Contract Interpretation Using Extrinsic Evidence Sinks Contractor’s Claim at the CBCA
By Oles Morrison on February 26, 2018 | Posted in Claims and Disputes
In a recent decision, NOAA Maryland, LLC v. General Services Administration, the Civilian Board of Contract Appeals (“CBCA”) looked to “extrinsic” evidence outside the contract to interpret whether the government was required to pay real estate taxes. This case provides a reminder to contractors that while the CBCA is reluctant to look beyond the four corners of a contract and prudent contractors should make their contract terms explicit, the CBCA will look beyond the contract if it is necessary to determine the objective intent of the parties. NOAA Maryland appealed the denial of its claim under a lease with the General Services Administration (“GSA”). The contractor moved for summary relief arguing certain charges were reimbursable under its lease with GSA as “real estate taxes.” The Parties’ both agreed on the facts of the case, but asserted different interpretations of the contract.
In 2005, GSA executed a lease with NOAA Maryland. As an element of the lease, the Government agreed to pay real estate taxes according to the lease’s Tax Adjustment Clause. During the course of the lease, the contractor sought reimbursement for certain charges under the Tax Adjustment Clause. Following the contracting officer’s denial of two certified claims relating to disputed charges and the Tax Adjustment Clause, NOAA Maryland filed an appeal with the CBCA.
In order to resolve the dispute, the CBCA was forced to turn to its rules of contract interpretation. The CBCA looked to (1) parties’ course of dealing; (2) contemporaneous intent of parties; and (3) whether the contract was “ambiguous.”
Contract Interpretation Using Extrinsic Evidence
The general rule is that the Board may not look to extrinsic evidence when interpreting the provisions of a contract absent an ambiguity in the contract. However, extrinsic evidence may be used for the limited purpose of clarifying the parties’ objective intent when entering into the contract. In this appeal, the Board used the following extrinsic evidence to determine the parties’ objective intent:
1. Parties’ Course of Dealing
Here, the Board found NOAA Maryland failed to show that GSA paid the specific charges at issue in the past, thus failing to establish that the Parties’ course of dealing mandated the charges be paid.
2. Contemporaneous Intent of Parties
This aspect refers to an examination of the Parties’ expectations and intent at the time the lease was entered into. However, the contractor failed to show evidence that the disputed charges were a substitute or successor for the tax scheme at the time the lease was executed. Because of this, the Board was unable to determine whether GSA’s payment of the disputed charges would uphold the Parties’ original bargain under the lease.
3. Contract’s Tax Clause “Carve-Out” Provision
The contractor’s final argument was that the carve-provision of the tax clause is ambiguous; as such, it should be entitled to recover damages for the disputed charges. The Board rejected this argument by first finding that the clause is not ambiguous, but second, even if it was, the contractor must show it relied on its asserted interpretation of the ambiguous provision in submitting its bid, and NOAA Maryland failed to prove this here.
Ultimately, NOAA Maryland’s motion was denied after the CBCA found it failed to show the disputed charges were real estate taxes GSA agreed to pay in the lease. This decision provides a strong example of contract interpretation principles that every contractor should know and understand when bidding a contract.
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