Tenant Improvement Cost Summary (TICS) Negotiations

Nothing elicits greater frustration in most landlords (LL) leasing to the Federal Government than the TICS Negotiation. It’s a process that frustrates and can entrench each party, ranging from the LL, General Contractor (GC), Broker (on both sides), Government Project Manager, Lease Contracting Officer (LCO), Tenant Agency (TA), etc. While on the surface, it appears to be a simple enough process of having the GC provide ample pricing details across all construction divisions for price validation, in practice and reality, it is anything but.

First and foremost, the LL has to present to the Government how they plan to meet the fair and reasonable requirements of the lease for competition (see the prior blog post on this topic). Then the LL must get the project priced, which often does not include disclosure to the bidders that this additional level of pricing detail will be required. This can be extremely frustrating for the GC.

Once the GC inputs the pricing details into the TICS, someone must then go through the TICS and allocate the associated pricing between Tenant Improvements (TI) and Shell Improvements (SHELL) as prescribed in the lease. While generally, each lease has the same modified warm-lit shell standards, a complete and thorough review needs to be done on the lease to ensure all items are accurately captured. Generally, the brokers who helped the LL negotiate the lease can detail what is “TI” and what is “SHELL,” but often, because of the existing building systems, it’s not a clean and clear distinction. The downfall of the broker detailing the TI and SHELL split is that they may not be as well-versed in construction standards and practices as the GC, which ultimately means the LL leaves money on the table during these negotiations that could be moved to the TI column but remains in the SHELL column. Alternatively, if the GC details the TI/SHELL splits, they are not commercial real estate experts and will likely not be able to interpret the very cumbersome and complicated Government Lease.

Upon submission of the first LL draft of the TICS document, there are normally several rounds of back-and-forth negotiations where the GSA makes comments and the LL must respond. These comments range from lease interpretations, construction pricing, challenges to the design requirements, pricing detail issues, among a multitude of other things. This is typically where parties start to dig in their heels and stop listening to each other. Instead of negotiating, the meetings become arguments. I’ve personally been pulled into TICS negotiations that have been ongoing for four months before my involvement. On my first call, within 5 minutes of the call starting, both the LL representatives and GSA representatives were threatening legal action both ways.

What I’ve learned over my 15 years of doing Government construction work is that the most critical part of negotiating with the Government is early preparation and expectation setting with all parties. It’s also helpful to have someone on your team with a broad spectrum of experience. The person leading your TICS negotiations should be able to read and interpret the lease, have a solid functional knowledge of building construction and systems (as well as be able to read and break down construction drawings), understand the Government's financial reporting requirements, and, most importantly, not take the negotiations personally but maintain a logical and extremely detailed approach. Getting this person involved early, preferably during lease negotiations, is ideal, as they can assist in clearing up a lot of the gray areas that can be interpreted multiple ways in the standard GSA lease based on the TA and Existing Building requirements. Also, having them involved in the design development of the construction documents can aid in making sure that notes/details on the drawings are clear and provide the information required to aid in negotiations. This also helps during negotiations, as this person will be familiar with TA requests that the GSA may try to tie to SHELL components. As a worst case, the individual should be running the competitive bid process so that the GCs are fully aware of the pricing detail requirements needed before they can sign a contract. With the construction market being as busy as it is, and expected to remain so for the long term, doing everything the LL can to make the bidding process as simple as possible, will pay huge dividends in reducing time delays to get what is needed from the GC.

Even if you are well into your negotiations and find the process at an impasse, JWB Solutions would be more than happy to assist your company in getting the process over the finish line.