 4-5.
Next, Exec argues that the requirement for swing space is
unreasonable because it is not clear that NCI will occupy the building after
September 2009, when the current leases for
This argument raises two issues: (1) whether the agency has a reasonable basis
for extending the
Second, GSA states that it has the legal authority to
extend its leases at
Our review of the record shows that GSA’s requirement for
swing space is based on its assumption that the
Single Ownership Requirement
Finally, the protester argues that the requirement that the offered office space be owned by a single entity is unreasonable.[8] The agency contends that the requirement is a reasonable restriction that addresses concerns regarding the current lease arrangements for NCI office space, which involve [deleted] separate leases, and concerns regarding the future administration of the lease.
As discussed above, the SFO states that“[t]he campus and/or buildings offered must be one ownership and one single management group.” SFO sect. 1.4. [Deleted]. The protester contends that because the office space will be under a single manager, the fact that there are two separate leases with the different owners will not affect the offerors’ ability to meet the solicitation requirements or affect the government’s interests.
GSA argues that the requirement for single ownership is reasonable based on two concerns. First, the agency notes that the current lease situation for NCI involves [deleted] leases which results in “different rent rates, in multiple buildings, owned by multiple landlords and operated by multiple management companies.” AR at 7. The agency states that it seeks to avoid similar problems with the anticipated lease here by ensuring that there will be a single owner and a single lease.
Second, the agency argues that the negotiation and administration of multiple leases with multiple owners would be needlessly complicated because of the fact that the government would need to reach separate agreements with each lessor.[9] The agency also contends that the lease schedule may be put at risk by disputes between multiple owners, and that there is an increased risk of a delayed schedule because there will be multiple entities responsible for obtaining financing and permitting. Finally, the agency notes that the government’s rights and remedies in the event of nonperformance or breach become more difficult to enforce when there are multiple lessors. For example, having multiple lessors could require additional litigation by the government to determine how to allocate responsibilities for delays or non-performance.
We think that the agency’s concerns regarding multiple owners for the proposed lease are reasonable. The agency explains that the numerous problems posed by multiple leases stem from entering into leases with multiple parties, each of whom would have separate legal rights and obligations. For this reason, we think that the agency’s concern that single management will not address the problems posed by multiple owners is reasonable. In sum, we think that GSA’s requirement for single ownership is reasonable.
The protest is denied.
Gary L. Kepplinger
General Counsel
[1] Each of these evaluation factors contains several subfactors which are not relevant to this protest.
[2]
Exec also contends that GSA’s amendment to the SFO, announced in the agency’s
[3]
“Warm lit shell” is a common industry term, referring to basic building
structure elements. While the
non-incumbent-specific SFO provisions refer to a “building shell,” and the
incumbent-specific provisions refer to a “warm lit shell,” SFO sections 1.9, 1.20,
GSA states that for purposes of the SFO, the terms “building shell” and “warm
lit shell” are interchangeable.
[4]
As discussed above, NCI currently occupies four different buildings: the two buildings comprising
[5] The protester raises numerous collateral arguments in its protest that we do not address here. For example, the protester argues that the solicitation unreasonably requires incumbent offerors to submit a written modernization plan to demonstrate how the incumbent lessor “proposes to modernize the Executive Boulevard Properties in accordance with all of the requirements of this SFO, including the requirements set forth in this Section 1.20, with minimum disruption and interference with the ongoing operations of the NIH.” SFO sect. 1.20(F). As discussed below, we conclude that the SFO requirements are reasonable regarding demolition of existing tenant improvements and renovation and swing space. In light of these requirements, we do not think that it is unreasonable for the incumbent to provide a written overview of its plans to achieve the required work--which other offerors will not need to perform. We have reviewed all of the protest grounds raised by the protester and find that none has merit.
[6] We also find no merit to the protester’s argument that the solicitation treats Exec differently from other offerors with regard to the ability to receive a “credit” for existing tenant improvements that the government may choose to accept, rather than require the lessor to demolish, during negotiations concerning the tenant improvement allowance. See SFO sections 1.9(A), 1.20(A), 1.11(A)(4). SFO amendment No. 2 imposes identical requirements on all offerors to assume, for purposes of pricing and structuring their offers, that demolition will be required. The SFO provisions for incumbent and non-incumbent offerors also use identical language to explain the process by which the lessor and the government may agree, after award, that certain existing improvements would be counted as a “credit” against the tenant improvement allowance. In this regard, the term “notwithstanding” clearly distinguishes the assumptions offerors must make in their proposals under SFO sections 1.9(A) and 1.20(A), from negotiations that will take place after award regarding the government’s use of the tenant improvement allowance.
[7]
Additionally, the agency argues that a GSAR provision, which was incorporated
into the SFO, permits offerors to submit alternative proposals to the swing
space requirement. See 48 C.F.R.
sect. 552.270-1(c)(7). The protester argues
that the ability to propose an alternative to the swing space requirement is
not a valid justification for its restrictive effects, as submission of an
alternative approach places an offeror at risk of being rejected as
unacceptable. Exec also argues that this
provision does not clearly allow it to propose alternatives to the swing space
requirement. Because, as discussed
above, we conclude the swing space requirement is reasonable, we need not
address whether the ability to propose alternative solutions to the swing space
requirement renders that requirement reasonable. Nonetheless, we agree with the agency that
the solicitation permits incumbent offerors to propose alternatives to the
swing space requirement. We note,
however, that a recent decision by the Court of Federal Claims expressed the
following view regarding the alternative proposal clause: “While GSAR 552.270-1(c)(7) allows offerors
to submit proposals that depart materially from solicitation requirements, the
government has no obligation to consider them, or explain why it did not do
so.” Tim Mills Props., Inc. v.
[8]
The protester initially argued that the requirement for single management was
unduly restrictive of competition, but now concedes that the agency’s
requirement is reasonable. Protest at
11; Protester’s Comments,
[9] Exec notes that GSA’s concerns are expressed with regard to multiple leases, rather than the SFO’s requirement for a single owner. The protester does not explain, however, the relevance of this distinction to its protest. In this regard, the record shows that the protester’s approach does not or will not involve either single ownership or a single lease.