By Chris Teale (File photo)
The General Services Administration erred in its awarding of the U.S. Transportation Security Administration’s new lease to the Victory Center in Alexandria because the building exceeded the agency’s limit of square footage as prescribed by its own request for lease proposal, according to a ruling by Judge Charles Lettow of the U.S. Court of Federal Claims that was unsealed on November 25 and obtained by the Times.
Lettow’s ruling was first handed down November 11 under seal, and voided the TSA’s move to the Port City, which had been announced to great fanfare in August. The order was released to the public last week with a number of redactions, mostly related to pricing and square footage.
The ruling criticizes the GSA’s decision to award the lease to Victory Center, having been authorized by Congress to select up to 625,000 square feet of space. It instead awarded a lease for up to 665,000 square feet, including a 140,000 square foot addition to be built adjacent to the building. The GSA is required to seek approval from Congress for leases that cost more than $2.85 million a year in rent.
Robert MacKichan Jr., a partner at law firm Holland & Knight, which specializes in federal leasing issues but is not involved in this case, said the fact that the court views the request for lease proposals to be legally binding in its ruling is significant.
“Up until the issuance of this decision, it was commonly understood that the lease prospectus process was a matter of comity, which is essentially a relationship between branches of government whereby it’s not legally binding, but as a matter of practice the various branches accommodate the other in requests that are made,” he said. “In this instance, Congress has set forth that a lease prospectus is required and GSA has accommodated that request and, as
a matter of policy, they don’t very often deviate from the content of a lease prospectus.”
Lettow cited several internal GSA memos that acknowledged the agency knew that the proposal from the Victory Center exceeded 625,000 square feet. But those memos said the bid should not be disqualified on this basis as it would leave the process open to delays in relocation and would mean paying additional rent on the current TSA headquarters in Arlington. Officials with the GSA did not respond to requests for comment.
The Victory Center, owned by Prudential Real Estate Investors Inc., agreed to provide approximately 24,207 square feet rent-free to the government. An internal GSA memo warned that the overall amount offered was more than what was authorized by Congress.
“Despite foreseeing a protest, GSA chose to execute the lease with Victory Center,” Lettow wrote. “GSA now argues that its decision cannot be undone. If the court were to accept this argument, it would mean that GSA could immunize itself from post-award injunctive relief by signing flawed contracts and then claiming in court that the awards cannot be vacated. It would be inequitable to permit the government to ‘preserve its ill-gotten gain’ in such a manner.”
The decision came following a protest by Boston Properties, owner of a site in Springfield, Va. that lost out on the TSA headquarters project. The GSA could now award the new headquarters to the Springfield site, but also will have to re-examine how it goes about procuring new space for government offices and risk delays.
“The quandary is that [the GSA] wants to move forward with the TSA project and on the other hand I think this is such a fundamental concept that they’re going to have to re-evaluate the delay of the project versus rectifying what they undoubtedly must view as an incorrect decision,” MacKichan said. “The court doesn’t specify or recommend a course of action, but I still think that they could go back and evaluate the proposals that they have in hand in accord with the judge’s position.”
Also notable about Lettow’s decision is that he addresses the three arguments the GSA makes on why it was not legally bound by the lease prospectus and states why those three arguments are incorrect. He goes on to say that if the GSA had submitted revised prospectuses to the two congressional committees — the House Committee on Transportation and Infrastructure and the Senate Committee on Environment and Public Works — and had them approved, it could have avoided the lease termination altogether.
But the termination of the lease means that while the decision could be appealed, the judge’s ruling may prevent Victory Center from filing an appeal of its own.
“The one gift the judge gave [the GSA] is that he voided the lease, such that it never existed, such that now if they go back and re-compete this, it’s not a breach of the lease,” MacKichan said. “They’ve probably been insulated from any claim by Victory Center that the government breached the lease. That could have been a lot of money. I think the judge threw that in, rather than heaping it all upon the GSA, I think he’s provided that as a little gift at the end.”