By: Larry Caudle
A frequent issue heavy/highway contractors face is whether they are bound by unit bid prices when actual quantities installed vary from those represented in the contract. Most state highway departments (SHD) include in their contracts “Variation in Estimated Quantities” (VEQ) clauses that are intended to address this issue.
A typical VEQ clause provides that certain or all bid-item prices are subject to adjustment if the estimated quantity for an item varies by greater than a specified percentage. Sometimes, the bid items are divided into “major” and “minor,” with price adjustments allowed only for major items if, for example, the actual quantity varies by more than 25%. Either the SHD or the contractor may seek a price adjustment if the quantities are over or under the specified percentage. Typically, any adjustment in bid-item prices due to under- or overruns is limited to the quantity in excess of the specified percentage.
Unsuitable pricing?
The most frequent use of the VEQ clause comes at the end of the project when the SHD performs final field surveys and determines final quantities for use in the final estimate it issues to the contractor. However, SHDs also use the VEQ clause as a means of preventing the contractor from quoting higher prices for additional or changed work.
In many instances, the department’s insistence on existing unit prices for additional or changed work is warranted. In other instances, original unit prices are inappropriate because the conditions or circumstances under which the additional or changed work must be performed differ materially from the conditions under which the originally contemplated work was to be performed, and the contractor should be given the opportunity to forward-price the work or perform it under force account.
In Asphalt Roads & Materials Co., Inc. v. Commonwealth of Virginia Department of Transportation, 512 S.E.2d 804 (Va. 1999), the department’s geotechnical investigation revealed that the contractor would encounter some unsuitable excavation material while installing storm drainage lines. Consequently, the department included a separate bid item for “unsuitable material excavation and replacement with suitable borrow material” and specified a quantity of 940 cu yd. The bid item was designated as a minor one, which meant that unless the quantity overran by more than 1,000%, the contractor could not seek to renegotiate the unit price.
As it turned out, the quantity of unsuitable material was over by just under 1,000%, and the department sought to hold the contractor to the unit price in the contract. The contractor argued that the significant increase in unsuitable material constituted a differing site condition and thus contended it was entitled to an equitable adjustment.
The department, on the other hand, argued that the differing site conditions clause does not apply to “mere increases in contract quantities.” Although the trial court ruled for the department, the Virginia Supreme Court reversed that decision and held that if it applied the VEQ clause to a legitimate changed condition, the differing site conditions clause would be rendered meaningless and the governmental objective of assuming the risk of such conditions in order to obtain lower bids would be defeated. The court ordered the department to pay the contractor pursuant to the differing site conditions clause.
Contractors faced with variations in estimated quantities must scrutinize the source of the changed quantities and carefully read the applicable contract provisions before assuming that the VEQ clause governs how it will be compensated. In many instances, the VEQ clause may be trumped by other, more-applicable contract provisions.
About The Author: Caudle is a principal in Kraftson Caudle LLC, a law firm in McLean, Va., specializing in heavy/highway and transportation construction. Caudle can be contacted via e-mail at [email protected].
