GSA Scope Reduction Option and Lessor Impact to AE Fee Reimbursement
As Government Agencies continue to navigate their workload under reduced staffing levels and reorganization efforts, JWB Solutions is seeing a concerning uptick as it relates to Tenant Improvement (TI) Projects and Ownership risk on cost reimbursement regarding Architect/Engineering (AE) Fee. The GSA Lease which all Lessors are required to utilize for Federal Tenants allows for Lessors to recoup AE costs as a percentage (JWBS never recommends using AE reimbursement options of $XX per ABOA SF or $XX Flat Fee) of awarded TI Construction Dollars. Pretty basic process but puts the entirety of the risk on the Lessor as often times when having to submit what percent will be used for reimbursement there is not a clearly defined Scope of Work (SOW) from the tenant agency.
Over the past 2-3 years, JWB Solutions has seen Government Agency’s use the TI Design Process more as a Tenant Wish List than a defined process of reaching a specific end product that supports the tenant mission. As staffing levels have been reduced, agencies no longer have 1-2 experts spear head the design process but now include 10+ various stake holders who all put in their own needs / desires into the mix of the design requests. This results in design efforts which balloon in scope and often times do not consider the available budget allotted to the project.
Once the Lessor Team finishes up with the design process and bids the project, the Government realizes the project far exceeds the project budget and in previous years where funds would be “found” and allocated to the project, we are seeing the Govt utilize the lease option of scope reduction to bring the project costs in line with the available budget. The resulting issue for the Lessor is that the “Approved TI Construction Costs” can be millions of dollars less than the original project bid thus reducing the AE Fee Reimbursement by a material amount and the Lessor having to cover the difference at no fault of their own.
Real Life Example:
AE Costs: $560,000
Original TICS Construction Costs on Full Design: $7,425,000
AE Fee Reimbursement @ 7% = $519,750
Final NTP After Scope Reduction: $5,550,000
AE Fee Reimbursement @ 7% = $388,500
Original Delta on AE Costs: ($40,250)
Reduced Scope Delta on AE Costs: ($171,500)
The Lessor in this case acted in good faith, took on the entire AE Cost Structure without a clearly defined SOW from the Tenant Agency at time of Lease signing and because the Govt elected to reduce the SOW to fit their available budget, the Lessor was forced to eat an additional $131,250 in AE Costs. That specific Lessor is looking into options for an equitable adjustment claim but as we all know, it is an uphill battle to recoup monies long after the project has been completed.
In another case, JWB Solutions was able to negotiation with an agreeable Lease Contracting Officer who saw the real burden this put on the Lessor’s cost analysis of the lease and elected to issue a reconciling Lease Amendment which accounted for the substantial drop in approved TI construction costs as compared to the original bid of the full TI Design requested by the tenant agency.
JWB Solutions is currently working with various ownerships during their Request for Lease Proposal (RLP) Process to try and include risk reduction language for situations like this and also to help clarify language in the new lease template which allows for a lot of personal subjectivity into application of standards as we are the ones ultimately having to argue these clauses during design and construction (and some, long after construction).
