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Contract Expense Distribution

The Opportunity

A premier Catholic urban university located in New York City was concerned with the performance and compliance of its larger contractual obligations, such as real estate leases, third party service providers and energy management services.

The owners of the property successfully challenge the assessed value of the building in court (“Certiorari”), and tax refunds were issued.

Service based contracts were implemented by the Landlord with third party venders, after the establishment of the Operating Expense base year amount.

Electricity consumption was based on a non metered basis, and subject to surveys provided by licensed electrical engineers, and escalated by cost of living adjustments tied to specific economic indexes.

The Challenge

The Real Estate Tax refunds issued by the City of New York reduced the base tax amount, and therefore increased the University’s tax obligation for the remainder of the Lease term. The contract did not provide favorable language to address this issue. BC Compliance Group, (“BCC”) had to establish the various components of the rent and taxes, and apply economic data to establish new rates.

BCC had to calculate the costs of the new services, taking into account the effect inflationary increases have had on the market rates, and determine what the cost of the new third party vendor contracts would have been during the Operating Expense base year.

BCC had to reconstruct the billing history of all electrical consumption and demand for the premises, apply the agreed upon cost of living adjustments to these audited quantities, and determine the financial impact of the inaccurate billings.

BCC had to research and determine the apparent intent of the parties to the original transactions, and formulate models to reflect these objectives.

The Solution

Data was gathered and analyzed covering a seven-year occupancy period to determine actual costs.

Arithmetic formulas were implemented to recalculate the correct allocation of the expenses.

An agreement was negotiated and agreed to with the facility owner regarding the correct method of calculating expenses.

A revised base operating expense amount was negotiated and agreed to by all parties.

Rents were adjusted downward to compensate for the Certiorari decision.

The Deliverables

The client was provided with an executive report, recording in detail the discrepancies that were uncovered and resolved, the full amounts recovered, a forecasted estimate of the future savings associated with the application of the new systems, and a comprehensive description of the modifications made to the expense allocation systems. As an aside, the BCC reports also include complete Lease Abstracts, Contract Summaries and verification of every contractual payment made since inception on the contracts examined (if records are available).

The Results

The client received a large cash settlement and continues to save money and maintain mutually beneficial relationships with the facility owner, and third party venders. The savings will be realized for the next 23 years.