GSA’s Next Move on Trump Lease Could Spark Court Battle

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By Sam Skolnik

The pending decision from the General Services Administration over the ownership of President Donald Trump’s hotel near the White House has become one of the most closely watched matters in the modern history of the agency.

It has also cast a spotlight on the process the agency uses to weigh alleged lease violations, and on the veteran contracting officer weighing whether to try to nullify the contract.

At issue is the lease for the Trump International Hotel on the grounds of the Old Post Office Pavilion — and a provision that many say appears to restrict all federal elected officials, including U.S. presidents, from financially benefiting from the agreement.

The complicated web of relationships gives way to clear conflicts of interest, many critics contend. The lease is between GSA and Trump Old Post Office LLC, which is part of the Trump Organization, a privately owned conglomerate. Trump, who soon will be appointing the new administrator of the GSA, until last month was listed as chairman and president of that company.

Trump and one of his attorneys announced at a press conference Jan. 11 that he would be changing the structure of the Trump Organization — in part to alleviate concerns about conflicts of interest. They said he would distance himself from his company’s operations by passing management responsibilities to his two sons, Eric Trump and Donald Trump Jr.

But Trump’s team said he will not divest from the company, as Democrats in Congress and several ethics watchdogs have urged him to do.

Since taking office, one procurement policy expert said, Trump has effectively become both landlord and tenant of the prestigious property — an ethically, if not legally, untenable situation.

“The only issue that matters is ownership, not management/operations,” Steven Schooner, co-director of the government procurement law program at George Washington University Law School, Washington, told Bloomberg BNA in a written statement. “‘Distancing’ does not — in any way — mitigate the conflicts.”

‘The CO Is King.’

The wide range of actors currently and potentially involved in the Old Post Office controversy includes Trump and his legal team, the GSA and other federal agencies, courts and other judicial tribunals, and good-government groups.

The most prominent, apart from Trump and his company, is the GSA, the federal landlord that negotiated and oversees the hotel’s 60-year, $180 million lease, now in its fourth year.

And within the GSA, the determination about whether Trump is in violation of the Old Post Office lease rests squarely on the shoulders of Kevin Terry, a senior realty contracting officer who works out of the GSA’s National Capital Region, the agency’s regional unit that manages government-owned buildings in the Washington metropolitan area.

He’s been in the job since November 1998, according to his LinkedIn page, and has served as the lead contracting officer for the deal for at least the last five years.

Terry, who declined to comment for this story, and the GSA came under criticism when the agency selected the Trump Organization in 2012 to renovate the structure and turn it into a 261-room luxury hotel with three restaurants and a Trump-branded spa. Losing bidders protested, saying they had offered to renovate the building for less, and that Trump had a record of bankruptcies.

Terry responded with a seven-page letter rejecting the protest and concluding that Trump’s estimate of revenue per room was not unreasonable, according to a Washington Post account at the time.

The GSA’s leasing process puts a lot of power in the hands of contracting officers (COs) like Terry, according to current and former GSA officials, from the start of the process through instances like these, when the lessor — in this case, Trump Old Post Office LLC — is accused of a performance-related contract breach.

“The CO is king,” one longtime GSA official told Bloomberg BNA, on condition that he not be named. “He’s the only person who has the legal authority to bind the U.S. government in contract.”

That makes Terry the man tasked with making a big nonpolitical decision in the most politicized of environments.

Terry referred Bloomberg BNA’s calls to GSA spokeswoman Renee Kelly. In turn, Kelly on Jan. 27 referred Bloomberg BNA to a written statement.

“GSA has received additional information from and is in contact with the Trump Old Post Office, LLC,” the statement reads. “Consistent with GSA’s treatment of any contract to which GSA is a party, we are reviewing and evaluating this information to assess its compliance with the terms and conditions of the Old Post Office lease.

“GSA remains committed to expeditiously resolving issues associated with the Old Post Office Lease,” the statement reads.

Several Options

Terry has several options regarding how to proceed. If he and Trump reach an agreement on how best to proceed in a way that clears up any notion of a conflict to the GSA’s satisfaction, the agency could issue a lease modification.

Yet it’s unclear what type of modification would satisfy the GSA without President Trump fully divesting from his company, which appears unlikely.

Another route would involve the GSA concluding that Trump is in violation of the lease and unlikely to offer any accommodations to spur a modification — prompting the agency to issue a breach-of-contract notice to Trump. This would give him 30 days to resolve the situation or possibly be evicted. The GSA isn’t saying whether it has issued such a notice.

At this point, if the GSA sends a final written decision, Trump could appeal to either the U.S. Civilian Board of Contract Appeals (CBCA), an independent agency housed within the GSA, or to the U.S. Court of Federal Claims. If Trump opts for federal claims court, Justice Department lawyers would be enlisted to represent the GSA in court.

If GSA and Trump can’t come to terms, Schooner said he thinks the case likely will end up before the CBCA — and that in this instance, “I expect the CBCA will get it right and rule in GSA’s favor,” he told Bloomberg BNA.

If Trump appeals to either of those tribunals and loses, he could appeal the case to the U.S. Court of Appeals for the Federal Circuit, which, Schooner said, “very rarely” reverses CBCA rulings. Appeals from the Federal Circuit are heard by the U.S. Supreme Court.

Taking the Lead

Four House Democrats, headed by Rep. Elijah Cummings (D-Md.), the ranking member of the House Oversight and Government Reform Committee, have taken the lead in questioning the GSA about what actions the agency will take regarding the apparent conflicts of interest, and when.

The group, which includes Reps. Peter DeFazio (D-Ore.), Gerry Connolly (D-Va.) and André Carson (D-Ind.), first took note of a section in the GSA/Trump Old Post Office lease that seems to make it clear that federal elected officials cannot profit from the deal.

According to the lease, “No member or delegate to Congress, or elected official of the Government of the United States … shall be admitted to any share or part of this Lease, or to any benefit that may arise therefrom.”

The House Democrats wrote former GSA Administrator Denise Turner Roth on Nov. 30 and Dec. 14 of last year. They followed up on Jan. 23 by writing Roth’s temporary replacement, Timothy Horne — who was handpicked by the Trump administration to be the GSA’s acting administrator until a permanent selection is made. In each letter, the Democrats urged the agency to act.

In their December letter, they note that they had met with GSA Public Buildings Service Deputy Commissioner Michael Gelber, who informed them that “Mr. Trump will be in breach of the lease agreement the moment he takes office” unless he fully divests.

In their Jan. 23 letter to Horne, the congressmen asked whether GSA had issued a 30-day notice of breach letter, or planned to. GSA hasn’t yet sent a response, Cummings’ spokeswomen said. The congressmen asked for a response by Feb. 6, and it’s conceivable that the agency is waiting until closer to that time to send something, they said.

Hours after Trump announced his company’s restructuring Jan. 11 — without including a blind trust or divestiture — the director of the nonpartisan Office of Government Ethics (OGE) bolstered the Democrats’ concerns by concluding the plan wasn’t up to snuff.

The plan “does not comport with the tradition of our Presidents over the past 40 years,” said Walter Shaub Jr., according to a transcript of his address before the Brookings Institution. “OGE’s primary recommendation is that he divest his conflicting financial interests. Nothing short of divestiture will resolve these conflicts.”

‘Without Merit.’

The watchdog group Citizens for Responsibility and Ethics in Washington on Jan. 23 sued Trump, in his capacity as president, alleging that his continued ownership stake in the hotel is a violation of the foreign emoluments clause of U.S. Constitution, which prohibits officials from accepting presents or other benefits from foreign governments to prevent undue influence.

Trump has responded to the conflicts arguments by claiming that they don’t apply because he was the property tenant before he became president.

Trump dismissed the suit’s claims as being “without merit” the day it was filed. Payment for a hotel room cannot be considered the same as giving a gift, and therefore Trump can’t be considered engaging in an unconstitutional arrangement, Trump attorney Sheri Dillon, a partner with Morgan, Lewis & Bockius in Washington, said during the press conference announcing his company’s restructuring.

Profits from foreign government payments made to Trump’s hotels, presumably including the one at the Old Post Office, would be voluntarily donated to the U.S. Treasury, Dillon also said.

A Morgan Lewis spokeswoman said on behalf of Dillon that, “We do not comment on our clients or the work we do for them,” and referred questions to an official with the Trump Organization, Amanda Miller, who did not respond to a request for comment. Likewise, the White House press office, as well as officials with the Justice Department and CBCA, couldn’t be reached or declined to comment.

Trump’s Team

As Terry weighs his next course of action, he’s likely being assisted by lawyers in the GSA’s general counsel’s office, current and former agency officials said. However, it’s unclear what advice they might be providing to Terry and whether that guidance may change once Trump’s team takes root at the agency.

Kris Durmer, the agency’s general counsel during most of the Obama administration, could not be reached, left his post last month, and his permanent replacement has not been selected by Trump. Lennard Loewentritt, GSA’s acting general counsel, did not return a call.

Much has been made about the conflicts of interest that may have arisen with Trump directing the GSA while reaping GSA-leased hotel revenues. But a related question likewise remains: Will Trump’s political appointees, including the yet-to-be-named GSA administrator and general counsel, make it clear that diminishing Trump’s participation in the Old Post Office lease, or battling the president in court, would be ill-advised?

“You could argue that there are Obama political appointees on their way out that have been involved, and that isn’t that also a conflict,” a high-ranking former GSA official told Bloomberg BNA on condition of not being named.

The dangers under Trump are outsized, Schooner and Dan Gordon, one of Obama’s Office of Federal Procurement Policy administrators, said in a recent essay.

“The GSA employees handling the Trump lease will be caught between their duty to protect the interests of the building’s landlord — that is, the government, the public, and the taxpayers — and their duty of loyalty to the GSA administrator, who will be appointed by, and serve at the pleasure of then-President Trump,” they wrote.

To contact the reporter on this story: Sam Skolnik in Washington at sskolnik@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

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