Amid growing concern over the spread of the coronavirus (COVID-19) across the United States, the U.S. General Services Administration (GSA) is taking steps to protect its employees and tenants. Specifically, GSA has provided (and continues to provide) lessors with copies of the Centers for Disease Control and Prevention's (CDC) "Interim Guidance for Businesses and Employers" to plan, prepare and respond to COVID-19. Based on these guidelines, GSA has asked lessors to provide additional cleaning services, as well as increased access to antibacterial soaps and hand sanitizer.
In light of these requests, landlords to the federal government should be aware of their contractual rights and remedies in the event that these requests – or any government changes to lease requirements – result in additional expenses. As described below, any such government changes entitle the lessor to an equitable adjustment, but lessors must understand what costs are allowable and how to seek an equitable adjustment.
Yes, the "Changes" clause in the General Clauses – which are incorporated into all GSA leases – allows the federal government, at any time, to direct changes to the work or services required under the lease:
The LCO may at any time, by written order, direct changes to the Tenant Improvements within the Space, Building Security Requirements, or the services required under the Lease.
If a change causes an increase in a lessor's time or money, the Changes clause entitles the lessor to seek an amendment to the lease by submitting a request for an equitable adjustment:
If any such change causes an increase or decrease in Lessor's costs or time required for performance of its obligations under this Lease, whether or not changed by the order, the Lessor shall be entitled to an amendment to the Lease providing for one or more of the following:
(1) An adjustment of the delivery date;
(2) An equitable adjustment in the rental rate;
(3) A lump sum equitable adjustment; or
(4) A change to the operating cost base, if applicable.
However, in order to preserve the right to an equitable adjustment, lessors must assert their right under the Changes clause within 30 days of receipt of the change order. Additionally, all lessors should ensure all changes directed by the government be received in writing from the contracting officer in order to receive an adjustment under the Changes clause. The Changes clause makes clear that, absent a written change order, the government shall not be liable to the lessor under the Changes clause. In addition, lessors should make sure that they maintain records of the extra costs.
Lessors should also include overhead and profit in their calculation of the equitable adjustment. The U.S. Supreme Court has stated that the term "equitable adjustment," as used in a U.S. government contract Changes clause, includes not only the cost of the work but the addition of a reasonable and customary allowance for profit. (See U.S. v. Callahan Walker Construction Company, 317 U.S. 56, 61 (1942)). Calculation of the profit allocated to any change must be reasonable.
Even if the lessor does not agree with the change or the parties fail to agree to an appropriate adjustment, the lessor must proceed with the change as directed. Any failure to agree to an adjustment shall be a dispute under the Disputes clause.
While it remains unclear how much of an impact COVID-19 will have on the federal workforce and its workplace, lessors should become familiar with their contractual rights and obligations. Landlords should also demand that any request for additional supplies or services be in writing from the contracting officer and should submit requests for an equitable adjustment to the government within 30 days of receipt of the written change order.
DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact the author or your responsible Holland & Knight lawyer for timely advice.
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