Most highway contracts include Variation in Estimated Quantity (VEQ) clauses that establish rules governing the renegotiation of unit prices if actual quantities vary from the government’s estimated quantities by a stated percentage—typically between 15 and 25%. Many VEQ clauses distinguish between minor and major bid items and allow adjustments for the former, but not the latter. Alternatively, a minor bid item might require a substantially greater variance in quantity than a major bid item before the unit price may be negotiated. In nearly all instances, a request for an increase or decrease in a unit price under a VEQ clause must be based upon an increase or decrease in costs due solely to the variation in quantity.
Unsuitable maneuver
Contractors and state highway departments sometimes forget that the VEQ clause is not the only contract provision affecting quantity changes, and in some events unit price changes are warranted even when quantity changes are less than the threshold percentages stated in the VEQ clause.
Cases have similarly held that the government cannot apply a VEQ clause to foreclose unit price changes when the additional (or reduced) quantities are attributable to changes in the work. Rather, pricing in such instances is governed by the changes clause contained in the contract. Accordingly, contractors must keep in mind that the VEQ clause is not the sole mechanism in the contract governing whether work must be performed at the contract unit prices bid. Frequently, other contract clauses apply and take precedence over the VEQ clause.
Flashing a message
Once the VEQ clause is deemed properly applicable, the party seeking the unit price adjustment must prove that the contractor’s cost of performing the particular item of work has increased or decreased as a sole result of the variation in quantity. As the Maryland Court of Special Appeals determined in Genstar Stone Paving Products, Co., Inc. v. State Highway Administration, 616 A.2d 256 (1993), this can be shown only by comparing the contractor’s costs of performing the estimated quantity to the contractor’s cost of performing the added quantity. More importantly, how much profit, if any, the contractor is making on the work is irrelevant.
Genstar Paving involved a VEQ clause that allowed unit price adjustments for quantities varying by greater than 25% of the estimate. When the estimated quantity for the variable message board bid item overran from 200 unit/days to 555 unit/days, the department sought a reduction in the unit price of $900, which it argued was $845 higher than the statewide average price bid for variable message boards. In the appeal, the department argued that once the contractor performed the original quantity plus 25%, additional units should be performed at a lower price because the contractor’s actual costs were significantly lower than its $900 bid price.
The court acknowledged that the contractor’s price was over eight times its actual cost. However, it held that the clear and unambiguous language of the VEQ clause restricted the inquiry to whether the contractor experienced a cost reduction as a sole result of the additional quantities. How much the contractor is profiting from the work is not to be considered. The appeals court, therefore, remanded the case to the trial court to make that determination.
What if the contractor had underbid and it sought a price adjustment under these circumstances to offset its losses? The inquiry would be restricted to whether the contractor’s costs for the added quantity increased as a sole result of such added quantity. Absent an increase in costs that could be tied solely to the increase in quantity, no adjustment in price would be allowed.
