ARMED SERVICES BOARD OF CONTRACT APPEALS 

Appeal of -- ) 

) 

Mach I AREP Carlyle Center LLC ) 

) 

Under Contract No. DACA-31-5-2010-0181 ) 

APPEARANCES FOR THE APPELLANT: 

APPEARANCES FOR THE GOVERNMENT: 

ASBCA No. 59821 

Terry L. Elling, Esq. 

Gregory R. Hallmark, Esq. 

Holland & Knight LLP 

Tysons Corner, VA 

Thomas H. Gourlay, Jr., Esq. 

Engineer Chief Trial Attorney 

Richard P. White, Esq. 

Michael Shields, Esq. 

Jennifer L. McGrath, Esq. 

Engineer Trial Attorneys 

U.S. Army Engineer District, Baltimore 

OPINION BY ADMINISTRATIVE JUDGE PROUTY 

This case involves the earlier-than-anticipated termination of a lease entered by 

the United States Army Corps of Engineers (the Corps) with appellant Mach I AREP 

Carlyle Center LLC (Mach I) for office space in the Northern Virginia suburbs of 

Washington, DC. The lease ostensibly required the Corps to exercise nine separate 

one-year options after its first year, so long as Congress appropriated sufficient money 

each year for the lease, and obligated the government to use its "best efforts" to obtain 

such an appropriation from Congress. In the midst of performance, after imposition of 

mandatory budget cuts through the "sequester," the government notified Mach I that it 

was "terminating" the lease at the end of the current option year and subsequently 

reorganized the portion of the Department of Defense that was acting as a tenant in the 

subject lease property such that it no longer needed the lease property. The government 

then paid Mach I the amount of money required by a contract clause that governed lease 

terminations in the event of lost appropriations. Thus, we are presented with the 

question of whether this termination and/or the events leading up to it constituted a 

breach of the lease contract. 

The parties elected to proceed without an evidentiary hearing, via Board Rule 11, 

with each side relying upon the Rule 4 file and its supplements and submitting opening 

and reply briefs in accordance with an agreed-upon schedule. For the reasons set forth 

below, we conclude that the terms of the lease requiring the "automatic" exercise of 

option years are contrary to law and that the government's decision not to exercise the 

next option was thus not a recoverable breach of contract. 
FINDINGS OF FACT 

I. The Lease 

On 4 February 2010, the Corps issued a "Solicitation for Offers" to obtain for 

leasing by the Corps of approximately 22,000 square feet of office space (R4, tab 2 at 1). 

Carlyle-Lane-CFRI Venture II, L.L.C. (Carlyle-Lane) responded with an offer on 

19 February 2010 (R4, tab 3). The government selected Carlyle-Lane for the lease, and 

the parties executed Contract No. DACA-31-5-2010-0181 (the lease) on 14 June 20 I 0 

for the fifth floor of a building in Alexandria, Virginia (R4, tab 4 at 1 ). 

Paragraph 1 of the lease specified that the lease term was one year from the 

"Commencement Date" (R4, tab 4 at 4 ). The lease commencement date was, in fact, 

1 November 2010 1 (R4, tab 5 at 2). The next provision of the lease, paragraph 2, 

entitled "GOVERNMENT RELIABILITY AND RENEW AL" envisions nine one-year 

extension options. We thus quote it in its entirety: 

This lease may be renewed at the option of the Government, 

for the following period and at the following terms: 

This Lease shall be renewed from year to year for a nine (9) 

year period, provided that adequate appropriations are 

available from year to year for rental payments which shall 

be confirmed in writing by the Government to the Landlord 

nine (9) months in advance of the last day of the current 

Lease year, and provided further that this Lease shall in no 

event extend beyond the tenth (I 0th) anniversary of the initial 

Commencement Date. In the event that Congress does not 

appropriate funds for continuance of the mission supported 

by the subject Lease, the Government's liability shall be 

limited to the Rental Adjustment amount, shown in Schedule 

1 attached hereto, effective in the current Lease year that a 

Renewal is not exercised. Such Rental Adjustment shall be 

payable to Landlord four ( 4) months prior to the last day of 

the Lease. 

(R4, tab 4 at 1-2) 

1 The government document cited here actually states "l/1/2010" as the Commencement 

Date, but, in context, this appears to be a typographical error, given that the end 

date of the lease is on 31 October 2020 and the contract was only awarded in 

June 2010 (see also R4, tab 12 at 54). 

2 
Appropriations were addressed in paragraph 9 of the lease, entitled 

"PROCUREMENT AUTHORITY," which imposed upon the government an obligation 

to seek funding from Congress and which provides: 

The Government's obligation hereunder is made contingent 

upon Congress enacting appropriations in support of the 

mission requiring this leased space. The supplies and 

services to be obtained by this instrument are authorized by, 

are for the purpose set forth in, and are chargeable to 

Procurement Authority Number FW1F3D61G%07610, the 

available balance of which is sufficient to cover the costs set 

forth in this Lease. 

The Government shall use its best efforts to obtain and 

maintain all necessary appropriations and related approvals 

in connection with this Lease. 

(R4, tab 4 at 6) 

The real estate contracting officer, without contradiction by Mach I, explained in 

his declaration that the Procurement Authority Number referenced above in paragraph 9 

of the lease referred to money available at the time of the execution of the lease for its 

first year (supp. R4, tab 138 at 2, ~ 6). 

Two more provisions of the contract are particularly important to the dispute 

here. First, paragraph 3, labeled "TERMINATION," sets forth the government's 

liability in the event that the lease is terminated due to loss of procurement authority. It 

provides, in relevant part, that: 

Not withstanding [sic] the rights provided in any other 

Paragraph, in the event the Government's procurement 

authority set forth in Paragraph 9 of this Lease is not 

obtained in any Lease Year other than the first Lease Year, 

then the Government may terminate this lease within nine (9) 

months after the procurement authority is denied provided 

notice is given in writing to the Lessor at least eight (8) 

months in advance of the intended early Termination date. 

The Government's liability shall be limited [to] the Rental 

Consideration owed prior to the Termination date and the 

Rental Adjustment amount, shown in Schedule 1 attached 

hereto, effective in the Lease Year the Termination is 

exercised. 

(R4, tab 4 at 2) 

3 
The lease also includes a form "TENANT ESTOPPEL CERTIFICATE," to be 

used when necessary (see R4, tab 4 at 35), which provides in part that: 

11. That the Commencement Date of the Lease was 

----, and this lease shall be automatically renewed 

from year to year without notice unless and until the tenant 

shall give notice of termination in accordance with the lease. 

The lease shall in no event extend beyond ___ _ 

(Id. at 36) 

On 4 February 2013, at Carlyle-Lane's request, the government executed a tenant 

estoppel certificate for the use of Mach I, a prospective buyer of the property, in 

accordance with the form attached to the lease (R4, tab 5). On 14 February 2013, 

Carlyle-Lane sold the property and the lease to Mach I (app. supp. R4, tabs 43, 45-47). 

By Supplemental Agreement Number 8, the government acknowledged that the lease 

was assigned to and assumed by Mach I (R4, tab 6). 

II. Defunding of The Lease by the Department of Defense 

The Budget Control Act of 2011, Pub. L. No. 112-25, 125 Stat. 240 (2011), 

set forth mandatory mechanisms for reducing federal spending that were to 

automatically go into effect on 2 January 2013 unless the Administration and Congress 

negotiated a different agreement (R4, tab 13 at 3, 5). These automatic cuts, known as 

"sequestration," were to be in the amount of $1.2 trillion over 10 years and were to fall 

equally upon defense and non-defense accounts (R4, tab 13 at 3). Although Section 

901(c)(l) of the American Taxpayer Relief Act of 2012 (Pub. L. No. 112-240, 

126 Stat. 2313 (January 2, 2013) ), delayed the onset of sequestration until 1 March 2013, 

the Administration and Congress failed to come to an agreement upon the budget and, 

on 1March2013, President Obama ordered sequestration into effect (R4, tab 21). 

The record reflects no immediate effect of the sequestration order upon the lease. 

In an undated memorandum, the "Customer Agency"2 requested that the Corps seek to 

terminate the lease, effective 31 October 2014 (R4, tab 7). Presumably, subsequent to 

receiving this undated memorandum, on 28 February 2014, the Corps wrote a letter to 

Mach I providing "official notification that the Government elects to terminate this 

lease, effective 31 October 2014" (R4, tab 8). This letter made no mention of lack of 

appropriations (id.). 

2 Because of the classified nature of the work performed by the unit occupying the space 

obtained by the leased, we refer to it as the "Tenant Organization" while we refer 

to its parent organization as the "Customer Agency" throughout. 

4 
In the summer of 2014 during option year 3 of the lease, the Corps broke with its 

prior practice and made no request for funds from the Customer Agency for the lease -

presumably because the Corps had already notified Mach I of its intent to end the lease 

(see gov't br. at 6-7, ~ 25 and citations therein).3 No funding, in fact, was allocated 

to the Corps for the lease in the summer of 2014 or any time subsequently (supp. R4, 

tab 138 at 2). 

In a 3 December 2013 memorandum to the Director of the Customer Agency 

from the Customer Agency's Director of Operations, which cited an 8.5% reduction in 

funds for the Customer Agency in Fiscal Year 2015 due to sequestration, authority was 

sought to "disestablish" the Tenant Organization which had ceased operations on 

1 October 2013 (supp. R4, tab 128 at 1). On 4 December 2013, this request was 

formally approved and the Tenant Organization officially ceased to exist (id. at 2). 

Ill. The Dispute 

In the meantime, after receiving the 28 February 2014 letter from the Corps 

terminating the lease, Mach I stated its beliefthat the termination did not comply with 

the terms of the lease. On 12 March 2014, representatives of the Corps and Mach I met 

to discuss the termination letter. (R4, tab 9 at 1) They discussed a rental adjustment 

amount, pursuant to paragraph 3 (termination) of the lease, and Mach I requested the 

"back-up documentation" purportedly required by paragraph 3 of the lease (id.). By 

letter dated 27 March 2014, Mach I informed the Corps that it considered the lack of the 

back-up documentation supporting the lease termination to be non-compliant with the 

lease's terms, and that Mach I was thus rejecting the Corps' "offer to terminate the 

Lease" (id. at 1-2). Mach I went on to state that it considered the lease to "remain[] in 

full force and effect" (id. at 2). 

The Corps responded to Mach I's 27 March 2014 letter with a letter dated 

24 April 2014 (R4, tab 10). In this letter, the Corps informed Mach I that it did not 

consider the lease to require the government to provide "back-up documentation" to 

support its termination and that obtaining such documentation would be problematic 

given the classified nature of the Tenant Organization's mission, although the Corps was 

authorized to inform Mach I that "the mission that occupied the space was terminated as 

of 31 December 2013 due to cuts in funding as appropriated by Congress to their parent 

organization. That is, because of funding level cuts, the parent organization 

terminated ... the mission." (Id. at 1-2) The Corps also explained that it did not consider 

its prior termination letter (which it characterized as a "termination notice") to constitute 

3 The parties appear to agree with this fact, i.e., that the government made no further 

attempts to obtain such funding, although the record before the Board never 

directly proves as much. Given the decision that we make below, there is no need 

to seek further support for this allegation, which we believe to be most likely true 

in any event. 

5 
a "request" to terminate the lease, but, rather, a notification that it had terminated the 

lease (id. at 1 ). 

Mach I responded to the Corps with a 21 May 2014 letter sent by its counsel 

arguing that the Corps was compelled to make its best efforts to obtain funding for the 

lease and that it had not done so (R4, tab 11 ). Apparently not having received what it 

considered to be a satisfactory response from the Corps, on 11 August 2014, Mach I 

filed a certified claim with the real estate contracting officer (R4, tab 12). The claim 

alleged that the government had repudiated the lease and that Mach I was entitled to 

$5,879,487 in damages less $1,138,400 already paid by the government or $4,741,087 

(id. at 6). 

The real estate contracting officer issued a final decision on 12 December 2014 

denying Mach I's claim (R4, tab 1). Mach I then filed a timely appeal to the Board. 

DECISION 

While the inclusion of a provision requiring the government to use its best efforts 

to secure funding for the option years of the lease may have represented the parties' 

effort to enter into a 10-year lease which could have potentially been to the advantage of 

both parties, any provision for "automatic" renewal is precluded by the longstanding 

Supreme Court precedent interpreting the Anti-Deficiency Act (ADA), which cannot be 

evaded by the inclusion of a "best efforts" clause. 4 Thus, the lease cannot be breached 

by failure to exercise its options, and Mach I's remedies are limited to those set forth in 

the lease, which have already been paid. 

I. "Automatic" Renewal of the Lease is Precluded by Law 

Mach I makes a good argument that, based upon its text, the lease required 

"automatic" renewal (i.e., exercise of option years) subject to the availability of 

appropriated funds, which the government was required to use its best efforts to obtain 

(see app. br. at 2, 18-21). This is consistent with the language in paragraph 2 of the lease 

stating that it "shall" be renewed from year to year so long as funds were available, and 

the contractually-mandated language in the "Tenant Estoppel Certificate" - which 

directly stated that, "this lease shall be automatically renewed from year to year without 

notice unless and until the tenant shall give notice of termination in accordance with the 

4 By statute, the General Services Administration (GSA) is given the authority to enter a 

long-term lease without running afoul of the ADA. See Springfield Parcel, LLC 

v. United States, 124 Fed. Cl. 163, 189-90 (2015) (citing 40 U.S.C. § 585(a)(2)). 

This authority, however, is limited to the GSA and does not extend to the Corps 

of Engineers. 

6 
lease."5 The termination clause in paragraph 3, moreover, requires the government to 

give Mach I eight months' notice before "early [t]ermination," which is more consistent 

with the notion that anything other than continual exercise of the option years constitutes 

a termination of the contract, rather than a permissive action by the government. Indeed, 

the notice from the government to Mach I that the lease was ending was referenced as a 

"termination notice" rather than a simple statement declining to exercise an option. 

But for 90 years, the controlling law has forbidden such an agreement, and that 

law has not changed. In Leiter v. United States, 271 U.S. 204 (1926), the Supreme Court 

concluded, in somewhat similar circumstances to those presented here, that the 

contemporary version of the ADA,6 dictated that: 

A lease to the Government for a term of years when entered 

into under an appropriation available for but one fiscal year, 

is binding on the Government only in that year. McCollum v. 

United States, 17 Ct. Cl. 92, 104; Smoot v. United States, 

38 Ct. Cl. 418, 427. And it is plain that to make it binding 

for any subsequent year, it is necessary, not only that an 

appropriation be made available for the payment of the rent, 

but that the Government, by its duly appointed officers, 

affirmatively continue the lease for such subsequent year; 

thereby, in effect, by the adoption of the original lease, 

making a new lease under the authority of such appropriation 

for the subsequent year. 

271 U.S. at 207. 

The facts in Leiter are illuminating. The government, through the Department of 

the Treasury, had entered into leases for a period of years that provided for stipulated 

annual rentals to be paid monthly, although - just like the lease at issue here - the 

appropriations available at the time that the leases were signed were only sufficient for 

their first year. See 271 U.S. at 205. The leases in Leiter provided that the terms of 

occupancy should extend to 30 June 1925, "'contingent upon' the making available by 

Congress of appropriations out of which the rent might be paid after the current fiscal 

year; and that if such appropriation was not made for any fiscal year, the lease should 

terminate as of [the end of the last fiscal year for which the appropriation was 

available]." Id. After a few years of performance, although appropriations were made 

for the fiscal year beginning 1 July 1922, the government terminated the leases as of that 

5 A completed certificate was issued to Mach I prior to its purchase of the property 

(R4, tab 5). 

6 Then, section 3679 of the Revised Statutes; now, 31U.S.C.§1541(c)(l). The 

requirements set forth by their operative terms are not materially different for our 

purposes here. 

7 
date. Id. It was these terminations, notwithstanding the government's promise to 

continue the leases for an additional three years if it had obtained the appropriations 

(which it did), that were the subject of the lawsuit against the government in Leiter. Id. 

at 205-06. And the end result was that, notwithstanding the existence of the necessary 

appropriations, the government was not obligated to renew the leases. Id. at 207. 

A similar result followed in Goodyear Tire & Rubber Co. v. United States, 

276 U.S. 287 (1928). Goodyear was another case involving the government's 

agreement to a multi-year lease subject to proper appropriations, and in which the 

government agency had received the necessary appropriation for the future year before 

it, nevertheless, terminated the lease. See 276 U.S. at 290-91. Relying upon Leiter, 

the Supreme Court determined that the government's action was not a breach of contract 

and went so far as to permit the government to cancel the lease, hold over for six 

months, and only be subject to damages for the six month hold-over period, rather than 

the one-year lease period. Id. at 293. 

Leiter and Goodyear remain good law and have not been overruled or 

questioned. 7 Although Leiter is dispositive, Mach I has not meaningfully addressed it or 

materially distinguished it from the case here. Indeed, Mach I appears to misapprehend 

the central holding of the case. In its opening brief, Mach I characterizes the holding of 

Leiter as "unremarkable" and standing merely for the proposition that appropriated 

funds must be available and that a government official "affirmatively continue" a lease 

over the years for it to be lawful (see app. hr. at 20-21 ). Mach I argues that the lease 

here accomplished these requirements by imposing an affirmative obligation upon the 

government to renew the lease ifthe funds were available (id.). But, Leiter went much 

further than Mach I recognizes: it precluded the initial contract from imposing upon 

future government officials a duty to automatically renew the lease, as Mach I claims 

happened here. Indeed, it would be nonsensical for the Supreme Court to have held 

(as Mach I argues) that government officials could not contract for a multi-year lease to 

be renewed automatically in the event that there was sufficient funding, but could 

contract for the exact same thing by including a term that future government officials 

7 We would be remiss, however, if we did not acknowledge a recent case, not cited by 

appellant, in which the United States Court of Federal Claims (CoFC), has opined 

that binding options in multi-year contracts might not violate the ADA. See 

Northrop Grumman Computing Sys. v. United States, 93 Fed. Cl. 144, 150 (2010) 

(citing RCS Enters. v. United States, 57 Fed. Cl. 590, 594-95 (2003); Cray 

Research v. United States, 44 Fed. Cl. 327, 332 (1999); and Solar Turbines Int'! 

v. United States, 3 Cl. Ct. 489, 494-95 (1983)). CoFC cases, of course, are not 

binding upon us and we do not find that Northrop Grumman or any of the cases 

cited therein provide us any reason to depart from the dictates of Leiter and 

Goodyear. Moreover, these CoFC cases cited are simply not apposite to the 

factual circumstances presented here. 

8 
would renew the contract every year in the event that there was sufficient funding. The 

dictates of the law may not be evaded by too clever wordplay. 

In its reply brief, Mach I unpersuasively argues that, in Leiter and Goodyear the 

federal agencies involved did not have specific statutory leasing authority, unlike the 

case here, where the Corps has been granted such authority (app. reply br. at 7). This 

was important, Mach I asserts, because, "[t]he Court's finding that some affirmative 

action was necessary to renew the leases in those cases was apparently based on the 

agencies' lack of statutory leasing authority" (id.). We read them differently. The 

rulings were based purely on the ADA. It is telling that Mach I never points to any 

particular part of the opinions to demonstrate this "apparent" basis. We have reviewed 

the opinions closely and find no support for this reading. 

Mach I also argues, in its reply brief, that the parties' conduct during the first 

several years of the lease, during which the real estate contracting officer allegedly 

treated the lease as if it were automatically renewed, somehow demonstrates that the 

lease should be treated as if it were automatically renewing (app. reply br. at 7-8). If the 

issue before us were simply one of contract interpretation, this argument might have 

merit, but the salient consideration here is what contract is permitted by law - and the 

parties' prior conduct here does not change the meaning and implications of Leiter and 

Goodyear in any way. 

11 In the Absence of "Automatic Renewal," the Government's Failure to 

Renew the Lease is not a Compensable Breach of Contract 

The end results of Leiter and Goodyear make clear that, in the absence of a 

validly-exercised option, there can be no liability against the government for its failure 

to continue a lease in future years. Ironically, Mach I recognizes this in the conclusion 

of its reply brief, in which it presents a quote from Justice Holmes's dissent in 

Goodyear, expressing his displeasure with the results, by which "the United States 

could accept the contract and repudiate the consequence" (app. reply br. at 15 (quoting 

276 U.S. at 293-94)). Although Mach I argues that Justice Holmes's rhetoric 

demonstrates the perfidy of the government's position (see app. reply br. at 15-16), the 

learned Justice's elucidation of the consequences of the binding majority opinion in 

Goodyear are more to the point here. As Mach I put it, "the Government here seeks to 

do precisely what Justice Holmes decried" (id. at 15). Stripped of its value judgments, 

that statement by Mach I is more or less accurate, and, critically, it is more or less what 

the binding decisions in Goodyear and Leiter allow. 

We further note that the existence of the "best efforts" clause here does not 

helpfully distinguish the case from Leiter and Goodyear. Even if Mach I were to argue 

that a breach by the government of the best efforts clause was an independent breach of 

contract, separate and apart from the government's failure to exercise the options 

9 
clause,8 that would advance its cause little: in Leiter and Goodyear, the agencies already 

possessed the appropriations that the best efforts clause would have required them to 

attempt to obtain, but even with the appropriations in hand, their determination not to 

exercise the options was not an actionable breach of contract. Thus, even if the 

government had fully complied with the best efforts clause here9 and had also been 

successful in obtaining the necessary appropriation, it still possessed an effective veto at 

the point of option renewal which could not be challenged as a breach of contract, 

precluding breach of the best efforts clause from being the proximate cause of Mach I's 

damages. 

Accordingly, the lease affords Mach I no remedy for the government's actions 

that ended in its nonrenewal. 10 

Because of this determination, we need not decide the government's allegation 

that it complied with the contract or the further defenses that a best efforts clause in a 

contract signed by the Corps had no authority over the Department of Defense's 

decision-making or that the doctrine of sovereign acts precludes government liability 

here. 

8 In fact, we read Mach I's argument to be the one more straightforwardly rejected by 

the Supreme Court in Leiter and Goodyear, that it breached the contract by failing 

to renew it without the excuse of lack of appropriated funds (see app. hr. at 18). 

9 To be clear, we do not decide today whether the government did, in fact, breach the 

clause. As we demonstrate herein, whether the clause was complied with, was 

breached, or (as the government suggests, see, e.g., gov't hr. at 18-19) was 

unenforceable, makes no difference to the outcome of this case. 

10 But see S.A. Healy Co. v. United States, 576 F.2d 299 (Ct. Cl. 1978), in which the 

Court of Claims held that, while a "funds available clause" did not impose upon 

the government a requirement to seek funding from Congress, a contract with 

such a clause would not be "construed to throw all the cost and loss necessarily 

incident to such a decision on the contractor ... unless clauses of the contract 

require that result without ambiguity" and that the government was required to 

take measures to mitigate the losses incurred by lack of funding. 576 F.2d at 307. 

Neither party cited Healy, which is distinguishable factually from the case here 

by virtue of the type of contract presented, the nature of the losses, and because 

the lease included the equivalent of a liquidated damages clause, unambiguously 

setting forth the amount to be paid to Mach I when the lease was not renewed. 

10 
CONCLUSION 

By law, no lease can compel the Corps of Engineers to exercise option years that 

were not yet funded at the time the lease was entered. Accordingly, we grant judgment 

in favor of the government. The appeal is denied. 

Dated: 1 June 2016 

I concur 

/~~¥--- MARK N. STEM.PL~ '(£: 

Administrative Judge 

Acting Chairman 

Armed Services Board 

of Contract Appeals 

I concur 

RICHARD SHACKLEFORD 

Administrative Judge 

Vice Chairman 

Armed Services Board 

of Contract Appeals 

I certify that the foregoing is a true copy of the Opinion and Decision of the 

Armed Services Board of Contract Appeals in ASBCA No. 59821, Appeal of Mach I 

AREP Carlyle Center LLC, rendered in conformance with the Board's Charter. 

Dated: 

11 

JEFFREY D. GARDIN 

Recorder, Armed Services 

Board of Contract Appeals