Free Published Opinion - District Court of Federal Claims - federal

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 1 of 98

In The United States Court of Federal Claims
Nos. 98-168C, 02-1632C & 03-2699C (Filed under seal: March 7, 2007) (Reissued: April 2, 2007)1 _________ NORTH STAR ALASKA HOUSING CORPORATION,
Plaintiff, v. * * * * * * * * * * *

THE UNITED STATES, Defendant.

Trial; Government contract; Lease of development for military housing; Bad faith; Breach of covenant of good faith and fair dealing; Specific statements evidencing animus; Actions taken by defendant indicative of bad faith; Breach of lease provisions; Abuse of dispute resolution process ­ loss of independence; Damages; Loss in value of development; Other damages; Relief granted.

__________ OPINION __________
Paul Wesley Killian and Fani C. Geroff, Akin, Gump, Strauss, Hauer & Feld, Washington, D.C., for plaintiff. Timothy Paul McIlmail, United States Department of Justice, Washington, D.C., with whom was Assistant Attorney General Peter D. Keisler, for defendant.

ALLEGRA, Judge: Just follow the Miami Hurricane's Game Plan. Blitz Fisher the first time he takes the handoff from Wartes. Force them to go for the short gains. Keep them out of the red zone. On offense, exercise good ball control and mix up the plays to throw off their timing. Try to draw them offsides and into a penalty situation. And always remember that you have home field advantage.2

An unredacted version of this opinion was issued under seal on March 7, 2007. The parties were given an opportunity to propose redactions, but no such proposals were made. Accordingly, the opinion is issued in its original form, with minor corrections. Thomas Beech Peterson, Chief of Housing, Department for Public Works, State of Alaska, United States Army.
2

1

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 2 of 98

Despite what might appear, this is neither a case about football, nor even sports ­ at least, the athletic sort. Rather, it is a government contract case, before the court following trial in Fairbanks, Alaska, as well as trial and closing arguments in Washington, D.C. Armed with charged quotes like the above, plaintiff alleges, inter alia, that defendant's representatives acted in bad faith in administering the subject housing contract ­ driven by animus that led them to breach the contract repeatedly and to interpret other provisions in a fashion calculated to deny plaintiff the benefits of the bargain. So the question is ­ did defendant act in bad faith? And the answer, in light of the record, is ­ yes. TABLE OF CONTENTS I. FINDINGS OF FACTS A. B. .................................................................................................3

Background..............................................................................................................3 Critical Terms of the Lease 1. 2. 3. .................................................................................4

Basic Provisions ................................................................................. 4 Change of Occupancy ................................................................................ 9 Downtime ..................................................................................................12

C.

The Dispute: A Chronology...................................................................................13 1. 2. 3. 4. 5. 6. 1989 through 1995 ....................................................................................13 1996 and 1997 ...........................................................................................15 1998 ...........................................................................................................22 1999 and 2000 ...........................................................................................25 2001 and 2002 ...........................................................................................27 2003 and forward ......................................................................................33

D. II.

Proceedings to Date...............................................................................................35

DISCUSSION ..................................................................................................................36 A. B. Jurisdiction ............................................................................................................36 Bad Faith ...............................................................................................................41 1. 2. Standard of Proof ......................................................................................41 Did Defendant Act in Bad Faith?...............................................................45 a. Specific Statements Evidencing Animus - "Just follow the Miami Hurricane's Game Plan."....................................................45 -2-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 3 of 98

b.

Actions Taken by Defendant Indicative of Bad Faith ­ "Force them to go for the short gains. On offense, exercise good ball control and mix up the plays to throw off their timing. Try to draw them offsides and into a penalty situation." ..............49 1. 2. 3. 4. 5. Actions that Increased Downtime .................................... 51 Downtime Calculations......................................................57 Actions Otherwise Designed to Increase North Star's Costs ..................................................................................60 Actions Designed to Reduce North Star's Compensation................................................................... 64 Other Issues .......................................................................66

c.

Abuse of the Dispute Resolution Process ­ "always remember that you have home field advantage". ..........................71

4. C.

Redux.........................................................................................................76

Damages ............................................................................................................... 77 1. 2. Loss of Value ........................................................................................... 77 Other Damages ......................................................................................... 83

III.

CONCLUSION ...............................................................................................................85 Fact Appendix I .................................................................................................................88 Fact Appendix II .............................................................................................................. 95 Fact Appendix III ............................................................................................................. 98

I.

FINDINGS OF FACT Based on the record, including the parties' stipulations, the court finds as follows: A. Background

North Star Alaska Housing Corporation (North Star) is a Seattle, Washington-based corporation, whose president and owner is Richard Fischer. After a competitive bidding process, North Star was awarded a contract to design and build a 400-unit housing project for soldiers and their families at Fort Wainwright, Alaska, in the southeast section of Fairbanks, Alaska. The award resulted in a long-term relationship between North Star and the Army Corps of Engineers (Army), the terms of which are outlined in a series of contracts between the two parties. Lease No. DACA: 85-1-86-11 requires North Star to lease property on Fort Wainwright for thirty-two years, through June 26, 2018. Lease Contract No. DACA: 85-9-86-27 requires North Star to -3-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 4 of 98

lease the same property with residential buildings and other improvements back to the government. Lease No. DACA: 85-5-88-17, entered into on November 6, 1987, is the lease of the improved property from North Star to the Army for a term of nineteen years and six months, through May 5, 2007. Under this agreement (the Lease), the Army agreed to rent all 400 units in the development; it pays shelter rent for the use of the housing and maintenance rent for maintenance and operational services. The residential development resulting from this project is referred to as Birchwood Estates (Birchwood). See generally, North Star Alaska Housing Corp. v. United States, 30 Fed. Cl. 259, 265 (1993) (describing these events). The last decade of the administration of the leaseback phase of Birchwood has been quarrelsome, to say the least. Prior to the initiation of this action, the parties agreed to settle a prior suit filed by North Star involving various claims arising out of the leaseback. Subsequent to that settlement, problems with the leaseback continued and North Star disputed various actions taken by the Army's representatives in the administration of the contract. Ultimately, North Star filed claims with the contracting officer regarding a number of these matters. After some procedural machinations, various of these claims were incorporated into the First Amended Complaint filed in this case by North Star on August 23, 1999. Following settlement negotiations and an extended debate regarding whether a binding settlement had occurred, plaintiff filed a Second Amended Complaint in this case on April 16, 2002, which included essentially the same seven counts in the First Amended Complaint, but expanded somewhat on plaintiff's prior allegations of bad faith. B. Critical Terms of the Lease

To determine whether plaintiff's contractual rights have been breached, the court first must determine what those rights are. See San Carlos Irrigation and Drainage District v. United States, 877 F.2d 957, 959 (Fed. Cir. 1989); Cuyahoga Metro. Hous. Auth. v. United States, 57 Fed. Cl. 751, 759 (2003). At the outset, then, the court must outline the provisions in the Lease that underlie the disputes that will be discussed in greater detail below. 1. Basic Provisions

Article I of the Lease provides that the "Premises" includes "land situated on the Fort Wainwright Military Reservation . . . together with the improvements constructed and provided thereon." Article IV of the Lease specifies that "the Government shall pay to [North Star] an annual rental . . . consist[ing] of a shelter rent and a maintenance rent" and that the "portion of the annual rental attributable to maintenance shall be increased or decreased at the commencement of each year." Article VIII of the Lease states that ­ [i]n addition to rents stipulated in Article IV of this Lease, the Government, at its option, may pay [North Star] an incentive fee not to exceed 5 percent (5%) of the maintenance rental for all housing units, for the period of time for which [North Star's] performance of the obligations and responsibilities contained herein are evaluated and found by the Government to substantially exceed the established -4-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 5 of 98

standards. The amount of the incentive fee shall be determined by an Incentive Fee Board based upon the performance of [North Star] in operating the Premises in accordance with its obligation. Exhibit `C' contains the provisions to establish the makeup of the Board and the procedures for determining such bonuses."3 Exhibit C to the Lease is the "Maintenance, Repair and Operational Services Standards Annex" (herein referred to as the "maintenance annex"), in which most of the details regarding how Birchwood is to be run are found.4 Various provisions in the Lease map the contours of the parties' responsibilities in regards to the property ­ these obligations flow to and from North Star, the Army, and the soldier occupants of the units. Regarding North Star's responsibilities in maintaining the property, section E of the maintenance annex declares that ­ [North Star] shall be responsible for maintaining all real property assets provided for in this lease agreement including dwelling units . . . to a standard that prevents deterioration beyond that which results from normal wear and tear, and corrects deficiencies in a timely manner to assure full life expectancy of the facilities and equipment. The level of maintenance shall assure all structures are free of missing components or defects which would affect the safety, pleasing appearance or habitability of the units or would prevent any electrical, mechanical, plumbing or structural system from functioning in accordance with the design intent. . . . The quality of the work and the repaired areas shall be fully compatible with adjacent surfaces or equipment. All replacements shall match existing dimensions, material, quality of work, finish, color and design. . . . Wherever the term `pleasing appearance' is used in this or subsequent paragraphs, it shall be construed to mean an appearance similar to the original finished appearance with only minor, nonobjectionable deterioration resulting from normal use. The

Section H.4. of the maintenance annex provides that "[a]n incentive fee, for exceptional performance of standards contained in this annex, not to exceed 5 percent of the `Maintenance Rental', will be determined on an annual basis by a board composed of three (Army) Officers or civilian personnel who will evaluate [North Star's] performance over the preceding twelve-month period. The board will make a determination within 60 days after the end of the period to grant all, some, or none of the incentive award fee." Section B.18. of the maintenance annex defines "Maintenance" as "[t]he recurring periodic or scheduled work required to preserve real property facilities, systems, moveable equipment, and accessories in such condition that they may be effectively utilized for their designated purpose." Article IV of the Lease provides that "[i]t is expressly understood and agreed to by [North Star] that the obligations of the Government to make any payments under this agreement and Lease [are] subject to the availability of appropriations for that purpose." -54

3

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 6 of 98

housing unit shall be evaluated against the maintenance standards contained herein to determine deficiencies requiring corrections. A series of other provisions in the maintenance annex requires North Star to maintain interior wall systems, linoleum and other tile floor coverings, carpeting, house accessories, outside recreational equipment, and painting.5 Section G.1. of the maintenance annex obligates North Star to ensure that refuse is collected "twice weekly with three days between collections," while section G.3.(a) of the maintenance annex requires North Star to provide janitorial services. Resident handbooks that were issued periodically during the years in question gave soldiers and their families instructions on how to clean their units. Inter alia, the 2000 version of this handbook instructed residents to "maintain [the] quarters as a prudent homeowner, and report any needed repairs;" "[t]o keep the premises clean and safe inside and outside;" "[t]o dispose of trash properly and in a timely manner;" "[t]o use all electrical, plumbing, sanitary, heating and appliances properly and in accordance with applicable manuals;" to maintain the appearance of yards, landscaping and playgrounds; and to exercise care in dealing with cigarettes, matches and lighters. The handbook emphasized that residents would be responsible for pet damage. An appendix to the handbook stressed that: (i) "[i]f the resident willfully or negligently destroys, defaces, damages, impairs, or removes any part of the premises (including fixtures, facilities, and appliances) or willfully or negligently permits any person to do so, replacement or repair will be at the resident's expense;" and (ii) "[t]he residents will at their own expense . . . replace or repair all broken or damaged glass, screens, flooring, wood plaster, drywall, and locks occurring during their occupancy, normal wear and tear excepted." Other provisions in the Lease distinguish between permissible modifications to the units, ordinary wear and tear, and occupant-caused damage. Article VII of the Lease recites that "[t]he Government shall have the right . . . to make alterations, attach fixtures, and erect additions,

The Lease is particularly specific regarding painting, indicating in section E.8.(c) of the maintenance annex that ­ [p]aint . . . shall be carefully applied with good clean brushes, approved rollers or by airless spraying. . . . Finish coats shall be smooth and free from runs, sags or other surface preparation defects. Each coat of paint shall be of sufficient thickness to cover completely the previous coat or surfaces. Further, section E.8.(d) of the maintenance annex provides that "[c]omplete interior painting will be accomplished as required in conjunction with the change of occupancy work. Complete interior painting will be accomplished at the first change of occupancy occurring subsequent to the 3rd, 6th, 9th, 12th, 15th, and 18th years of the lease agreement." This provision additionally states that "[c]omplete or partial interior painting during all other changes of occupancy, except where required in connection with maintenance and repair, will be at the discretion of [North Star]." -6-

5

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 7 of 98

structures, or signs in or upon the Premises. However, no such changes shall be made to any improvement without the written consent of [North Star]." As to occupant damage, Section C.1.(s) of the maintenance annex specifies that ­ [d]amages to a housing unit or to other improvements within the project which are beyond normal wear and tear and are caused by the Government or an occupant, his dependents, or invited guests, which are not corrected by the Government or occupant, shall be repaired by [North Star]. The cost of such repairs shall be billed to the Government. . . . Repair of damages which occur to the units or other improvements that cannot be attributed to the Government, his agents, officers, occupants, their dependents, or invited guests, shall be accomplished by [North Star] at no cost to the Government. Section D.7.(c) of the maintenance annex provides that "[i]n the event the occupant fails to properly clean the unit for any reason, or correct damages beyond normal wear and tear for which the occupant is responsible, it shall become [North Star's] responsibility to satisfactorily clean and repair the unit for the next occupant." Section C.2.(c)(10) of the annex indicates that the government is required to notify North Star "via work authorization of occupant-caused damages or conditions requiring correction or cleaning and reimburs[e] [North Star] for accomplishment of same." Section C.3.(a) of the maintenance annex provides that "occupants shall be liable for loss or damage to the housing unit or equipment caused by the abuse or negligence of the assigned occupant, dependents, or guests." To minimize debates regarding the cost of various repairs, Section C.1.(t) of the maintenance annex sets forth that ­ [North Star] shall, with the approval of the Government, establish a list of cleaning and repair costs for dwelling unit components which will establish the normal maximum amounts to be charged in the event of damage to property and equipment installed within a living unit over and above normal wear and tear. The list of repair costs will be based upon the latest published edition of applicable Engineered Performance Standards (EPS) Manuals (Army TB 420-series, Navy NAVFAC P-700 Series, Air Force AFM 85-series) which will be utilized to estimate manhour requirements. . . . The manhour requirements will be multiplied by the Department of Labor Service Contract Act Wage Determination rate plus materials at wholesale cost plus reasonable overhead and profit. . . . Such a list will be subject to change annually or from time to time by mutual agreement of [North Star] and the Government. Examples of items which might be included on this list are cleaning of stove, refrigerator, and entire dwelling unit, replacement of interior door, patching/repairing hole in interior door, patching/repairing hole in dry wall . . . . Under section C.2.(c)(11) of the maintenance annex, the Government is required to "[a]pprove [an] annual . . . list of repair costs for occupant damages and printed occupant instructions as -7-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 8 of 98

submitted by [North Star]." Further, section H.2. of the maintenance annex states that for those items of work for which North Star is entitled to reimbursement, "the Government shall issue a work authorization, in writing, authorizing the accomplishment of such work," indicating that North Star's "charges for this work will be based upon the approved list of repair costs." Likewise, sections H.3.(a) and (b) of the maintenance annex indicate that North Star is to submit invoices for services performed in response to the work authorizations, that the billing should be "in accordance with the approved List of Repair Costs," and that "[u]pon the Government's verification of work actually performed invoices will be processed for payment." The Lease prescribes certain staffing requirements fore the site. The Army appoints a "housing project manager," who, under section B.15. of the maintenance annex, is "charged with the responsibility for the day-to-day administration of the housing site and fulfillment of the Government's responsibilities under the terms of [the] lease agreement." Amplifying the responsibilities of this job, section C.2.(b) of the maintenance annex explains that the manager "shall serve as the primary point of contact for matters involving the day-to-day coordination and administration of the Government's responsibilities." Correspondingly, under section B.28. of the maintenance annex, North Star appoints a "site manager," who is its "[p]rimary point of contact authorized to act . . . in all matters regarding work required at the housing site." Section C.1.(c)(2) of the maintenance annex provides that "[North Star] shall furnish sufficient personnel to perform all work specified within this annex."6 In this regard, section C.1. of the maintenance annex provides that ­ "[North Star] is responsible for the . . . maintenance, repair, replacement . . . and all operations required to support the housing site. This includes . . . housing units . . . and all other components and systems of the total housing site insofar as such responsibilities are not normally undertaken by local governmental authorities." Section C.1.(j) of the maintenance annex provides that "[t]he quality and workmanship of maintenance, repair, replacement, and operational services shall be first class in every respect and will be subject to the approval of the Government."7

Section D.1. of the maintenance annex provides that "[North Star] is responsible for managing the total work effort associated with the maintenance and other services required herein to assure fully adequate and timely completion of these services. . . . [North Star] is expected to assure an adequate staff of personnel, with the necessary management expertise, at the housing site continuously to assure the completion of the work in accordance with sound and efficient management practices." Section C.1.(h) of the maintenance annex provides that "[a] facility history file for each housing unit . . . identified by address shall be maintained by [North Star]. Each file shall contain a copy of all Government-issued work authorizations, preventative maintenance inspection reports[,] . . . routine maintenance or repair, and renovation work orders in progress or completed. The Government shall require access to these files and they shall be available for periodic review by the Government. All documents shall be filed within 10 days of the completed transaction." -87

6

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 9 of 98

The Lease also provides for performance monitoring and the resolution of disputes. Thus, section C.2.(c)(17) of the maintenance annex says that the government must "give [North Star] written notice of either noncompliance or unsatisfactory work on the part of [North Star]." Section D.3. of the maintenance annex states that ­ [North Star] shall meet with the Government periodically as called for by the Government. A mutual effort will be made to resolve all problems identified. The written minutes of these meetings, prepared by the Government, shall be signed by [North Star] and the Government. Should [North Star] not concur with the minutes, [North Star] will state, in writing, to the Government any areas of disagreement. Further, section C.2.(c)(15) of the maintenance annex provides that the government is required to "[s]chedule, arrange, and conduct performance evaluation meetings with [North Star], and any other parties deemed necessary by the Government." 2. Change of Occupancy

The Lease contains a number of provisions governing changes of occupancy.8 Inter alia, it provides a specific set of procedures for determining deficiencies in a particular unit, who is responsible for the costs for repairing those deficiencies, and how and when those deficiencies are to be remedied. Central to these mandates are a detailed set of inspection procedures. Section D.7.(b) of the maintenance annex states that North Star "is responsible for conducting or participating in various types of inspections as described below," which inspections "shall be conducted in accordance with the technical standards and guidance provided here." In this regard, the Lease provides for a pre-termination inspection, a termination inspection and an acceptance inspection. Section C.2.(c)(7) of the annex makes the government responsible for scheduling and coordinating these inspections, while section C.2.(c)(8) of the annex requires the government to advise North Star "of proposed occupancy changes and date of pretermination and termination." In this regard, section D.7.(b)(1) of the maintenance annex adds: The Government will schedule a pre-termination and termination inspection after being advised by the occupant of an impending move. These inspections will be scheduled during normal working hours. The Government will, in writing, notify [North Star] of the date, time, and address of each inspection. The Government will make every effort to provide this notice 21 days in advance of the projected

Section B.7. of the maintenance annex defines "Change of Occupancy" as "[t]he termination of assignment by the Government of [an] occupant to a unit or the assignment of [an] occupant by the Government to a unit and the associated downtime occurring between these two events." -9-

8

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 10 of 98

change of occupancy. Because of short-time occupant orders or other extenuating circumstance, [North Star] can expect an average of 10-14 days advance notice. [North Star], or [its] representative, is required to attend the pre-termination inspection. As to pre-termination inspections, section D.7.(b)(2) of the maintenance annex indicates that ­ During the pre-termination inspection, [North Star] shall identify and prepare work orders covering all painting, maintenance, and repair work required of [North Star]. The Government shall jointly identify, with the occupant, all damage to property and installed equipment which is over and above normal wear and tear and which is the occupant's responsibility to correct. The Government will provide the occupant with a list of this work and associated costs for which the occupant is liable, as contained on the approved list of repair costs, and provide a copy to [North Star]. At the conclusion of this inspection, the Government shall notify, in writing, [North Star] of the firm date and time for the final inspection and the date and time that the unit will be turned over to [North Star] for accomplishment of change of occupancy work. [North Star], in turn, shall immediately provide the Government with a firm written commitment as to the date and time that the unit will be turned back over to the Government for assignment to the next occupant. These pre-termination inspections are designed, in part, to allow North Star to prepare for the work that it will perform during the downtime following the change in occupancy. Regarding the termination inspection, section D.7.(b)(3) of the maintenance annex states that "[t]he Government will conduct the termination inspection jointly with the occupant after the furnishings have been removed." It further indicates that North Star's "representation at the termination inspection is at [its] discretion." The termination inspection is performed after the occupant has been afforded an opportunity to remedy certain of the deficiencies identified at the pre-termination inspection. It also allows the parties to adjust, as necessary, the schedule for the Army to turn a unit over to North Star and for North Star to return the unit for a new tenant. In this regard, section D.7.(b)(3) of the Lease explains ­ Should the date and time that the unit will be turned over to [North Star] change for any reason, the Government shall immediately notify [North Star] in writing of the revised date and time. [North Star] will then immediately notify the Government, in writing, of the revised date and time that the unit will be turned over to the Government for assignment. Subsequent to the termination inspection, the Government will issue to the [North Star] a work authorization for the repair of damages, or accomplishment of cleaning, which are the responsibility of the occupant but were not completed at the time of the termination inspection.

-10-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 11 of 98

Section D.7.(a) of the maintenance annex indicates that "[w]ork identified by [North Star] or [the] Government during the pre-termination and final termination inspections which is required to make a unit ready for the next occupant, shall be accomplished while the unit is vacant." It states that "[t]his work includes any routine maintenance and repair, as well as interior painting." Section C.1.(p) of the maintenance annex requires that after North Star performs the necessary repairs and replacements and, "[p]rior to acceptance of a unit by the Government," North Star "shall clean the entire unit" and "shall insure units meet the same standard of cleanliness the Government requires of terminating occupants." This work includes "removal of all stains, fingerprints, and paint spots, cleaning of all dust and dirt, washing of windows, cleaning of all appliances, cleaning of all ceramic tile, and washing of floors." Section D.7.(d) of the maintenance annex reads that "[u]pon completion of all change of occupancy work, [North Star] will notify the Government of work completion and unit availability," at which point the Army conducts the third of the change of occupancy inspections, the "acceptance inspection." Section B.2. of the maintenance annex defines the "Acceptance Inspection" as "[t]he inspection of a vacant unit between changes of occupancy or subsequent to completion of renovation work to ensure that all work has been completed satisfactorily and that the unit is in a presentable condition for viewing and acceptance by a prospective occupant." Providing further information about these inspections, section C.2.(a) of the maintenance annex declares ­ [a]cceptance inspections of all dwelling units will be conducted . . . after completion of repair or rehabilitation work on the unit. The Government shall conduct these inspections jointly with [North Star]. The Government will schedule these inspections to occur on the same date that the work is completed if notification of work completion is received before 12:00 noon, or before 12:00 noon of the next workday, if such notification is received after 12:00 noon, at a time that is mutually agreeable. The Government has the right to refuse to accept the unit if the work has not been completed or performed satisfactorily or is otherwise not in accordance with the provisions of this annex. The Government shall, immediately upon conclusion of the acceptance inspection, notify [North Star] in writing of acceptance or refusal. If the unit is refused, the Government shall also notify [North Star], in writing, of all discrepancies requiring correction. Section H.1.(c) of the maintenance annex provides that "[i]n the event [North Star] fails to complete change of occupancy maintenance work by the date identified by [North Star] as when the unit would be returned to the Government . . . the Government shall assess liquidated damages based on the most current average daily rate of BAQ [basic allowance for quarters] plus VHA [variable housing allowance] plus average daily lease cost per unit for each calendar day subsequent to that date."

-11-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 12 of 98

3.

Downtime

Many of North Star's claims here involve "downtime," defined by Section D.5. of the maintenance annex as "the period during which a housing unit is vacant for reasons of change of occupancy, maintenance work, major repair or unhabitability, or restoration of units damaged by fires or acts of God." That section emphasizes that "[North Star] shall ensure that downtime while a unit has been turned over to [it] does not exceed the allowable time prescribed [in sections D.5.(a) and (b) of the maintenance annex]." It further stresses that "[d]owntime must be minimized in order to maximize occupancy of these units." Section B.10. of the maintenance annex similarly defines "Downtime" as "[t]he period of time during which a unit is vacant and has been officially turned over to [North Star] for accomplishment of required work," and adds that "[f]or purposes of this lease agreement, downtime is measured in working days, vice calendar days." The Lease contains a detailed description of how downtime is to be calculated. Section D.5.(a) of the maintenance annex, entitled "Change of Occupancy Downtime," provides that "[t]he total number of downtime days for units vacant for purposes of change of occupancy maintenance shall not exceed the number of moveouts (excluding moveouts for purposes of scheduled repairs or fires and acts of God) per month multiplied by 3 days." It indicates further that "if [in] any 5-day work period, more than eight units are turned over to [North Star], two additional days will be allowed for each unit in excess of eight."9 Likewise, section D.5.(b) of the maintenance annex, entitled "Scheduled Repair or Renovation Downtime," provides that ­ [d]owntime for reasons of scheduled repair or renovation will be completed on the basis of the actual number of days any specific unit has been turned over to [North Star] for such work. The downtime period will begin with the date the

As to the "3-day" rule, the Lease gives the following example: "For example, if there are 10 move-outs in 1 month, the total allowable downtime for that month is 30 days." As to the "5-day" rule," the Lease gives the following example ­ For example, if there are 17 move-outs in a month, the total allowable downtime is 51 days. However, if 11 of these units were turned over to [North Star] within a 5-day work period, an additional 6 days will be allowed for a total of 57 days in allowable downtime (representing the additional 2 days for each of the units in excess of eight turned over within a 5-day work period added to the 51 days allowed for 17 move-outs). Despite Lease provisions suggesting that downtime is to be measured on an average monthly basis, section D.7.(d)(1) of the maintenance annex states that "[a]ll change of occupancy work must be completed within three working days after the unit becomes available, which shall be determined from the date the unit is turned over to [North Star] by the Government for change of occupancy work." -12-

9

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 13 of 98

Government turns the unit over, in writing, to [North Star] for this purpose and will end when the Government accepts, in writing, the unit from [North Star] subsequent to work completion. Section D.7.(d)(2) of the maintenance annex provides that "[t]he downtime period will be determined as follows: If the unit becomes available prior to 12:00 noon, the period will begin at 1:00 p.m. that day. If the unit becomes available at 12:00 noon or later, the maintenance period will begin at the start of the following work day." The Lease provides for penalties should North Star fail to comply with the downtime provisions. Section D.5.(b) of the maintenance annex indicates that "[d]eductions for [North Star's] failure to adhere to the scheduled downtime will be in accordance with clause H.1. [of the maintenance annex]." Section H.1.(d) of the annex provides that "[i]f the downtime in any one month for units vacant for purposes of change of occupancy work exceeds the allowable downtime for that month (established in accordance with clause D.5.(a) [of the maintenance annex]), the Government shall assess liquidated damages based on the most current average daily rate of BAQ plus VHA plus average daily lease cost for each calendar day in excess of the allowable downtime." C. The Dispute: A Chronology

The findings in this segment are described chronologically, rather than by the subject dispute (e.g., downtime or incentive fees), because the record demonstrates that conflicts involving the Lease fed on each other, with new disputes springing up periodically to further complicate matters. Understanding this synergy is key to a proper understanding and analysis of plaintiff's bad faith claims. 1. 1989 through 1995

During the first several years after the contract was awarded, disputes began to arise, among them concern over the phase-in of the project itself, refuse collection, the timing of various rent payments, and whether defendant was required to have an on-site manager. However, these issues were addressed under the dispute resolution mechanism provided by the contract; the parties otherwise enjoyed a positive working relationship. Indicative of this is the fact that, as illustrated in the following chart, from 1987 through 1992, North Star received various incentive fee awards, often accompanied by glowing transmittal letters that lauded its efforts:10

For example, the Army's January 4, 1989, letter announcing the fee award for 1988 indicated that North Star had "demonstrated exceptional response to the soldiers and their families" and had "done very high quality work." Likewise, a 1991 letter from the Army awarding North Star an incentive fee, thanked North Star for "the high standards of work accomplishment, excellent customer service and very professional project management," and commented, "[t]he incentive fee award is well deserved by your staff and is government money -13-

10

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 14 of 98

Period 1987 (interim period) 1988 1989 1990 1991 1992

Incentive Fee Award $13,236.09 $42,921.00 $56,113.93 $50,295.78 $52,398.78 $53,326.19

In 1993, when several issues were not resolved to its satisfaction by contracting officer decisions, North Star filed a lawsuit in this court. On December 22, 1993, this court granted, in part, and denied, in part, the parties' cross-motions for summary judgment. Despite this litigation, North Star continued to receive essentially the maximum incentive fees allowed ­ $54,041.30 for 1993 confirmed by a decision issued on February 2, 1994, and $55,225.00 for 1994 confirmed by a decision issued on January 11, 1995. In September of 1995, the lawsuit was settled. In the settlement agreement, North Star offered "to assume full responsibility for refuse collection and disposal," for which the United States agreed to provide North Star $1,000 per month. However, a disagreement eventually arose over what this provision entailed. On November 22, 1995, the Fort Wainwright Director of Public Works informed the Commander, U.S. Army Engineer District Alaska that "[t]he Army standard for adequate housing is weekly curbside trash pick-up." On December 1, 1995, the contracting officer pointed North Star to the Lease provision requiring that North Star "insure that refuse is collected twice weekly" and directed North Star to provide the same type of refuse collection and disposal as required by the Lease. During this same year, disputes began to arise concerning the calculation of downtime and changes of occupancy. But, again, these disputes appear to have been handled amicably, with Suzanne M. Harrison, the Chief of the Housing Division at Fort Wainwright, indicating in an August 17, 1995, memorandum that "[a]s always, North Star was very cooperative in assisting Housing in gaining maximum utilization of these 400 units." Others, however, had different ideas. An October 27, 1995, memorandum that was coordinated by Thomas B. Peterson, the Chief of Housing for the Army's Department for Public Works in Alaska, instructed, as to the Lease's downtime provisions, that North Star's "failure to meet timeframes so computed should

well spent." Indeed, a January 1993, letter notified North Star that the Birchwood project had been highlighted at a recent hearing of the Senate Defense Appropriations Subcommittee, where it was "described in a US Army, Pacific, fact sheet as an extremely successful project and a prototype for future Army housing initiatives." -14-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 15 of 98

result in the enforcement of penalties." Several weeks later, on November 22, 1995, Karen Goodrich, then the Chief of Housing at Fort Wainwright, alerted Mr. Peterson that a dispute continued as to what the 1995 settlement required in terms of trash removal.11 That same day, Mr. Peterson wrote the Commander of the U.S. Army Engineer District for Alaska, stating that North Star has "unilaterally eliminated trash collection services." While admitting that "weekly curbside trash pick-up" was the Army standard, Mr. Peterson indicated that North Star's failure to pick up trash represented an "unanticipated, unfortunate and totally unsatisfactory elimination of services [that] needs to be resolved immediately."12 He requested "intervention to correct this blatant abrogation of support responsibility for 801 Birchwood residents." On November 29, 1995, the day that North Star apparently was to announce its trash removal policies to the tenants, Mr. Peterson sent a facsimile to two North Star officials in which he warned that "I suggest that you defer tonight's discussion of this issue or Post Commander Reps will be forced to tell tenants to disregard your letter of instruction," adding that "[t]his divisiveness will cause us other problems and open a pandoras [sic] box." The record suggests that, notwithstanding this facsimile, North Star communicated with the tenants regarding trash removal. Subsequent efforts to resolve this dispute over refuse collection proved unsuccessful. On December 29, 1995, Mr. Peterson wrote North Star suggesting, apparently for the first time, that the issue concerning refuse collection could impact North Star's ability to receive an incentive fee.13 2. 1996 and 1997

On January 10, 1996, the Army wrote North Star indicating that "the unilateral notification of residents by North Star of your intention to eliminate required trash collection services" and "the failure to provide the level of trash collection services to which you agreed in the Sep 95 settlement" had caused North Star's performance to be rated "less than exceptional" in November and December of 1995, a rating that, in turn, caused the Army to reduce the

Although at other points in the record it appears that the debate involved both the periodicity of the pick ups and whether they would be curbside, Ms. Goodrich, in her memorandum, apparently focused only on the former issue, as she stated that "[a]n out of court settlement was reached to allow the contractor to decrease pick-up from twice a week to once a week." While, in his memorandum, Mr. Peterson appears to suggest that North Star had ceased all trash pick up, other parts of the record suggest that the dispute involved whether such service would be provided once or twice a week. In an undated letter that appears to have been issued prior to December 29, 1995, Mr. Peterson indicated that another disagreement over the interpretation of the Lease would "not impact or affect the performance standards used to establish the annual incentive award." -1513 12

11

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 16 of 98

incentive fee. North Star unsuccessfully appealed this decision to the Army's Director of Public Works at Fort Richardson, Alaska. In the spring of 1996, a dispute began to develop regarding change of occupancy turnaround time. Prior to this time, North Star had consistently repaired vacant units and turned them back to the Army in less than the time specified by the Lease. At a meeting held on July 10, 1996, Mr. Peterson complained that North Star was falling behind in turning units back on a timely basis. At the meeting, he indicated the Army's intent to begin turning over units to North Star for repair in blocks ­ 8 units to be released each Monday. In the minutes of this meeting, Mr. Peterson is reported to have stated that the latter process was designed to ensure that the Army would not be "penalized" by requiring it to provide North Star with additional down time, indicating that his goal was "to issue them in a sequence that keeps it to an average of three days."14 In a August 12, 1996, memorandum to Col. Albert J. Kraus, the Commander of the Alaska District, Mr. Peterson recapped the meeting, highlighting the turnover problem while emphasizing that "[t]he change of occupancy turnaround time is a significant factor in determining overall performance award." In August of 1996, Col. Kraus was replaced by Col. Wm. David Brown. The incentive fee award meeting for 1996 occurred on January 8, 1997. Following the meeting, Mr. Peterson sent an e-mail to Mr. Edward Miller, then the Army's Birchwood manager, chastising him for being unprepared. At that meeting, Mr. Miller had made assertions regarding North Star's performance for which he lacked documentation. Criticizing this, Mr. Peterson indicated, in his e-mail, that "I don't think we want to emphasize to Fischer that after all your time on site, you are just now starting to keep a formal record of your inspections, that will just embarrass us all." At the meeting, North Star apparently also argued that, under the Lease, it was entitled to additional days for approved work authorizations. In an undated letter, Col. Brown subsequently rejected that interpretation. On February 10, 1997, Col. Brown, in an internal memorandum, proposed that the Army's rent payment for 1996 be reduced by $41,256.57 "based on excessive change of occupancy down time."15 On April 16, 1997, Col. Brown wrote North Star announcing an incentive fee award for 1996 of $39,000, indicating that "[t]he only rated areas which were significantly less than exceptional were between occupancy vacancy rates." Nonetheless, the letter indicated that actual payment of the fee might be delayed

Recall, that, in terms of downtime, section D.5.(a) of the maintenance annex states, "if [in] any 5-day work period, more than eight units are turned over to [North Star], two additional days will be allowed for each unit in excess of eight." On April 9, 1997, an evaluation meeting was conducted at which Mr. Fischer complained regarding the Army's practice of holding units after they had been received from the cleaners and releasing them in a group, implying that this practice was contributing to downtime delays. Mr. Peterson and Ms. Goodrich essentially responded that they had adopted the practice to ensure that the Army did not release more than 8 units in a five-day period so as inadvertently to afford North Star additional downtime under the Lease. -1615

14

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 17 of 98

because of "the ongoing attempts to collect overdue accounts receivable from North Star." On May 22, 1997, Mr. Fischer indicated that he was unaware of any overdue accounts and asserted that North Star was not being treated "even handedly." Col. Brown disagreed with the latter characterization in a letter dated June 6, 1997, yet also indicated that "future awards will probably be made `subject to the availability of funding.'" The refuse collection and downtime issues continued to fester. On June 10, 1997, Mr. Dennis Klein, the Chief of the Army's Real Estate Division in Alaska and the Contracting Officer for the Lease, wrote Mr. Fischer indicating that he had been notified by Mr. Peterson that "recent changes in refuse collection and disposal in the Birchwood housing complex [have] resulted in service that is below the level required by the subject lease." Mr. Klein warned that the failure to commence twice weekly collection on or before June 23, 1997, could result in the imposition of penalties. On June 11, 1997, Mr. Fischer responded, taking exception to the imposition of penalties and indicating that North Star had repeatedly requested a contracting officer's decision on the refuse point, but had not received that decision. On June 13, 1997, Mr. Klein wrote, confirming his receipt of the June 11, 1997, letter. On June 20, 1997, Mr. Fischer sent a second letter to Mr. Klein, stating ­ It is quite obvious to us that your action on this matter was punitive. The post commander at Fort Wainwright has not regarded once a week pick up as a problem [and] in fact was not informed of your action prior to our recent contact with him. The first that his office knew of the change you demanded was our call to him to inquire as to what days he would suggest the garbage be picked up. Mr. Fischer concluded ­ "We consider the above actions to be in bad faith in your dealings with us." On July 9, 1997, North Star and the Army conducted a maintenance evaluation and incentive meeting for the months of April through June of 1997. At that meeting, Mr. Miller offered the results of his evaluations, to which North Star raised numerous exceptions. In a memorandum dated July 9, 1997, the Army unilaterally adopted a depreciation schedule for all carpeting, thereby reducing the reimbursement amount that North Star would receive for replacing carpeting with occupant damage. This memorandum, issued by Ms. Mae Harrell, then the Army's housing manager at Birchwood, stated ­ 1. Effective immediately, all charges for damages to carpet will be figured using a ten (10) year life expectancy in ALL housing areas. If the carpet is determined to be ten (10) years old, it will be replaced as fair wear and tear and not [sic] charge will be brought against the occupant. If the damage is due to pet odor, the occupant will be charged for sealing the floor and any other measures required to abate the pet odor.

2.

-17-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 18 of 98

3.

When determining the depreciation on damaged carpet, subtract 10% of the total value for each year that the carpet has been installed. This does not include the labor for installing the carpet only the materials.

On July 11, 1997, Mr. Fischer sent the Army a letter addressing Mr. Miller's ratings on a pointby-point basis. On August 1, 1997, Col. Brown responded, agreeing that Mr. Miller's evaluation was "incomplete and unsatisfactory in so far as presenting a clear objective record." This letter indicated that the evaluations were being reconsidered, but, nonetheless, asserted that North Star should replace carpeting that is "in worn and poor condition" which had "outlived its useful economic life." Thereafter, it appears that Col. Brown sent North Star a letter providing a more detailed response to North Star's dissatisfaction with the specific evaluation comments made previously by Mr. Miller. This letter asserts that North Star had initiated a legal action against Mr. Miller and indicates that the lawsuit "will not help to improve on site working relationships" and may generate "some negative feelings on both sides for the foreseeable future." In the letter, Col. Brown increased North Star's ratings on several, but not all, of the factors on which North Star had appealed. On August 7, 1997, Mr. Fischer wrote Mr. Klein indicating that North Star would not begin to collect refuse twice weekly until "a clear demand" to that effect was made. This letter indicated that the "refuse collection has been the subject of a request that you issue a contracting officer's decision since May 22, 1996." On August 13, 1997, Mr. Klein requested North Star to commence twice-weekly collection of garbage, trash and bulk items beginning August 18, 1997. On September 5, 1997, Mr. Peterson e-mailed Ms. Goodrich criticizing Mr. Miller's performance and indicating, with respect to the evaluation meetings ­ "I guess my point is, it isn't business as usual anymore, we need to relook and prepare better than ever." On September 25, 1997, Mr. Robert A Welch, then Chief of the Army's Acquisition Branch, Real Estate Division, in Anchorage, requested North Star to provide formal notice to the tenants of the twice-weekly refuse collection. North Star, however, refused to do so, operating apparently on the view that it had been instructed otherwise by Mr. Klein. At a quarterly evaluation meeting held on October 15, 1997, the parties disputed the Army's use of depreciation for carpeting. A transcript indicates that the following exchange between Mr. Fischer and Col. Brown transpired: BROWN: Okay, so if there's pet damage on a nine year old carpet, then your position is the government is responsible for paying the whole amount, basically? Absolutely or any other damage for that matter. Any time the government damages anything they're responsible, I would think. Even considering the fact that that ­ I don't know what the industry standard is. I don't know what it is. It may be five years. It may be fifteen years, but --18-

FISCHER:

BROWN:

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 19 of 98

FISCHER: BROWN: FISCHER: BROWN:

It's also not relevant. Well, it is relevant, Dick, because I'm going to make it relevant. Okay, you go ahead and make it relevant. And whether you want to accept it or not. You know, common sense tells you if that carpet has been and whatever the industry standard is ­ I don't know what it is, but we're going to determine what it is and you are either going to come up with a depreciated schedule or we're going to come up with one and I'm going to investigate the possibility of ­ I mean you think about it from a common sense point of view. If that carpet has a ­ let's say for example, and I'm not saying that's it, but let's say for example, its got a ten year life cycle on it and let's say it's at 90 percent, say we have dog damage to it, okay. It has been 90 percent used of its useful life at that point, you should be replacing it year number 10 anyhow. So the government's responsibility from a common sense point of view is we should be responsible for the remaining life of that carpet, because you have benefited from the first nine years of that carpet and we should be responsible for the remainder of it if a dog tears it up. If you had the carpet in there for one year and we have to replace it, then we shouldn't be responsible for the nine years of remaining life. It has been in there ­ if the useful life is ten years and a dog tears it up and the useful life is ten years, we shouldn't have to be responsible for any of it. So, it's all going to depend on what that is that if you don't want to deal with us on this, then what I'm going to do is I'm going to get with the lawyers and we're going to come up a depreciated schedule and then I will ­ we will figure out some way to deduct that from your payments and then if you want to sue us, have at it, but you know what is fair here and you need to work with us on this and we'll work with you on it, but if you don't, I'm going to do exactly what I said I'm going to do and let the chips fall where they will, cause you know that's the right thing. You know that. Absolutely not. I totally disagree with you. Okay fine, let's move on, move on to the next one.

FISCHER: BROWN:

GOODRICH: I think Billie was finishing up her portion of the -FISCHER: BROWN: So ­ I told you right up front what I'm going to do about it and if you want to talk about it, we will.

-19-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 20 of 98

FISCHER: BROWN: FISCHER:

I'd be happy to talk about it, you just cut me off, so. Well, you told me you totally disagree so we'll just move on. I do disagree totally and I have good reason for it and I'd be real pleased to go into it, if you wish. Okay, go ahead. Okay. We have cooperated and we will continue to cooperate and any time a carpet is not serviceable we're going to replace it. That's what we're doing and that's what we'll continue to do. If that carpet is damaged, we have no way of determining whether that carpet ­ when that carpet will not be serviceable. Depending upon the care of the unit, it could be that the carpet is serviceable for 20 years. We don't know. Well, there's industry standards for that and we can determine that. Well that's not per our contract. Industry standards are not part of our contract. Well, that's fine, you know -It says when the carpet is no longer serviceable. If that's your position, that's your position and we'll go from there. Well, Colonel, that seems to be the way you care to settle all these things. No, I just can't seem to get any ­ any, you know, common sense, you're a business man and if the shoe was on the other foot, you would say exactly what we're saying out here. You know and ­ We have a responsibility to keep these units in impeccable condition and that's what we're doing and we're not going to be responsible whether some tenant damages something in these units. No, and you should not be. That's right. You should not be. And that's our position. -20-

BROWN: FISCHER:

BROWN: FISCHER:

BROWN: FISCHER: BROWN: FISCHER: BROWN:

FISCHER:

BROWN: FISCHER: BROWN: FISCHER:

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 21 of 98

BROWN:

And neither should the government be totally responsible for 10 year old carpet in total when a dog damages it and you know that. If the life of the -Okay, let's move on. I don't even care to talk to you any more about this issue. You're very unreasonable on this and I knew you were going to beso let's just move on to another issue. We'll just let your lawyers and our lawyers deal with this, because I'm going to figure out a way that I can take it right out of your pay.

FISCHER: BROWN:

Later, at this same meeting, Col. Brown ordered that future evaluation meetings not be recorded. In the late summer or early fall of 1997, the Army hired a contractor to conduct a survey of the Birchwood residents, with a view toward using the survey results in making incentive fee determinations. On November 14, 1997, Mr. Fischer wrote Col. Brown emphasizing that, contrary to the latter's assertion, "[t]here is no lawsuit pending against Mr. Miller" and complaining about Col. Brown's decision to move the evaluation meetings to Fort Richardson, Alaska. Regarding the increasing tensions between the parties, Mr. Fischer asserted ­ Our contract provides a clear forum for contractual resolution of differences of opinions. We would expect to follow these procedures. Differences of opinion on contractual matters which we have had in the past have not affected the Army's assessment of North Star's performance. This was the case until your decision to demerit North Star for the difference in the manner that the turnaround time has been interpreted this past year. Mr. Fischer again asserted that the Army was dealing with North Star in "bad faith" and indicated that he would not be dealing with further correspondence on this matter because "[i]t is clear to me and I dare say to everyone present at the last quarterly meeting that you have a personal problem with me." On November 25, 1997, North Star requested a contracting officer's decision with respect to both the turnaround time and refuse collection issues. On December 9, 1997, Mr. Peterson prepared a memorandum for the DPW staff in which he asserted that issues involving downtime and carpet depreciation should impact the decision whether to grant North Star an incentive fee for 1997. In this regard, he argued ­ From an ethical perspective, I think the board would be acting in contravention of the government's interests if it were to approve a substantial cash award during a period when the contractor's failure to apply sound and efficient management practices (i.e., failure to pro rate the cost of carpet IAW industry standards) has become a substantive cost issue. . . .

-21-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 22 of 98

I don't think that the Board can ethically ignore North Star's failure to fairly apportion the carpeting cost. An approval of an incentive award which could be construed by the contractor as either ignoring or encouraging continued actions by North Star which result in double payment for carpeting maintenance costs would be a derelection [sic] of the Board's explicit and implicit duties in representing the best interests of the U.S. Government. Accordingly, it appears that, at least by this time, the fact that North Star was raising various claims with the contracting officer was viewed by Mr. Peterson as a reason to deny it an incentive fee. On December 11, 1997, the Army's District Engineer wrote North Star indicating that the contracting officer decisions on the issue of twice-weekly refuse collection and down time would be issued within 45 days of North Star's November 25, 1997, request. On December 12, 1997, Mr. Peterson e-mailed Col. Brown and Ms. Goodrich, reiterating that it would be "unethical to pay an incentive award to North Star for a time period during which they have . . . blatantly refused to discuss equitably apportioning costs" for carpet. Mr. Peterson indicated that "[a]s a member of the Board, I feel that we are bound by formal principles of ethical conduct to select the `no incentive award' option until the government's maintenance concerns are addressed/resolved." In an e-mail December 22, 1997, Mr. Peterson further asserted that North Star's position with respect to carpet replacement was not in "good faith." 3. 1998

On January 28, 1998, Mr. Klein sent Col. Brown a copy of his decision on the downtime issue. This decision concluded ­ I find and conclude that the contract allows for a maximum occupancy downtime per unit of three days for completion after turnover by the Government to [North Star], if eight or less units are turned over within any given 5-day work period. I find that if more than eight units are turned over within any 5-day work period, then the allowable occupancy downtime is increased to five days per unit for units in excess of eight. I further find and conclude that the maximum allowable aggregate occupancy downtime in any given month cannot be interpreted to permit occupancy downtime maintenance on the units to run consecutively. This decision was mailed to North Star on January 29, 1998. That same day, Col. Brown sent North Star a letter in which he announced an incentive fee award of only $21,272, less than half of the prior awards. On March 9, 1998, North Star filed a complaint in this court, primarily to address the depreciation issue. The contracting officer's decision on the carpet depreciation issue was mailed to North Star on March 26, 1998. This decision by Mr. Klein concluded ­ I find and conclude that when it is determined, based upon inspection, that because of normal wear and tear, carpet no longer has a pleasing appearance as defined in the contract, then it is the responsibility of [North Star] to replace such -22-

Case 1:98-cv-00168-FMA

Document 336

Filed 04/02/2007

Page 23 of 98

carpet. I find and conclude that the contract requires that the expected useful life of carpet be established by reasonable proof. I find that where carpet is replaced due to pet or other occupant damage beyond normal wear and tear, the replacement cost paid by the Government is required to be depreciated based on the age of the carpet in relation to its expected useful life and reasonable replacement schedule. These contracting officer decisions resolved little in terms of the parties' disputes over particular units. Indeed, new issues incessantly arose. One of these issues involved what North Star referred to as "stockpiling" ­ the Army's practice of holding units that had been vacated by service members for days, sometimes weeks, and occasionally months, and then releasing them to North St