Small quantity variations in construction contracts

[con3003]

I'm new to federal contracting and construction contracting. I have a few questions listed below regarding variation in estimated quantities on fixed-price construction contracts using unit prices. I apologize in advance for the attempt to line up tabular data with these ridiculous underlines. Anyone who makes it through this entire post will really be helping me out as I try to grasp these concepts.

In all the examples below, assume that the contract is a fixed-price FAR construction contract using unit prices, and that there is no disagreement between the owner/contractor about unit price/quantities installed/or quality. Also assume that the amount requested in payment does not exceed the total contract amount. These are all fictional circumstances-I am simply looking for guidance on how these contracts are supposed to work. Thanks for the help.

1. Look at the example of a final payment request line item below:

__Item___Description_________Est Qty____Unit______Unit Cost____Actual Installed Qty_______Cost To Date

___C.5____6" PVC Pipe_________100________FT_______10.00___________90______________________$ 900

___C.6____8" PVC Pipe_________100________FT_______10.00____________0_________________________0

Since there is a decrease in 10% of line item C.5 (from estimated quantity to actual quantity), does a contract modification need to be completed before the final payment can be processed?

If "No", and if the contractor completed a release of claims with the final payment, does a modification need to be completed after final payment which de-obligates the money in the contract for that extra 10% which was not ever ordered?

2. Look at the example of a progress payment request line item below:

__Item___Description_________Est Qty____Unit______Unit Cost____Actual Installed Qty_______Cost To Date

___C.5____6" PVC Pipe________100________FT________10.00__________110___________________$1,100

___C.6____8" PVC Pipe________100________FT________10.00___________0_______________________0

Since there is an increase in 10% of line item C.5, does a contract modification need to be completed before the progress payment can be processed?

Would your answer change if the "variation in estimated quantities" clause was not included in the contract?

3. Look at the example of a payment request line item below. The contract specifies which pump to use depending on the final depth of the well (a bigger pump is needed for a deeper well), therefore some line items had a "zero" expected quantity. Three wells were drilled, and the work was completed satisfactorily and according to the specifications. The contractor is not seeking reimbursement for extra costs due to an unexpected pump being required. The contractor is only seeking the unit prices, which are reasonable.

__Item___Description____Est Qty____Unit____Unit Cost____Actual Installed Qty_______Cost To Date

__D.5__1/2 HP Pump_______0________Each_____$550______________1__________________$ 550

__D.6__3/4 HP Pump_______4________Each_____$600______________2__________________$1,200

__D.7__1 HP Pump_________0________Each_____$630______________0__________________$1,000

Here, since the estimated quantity of D.5 was zero, does a contract modification need to be completed before the payment can be processed?

Would your answer change if the "variation in estimated quantities" clause was not included in the contract?

[joel hoffman]

I will be glad to help you but don't have time tonight, especially on the Blackberry.

Will check on the computer tomorrow.

The Corps of Engineers came out with a policy about 15 years.ago to adjust final quantities to actuals due to the data processing systems needs to match 100% final payments with with the contract price. If memory serves me, we did it as an admin mod for anything not requiring a VEQ adjustment, but we could also wrap it up in the same mod as the VEQ adjustments, when applicable.

[joel hoffman]

As a correction to thye above, I remember that the Army SPS system didn't allow us to change the contract price using an Admin Mod. Anothyer tail wagging the dog problem with SPS.

They instructed us to cite the VEQ clause in the Mod, even though that clause has nothing to do with administrative quantity adjustments when there is no entitlement to a "price adjustment.". The VEQ clause covers equitable adjustments for work outside the agreed quantity range of 85-115%, not simple quantity adjustments.

So, in my opinion, one could do the mod unilaterally when no VEQ equitable adjustment is applicable. Administratively, that is really simple, even in the dreaded SPS.

[joel hoffman]

I'm new to federal contracting and construction contracting. I have a few questions listed below regarding variation in estimated quantities on fixed-price construction contracts using unit prices. I apologize in advance for the attempt to line up tabular data with these ridiculous underlines. Anyone who makes it through this entire post will really be helping me out as I try to grasp these concepts.

In all the examples below, assume that the contract is a fixed-price FAR construction contract using unit prices, and that there is no disagreement between the owner/contractor about unit price/quantities installed/or quality. Also assume that the amount requested in payment does not exceed the total contract amount. These are all fictional circumstances-I am simply looking for guidance on how these contracts are supposed to work. Thanks for the help.

1. Look at the example of a final payment request line item below:

__Item___Description_________Est Qty____Unit______Unit Cost____Actual Installed Qty_______Cost To Date

___C.5____6" PVC Pipe_________100________FT_______10.00___________90______________________$ 900

___C.6____8" PVC Pipe_________100________FT_______10.00____________0_________________________0

Since there is a decrease in 10% of line item C.5 (from estimated quantity to actual quantity), does a contract modification need to be completed before the final payment can be processed?

If "No", and if the contractor completed a release of claims with the final payment, does a modification need to be completed after final payment which de-obligates the money in the contract for that extra 10% which was not ever ordered?

ANSWER: (My answers are based upon my experiences over 38 years with the Federal Government in DoD and 4 years in local and commercial contracting.)

As I said earlier, our agency requires an admin mod to align the actual quantities with the estimated quantities at contract closeout. However, we don't have to issue a mod to pay for overruns (or underruns) during on-going construction as long as the overrun wouldn't cause the overall contract amount to be exceeded Iin other words, there should be some underruns in other bid items to off-set the overrun(s)). The answer to your question ultimately depends upon your agency's rules. In your case, if you have already made final payment, you need to ask if a reconciliation mod is necessary to balance the books.

In theory, assuming that all line items using the same accounting classification or appropriation, you can make progress payments as long as underruns and overruns balance, so as not to cause the possibility of exceeding the available funding. In theory, you could also be sloppy and pay for overruns up to the contract price, but if additional funds aren't available to add to the contract when you need them, you may find yourself in an Anti-Deficiency Act violation. That's one reason that our agency requires us to reconcile the quantities and funding prior to final payment. Dont be sloppy in your contract administration.

Theoretically, one can adjust quantities and add funding unilaterally with an admin mod, as long as the adjustment remains within the originally estimated quantity plus whatever range that any Variation in Estimated Quantity type clause cites, because it isn't affecting the rights of either party. So, assuming that the FAR Clause 52.211-18, Variation in Estimated Quantity is in the contract, one could theoretically issue an admin mod that increases or decreases the estimated quantity of an item by up to 15%. We include a statement that explains that the rights of the parties under the VEQ clause are not affected. If we dont know the final quantities yet, we also include a statement that the VEQ clause is based upon the originally estimated quantities. We are also assuming here that the variation is NOT due to any differing site condition, "Change" or any other change in the original scope of work.

Having said that, the DoD computerized contracting system doesn't allow us to change the contract price via an Admin mod, so we must cite some clause to revise the price. Our Headquarters directed us to cite the VEQ clause in order to allow the program to change the price. That is really Hogwash, because the VEQ clause doesn't mention simple quantity adjustments - It is there to allow either party to seek a price adjustment under certain conditions, where actual quantities of work are outside the range and the overrun or underrun causes a change in the unit cost to the contractor to perform the work.

ANSWER 2: The VEQ clause at FAR 52.211-18 does not cover revisions to estimated quantities. It is there to allow an equitable adjustment in the event that actual quantities vary from the estimated quantities plus the identified bandwith either side. If there is no VEQ clause in the contract, I'd say that the parties have agreed to pay for the actual quantities performed at the agreed unit price. There is no mechanism for either party to request a unit price adjustment or other line item price adjustment for overruns or underruns. This assumes that the variation in quantities isn't caused or covered by some other event or clause or isn't the result of a gross estimating error. For an underrun, theoretically, you are covered, unless your agency requires a reconciliation mod to match the final copntract cost to final progress in order to balance the books.

2. Look at the example of a progress payment request line item below:

__Item___Description_________Est Qty____Unit______Unit Cost____Actual Installed Qty_______Cost To Date

___C.5____6" PVC Pipe________100________FT________10.00__________110___________________$1,100

___C.6____8" PVC Pipe________100________FT________10.00___________0_______________________0

Since there is an increase in 10% of line item C.5, does a contract modification need to be completed before the progress payment can be processed?

Would your answer change if the "variation in estimated quantities" clause was not included in the contract?

ANSWER: see my answers above.

3. Look at the example of a payment request line item below. The contract specifies which pump to use depending on the final depth of the well (a bigger pump is needed for a deeper well), therefore some line items had a "zero" expected quantity. Three wells were drilled, and the work was completed satisfactorily and according to the specifications. The contractor is not seeking reimbursement for extra costs due to an unexpected pump being required. The contractor is only seeking the unit prices, which are reasonable.

__Item___Description____Est Qty____Unit____Unit Cost____Actual Installed Qty_______Cost To Date

__D.5__1/2 HP Pump_______0________Each_____$550______________1__________________$ 550

__D.6__3/4 HP Pump_______4________Each_____$600______________2__________________$1,200

__D.7__1 HP Pump_________0________Each_____$630______________0__________________$1,000

Here, since the estimated quantity of D.5 was zero, does a contract modification need to be completed before the payment can be processed?

Would your answer change if the "variation in estimated quantities" clause was not included in the contract?

ANSWER: See above. I'd say no mod is necessary for progress payments because you have enough funding in the underrun of line item D.6 to cover the overrun in item D.5, but your agency may require a reconciliation mod at some point.

NOTE: All of the above answers assume that this is a Federal Contract, subject to the Federal Acquisition Regulations, not a state, local or private contract. It is a usually good idea to try to keep the quantities up to date on a fixed price contract in order to aid in contract administration and to aid overall management of progress vs. the theoretical 100% completion. If quantities are running all over the place in comparison with the estimates, you might not be able to keep up with actual progress. So, even though a mod might not be necessary for progress payment purposes, it behooves the contract administration office to keep up with the real requirements and with the contractor's progress against requirements.

[con3003]

Thanks for your time, Joel. Your answers helped.