Contract quantities

[SAE 84]

I have a contract with the US forest service that has both actual quantities and contract quantites. The issue is that we have a contract quantity item for embankment (excavation) for slide removal the design quantities was 1800 CY

Through pre and post survey we verified that actual quantites were 2160CY approx 20% over. FS suplemental to FP-03 states 109.02- Conatract quantities will be adjusted only when there are errors in the original design of 15% or more.

We are of the opinion that we should be paid for all of the additional quantitiy at the original unit price there is no dispute for VEQ.

Response from CO when asked for case law or contract langquage on his position:

, the best I can provide for you is that it is the Governments intent and position that we do expect the Contract Quantities to vary because of the method of measurement (pre-construction) used. This is stated in the contract as more or less than 15% (SPS 109.02). That is the contract you entered into with us and was in your calculated risk and offer to the Government. As we discussed, if the amount was found to be less that 15%, you would not be due any additional monies. The Government does understand we can only take that risk and variation to a reasonable level and that is why we designate the 15% maximum, is your risk for Contract Quantities. literally taken, the SPS states they will be "adjusted only when there are errors in the original design of 15% or more".

they are currently offering to only pay the amount over 15%.

Any ideas?

[joel hoffman]

Is this a unit priced item for payment or is it some type of lump sum item?

It would appear from the scenario presented that you would have been paid the same amount had you experienced an underrun within 15% of the "contract quantity", without an adjustment.

If that is so, it appears to me that, as long as the actual quantities are within the range of 85-115%, there is no change. The change, as described by the KO, would compare the cost within the range to the cost outside the range. But I don't have the entire context of the contract terms to read.

If the item is unit-priced as you hinted, that doesn't make a lot of sense, either. That's why I'm asking you how the bid item is set up for payment.

[SAE 84]

I have a contract with the US forest service that has both actual quantities and contract quantites. The issue is that we have a contract quantity item for embankment (excavation) for slide removal the design quantities was 1800 CY

Through pre and post survey we verified that actual quantites were 2160CY approx 20% over. FS suplemental to FP-03 states 109.02- Conatract quantities will be adjusted only when there are errors in the original design of 15% or more.

We are of the opinion that we should be paid for all of the additional quantitiy at the original unit price there is no dispute for VEQ.

Response from CO when asked for case law or contract langquage on his position:

, the best I can provide for you is that it is the Governments intent and position that we do expect the Contract Quantities to vary because of the method of measurement (pre-construction) used. This is stated in the contract as more or less than 15% (SPS 109.02). That is the contract you entered into with us and was in your calculated risk and offer to the Government. As we discussed, if the amount was found to be less that 15%, you would not be due any additional monies. The Government does understand we can only take that risk and variation to a reasonable level and that is why we designate the 15% maximum, is your risk for Contract Quantities. literally taken, the SPS states they will be "adjusted only when there are errors in the original design of 15% or more".

they are currently offering to only pay the amount over 15%.

Any ideas?

This is a unit price contract with some individual items marked with a * to denote contract quantity. there are othere items in the contract that are measured as actual quantities. The item in question was marked with a * making it a contract quantity. These quantiites can only be adjusted when we can show that there is a variance of more than 15% from the design. this has been accomplished thru pre and post work survey accepted by the government.

Contract quantity 1800 CY

Actual measured quntity 2300 cy

15% of 1800 270 cy

Contracting officer offering to pay only 230 cy(difference over 15% variance) at original unit price. We feel contract language reads that we would be paid for 500 CY at original unit price.

We notified CO during work that through truck counts we would exceed contract quantity substanially and asked about authorization ,differing site conditions.

research I have done says varations of 15% or more are inherently difffering site conditions. Co appears to want to avoid actual claim.

thanks for your input.

[Guest carl r culham]

Joel ? Please be careful in how you respond. You have already created confusion as the FP-03 specification as usually supplemented by the Forest Service does not allow for any discussion regarding less than the ?contract quantity?. Your reference to ?within the range of 85-115%? is an erroneous inference and implies a process akin to the VEQ. This is not correct as VEQ does not apply to ?contract quantities?.

FP-03 109.02 states ?

( Contract quantity. The quantity to be paid is the quantity shown in the bid schedule. The contract quantity will be adjusted for authorized changes that affect the quantity or for errors made in computing this quantity. If there is evidence that a quantity specified as a contract quantity is incorrect, submit calculations, drawings, or other evidence indicating why the quantity is in error and request, in writing, that the quantity be adjusted.

(Ref - http://flh.fhwa.dot.gov/resources/pse/specs/)

The Forest Service in some cases then supplements the FP-03 with language that is close to the following. The specific contract of this thread would provide the exact language but note specifically the language in this example reference that requires the change to be ?15% or more?.

109.02 Measurement Terms and Definitions.

( Contract quantity.

Add the following:

Contract quantities will be adjusted only when there are errors in the original design of 15% or

more.

(Ref: http://www.fs.fed.us/r8/fms/fmarion/resour....Roads_000.pdf)

A literal interpretation of the language of the FP-03 as supplemented by the Forest Service would be that if a contractor?s work on a particular item that states a ?contract quantity? of 1800 CY the contractor would be paid for 1800 CY regardless of the quantity excavated. Example if 1000 CY excavated then payment would still be for 1800 CY. Converse if the excavation results in more excavation then the contractor is only entitled to an adjustment only if the extra excavation is ?15% or more? than the contract quantity and was a result of an error in original design. Again note the supplement language that states ?errors in the original design of 15% or more. ?

Beyond this factual information I am going step out of this conversation due to possible conflicts.

I am providing this information as many times folks confuse the FP-03 language with the VEQ clause and again the VEQ clause does not apply. My hope is that with this additional information folks will not sidetrack to VEQ and stay on point to the FP-03 language as supplemented.

[SAE 84]

Joel ? Please be careful in how you respond. You have already created confusion as the FP-03 specification as usually supplemented by the Forest Service does not allow for any discussion regarding less than the ?contract quantity?. Your reference to ?within the range of 85-115%? is an erroneous inference and implies a process akin to the VEQ. This is not correct as VEQ does not apply to ?contract quantities?.

FP-03 109.02 states ?

( Contract quantity. The quantity to be paid is the quantity shown in the bid schedule. The contract quantity will be adjusted for authorized changes that affect the quantity or for errors made in computing this quantity. If there is evidence that a quantity specified as a contract quantity is incorrect, submit calculations, drawings, or other evidence indicating why the quantity is in error and request, in writing, that the quantity be adjusted.

(Ref - http://flh.fhwa.dot.gov/resources/pse/specs/)

The Forest Service in some cases then supplements the FP-03 with language that is close to the following. The specific contract of this thread would provide the exact language but note specifically the language in this example reference that requires the change to be ?15% or more?.

109.02 Measurement Terms and Definitions.

( Contract quantity.

Add the following:

Contract quantities will be adjusted only when there are errors in the original design of 15% or

more.

(Ref: http://www.fs.fed.us/r8/fms/fmarion/resour....Roads_000.pdf)

A literal interpretation of the language of the FP-03 as supplemented by the Forest Service would be that if a contractor?s work on a particular item that states a ?contract quantity? of 1800 CY the contractor would be paid for 1800 CY regardless of the quantity excavated. Example if 1000 CY excavated then payment would still be for 1800 CY. Converse if the excavation results in more excavation then the contractor is only entitled to an adjustment only if the extra excavation is ?15% or more? than the contract quantity and was a result of an error in original design. Again note the supplement language that states ?errors in the original design of 15% or more. ?

Beyond this factual information I am going step out of this conversation due to possible conflicts.

I am providing this information as many times folks confuse the FP-03 language with the VEQ clause and again the VEQ clause does not apply. My hope is that with this additional information folks will not sidetrack to VEQ and stay on point to the FP-03 language as supplemented.

less than contract quantity was quote from CO not us.

The Question is should I be compensated for the entire overage or only the amount above 15% . I understand VEQ does not apply unless we are seeking increased unit cost. We are not seeking increased unit cost.

The FS suplemental language

109.02 add the following "contract quantities will be adjusted only when there are errors in the original design of 15% or more"

Our situation

contract QTY 1800 CY

Actual QTY 2300 CY There is no dispute over actual quantities moved.

Contracting officer offering to pay for 1800 Cy at orignal unit price

15% variance 270 Cy no additonal compensation

230 CY at original unit price

2300 CY total volume moved

We feel we should be paid for 2300 CY at original unit price. orignal unit price of $30 CY disagreement is approx 7K

is there language in FAR, FP-03,case law that defines this situation?

[joel hoffman]

Joel ? Please be careful in how you respond. You have already created confusion as the FP-03 specification as usually supplemented by the Forest Service does not allow for any discussion regarding less than the ?contract quantity?. Your reference to ?within the range of 85-115%? is an erroneous inference and implies a process akin to the VEQ. This is not correct as VEQ does not apply to ?contract quantities?.

FP-03 109.02 states ?

( Contract quantity. The quantity to be paid is the quantity shown in the bid schedule. The contract quantity will be adjusted for authorized changes that affect the quantity or for errors made in computing this quantity. If there is evidence that a quantity specified as a contract quantity is incorrect, submit calculations, drawings, or other evidence indicating why the quantity is in error and request, in writing, that the quantity be adjusted.

(Ref - http://flh.fhwa.dot.gov/resources/pse/specs/)

The Forest Service in some cases then supplements the FP-03 with language that is close to the following. The specific contract of this thread would provide the exact language but note specifically the language in this example reference that requires the change to be ?15% or more?.

109.02 Measurement Terms and Definitions.

( Contract quantity.

Add the following:

Contract quantities will be adjusted only when there are errors in the original design of 15% or

more.

(Ref: http://www.fs.fed.us/r8/fms/fmarion/resour....Roads_000.pdf)

A literal interpretation of the language of the FP-03 as supplemented by the Forest Service would be that if a contractor?s work on a particular item that states a ?contract quantity? of 1800 CY the contractor would be paid for 1800 CY regardless of the quantity excavated. Example if 1000 CY excavated then payment would still be for 1800 CY. Converse if the excavation results in more excavation then the contractor is only entitled to an adjustment only if the extra excavation is ?15% or more? than the contract quantity and was a result of an error in original design. Again note the supplement language that states ?errors in the original design of 15% or more. ?

Beyond this factual information I am going step out of this conversation due to possible conflicts.

I am providing this information as many times folks confuse the FP-03 language with the VEQ clause and again the VEQ clause does not apply. My hope is that with this additional information folks will not sidetrack to VEQ and stay on point to the FP-03 language as supplemented.

Thanks for the clarification, Carl. I didn't assume that any standard FAR, VEQ clause was involved here. It appeared strange that there would be a unit price for a fixed quantity, so I asked. I suppose that it might only be intended to serve as information for pricing adjustments. But from the wording I assumed that "15%" means just that. The supplemental language didn't say anything that limits an adjustment only to an overrun.

So, the government eats all underruns and the contractor is encouraged to add a contingency to the unit price unless it takes a risk that the government established quantities are accurate or fat. That seems to be a pretty generous contract term.

By the way, the "unit price" that isn't really a unit price might be possibly inflated when the contractor has to risk eating the first 15% of an overrun. I would be hesitant to assume that the "unit price" is useful for pricing the adjustment.

At any rate, it looked like the questioner would only be entitled to an adjustment for quantities exceeding 115% of the contract quantity". SAE 84, I don't have a definitive answer to your question. This clause is developed and interpreted by the Forest Service.

[SAE 84]

Thanks for the clarification, Carl. I didn't assume that any standard FAR, VEQ clause was involved here. It appeared strange that there would be a unit price for a fixed quantity, so I asked. I suppose that it might only be intended to serve as information for pricing adjustments. But from the wording I assumed that "15%" means just that. The supplemental language didn't say anything that limits an adjustment only to an overrun.

So, the government eats all underruns and the contractor is encouraged to add a contingency to the unit price unless it takes a risk that the government established quantities are accurate or fat. That seems to be a pretty generous contract term.

By the way, the "unit price" that isn't really a unit price might be possibly inflated when the contractor has to risk eating the first 15% of an overrun. I would be hesitant to assume that the "unit price" is useful for pricing the adjustment.

At any rate, it looked like the questioner would only be entitled to an adjustment for quantities exceeding 115% of the contract quantity". SAE 84, I don't have a definitive answer to your question. This clause is developed and interpreted by the Forest Service.

I have found two cases Flat head contractors Vs Department of agriculture and Big sky contractors Vs department of Agriculture where Board of appeals ruled in favor of contractor and paid entire overage.

thanks for your previous input.

[Guest Vern Edwards]

FP-03 is the Federal Highway Administration's Standard Specifications for Construction of Roads and Bridges on Federal Highway Projects. The language at issue, Section 109.02(, as supplemented by the Forest Service, is as follows:

( Contract quantity. The quantity to be paid is the quantity shown in the bid schedule. The contract quantity will be adjusted for quantity or for errors made in computing this quantity. If there is evidence that a quantity specified as a contract quantity is incorrect, submit calculations, drawings, or other evidence indicating why the quantity is in error and request, in writing, that the quantity be adjusted. Contract quantities will be adjusted only when there are errors in the original design of 15% or more.

The sentence is bold face is the Forest Service supplemental language.

SAE 84's contract stipulated a quantity of 1,800 cubic yards. The actual quantity turned out to be 2,160 cubic yards, which exceeded the contract quantity by 360 cubic yards, which is a difference of 20 percent. 15 percent of 1,800 would have been 270 cubic yards. The issue is whether SAE 84 should be paid for an additional 360 cubic yards or only 90, the amount in excess of 15 percent. SAE 84 wants the former, but the CO wants the latter.

I found no case law interpreting FP-03, Section 109.02(, as supplemented by the Forest Service. My "plain language" reading of the FS-03, Section 109.02(, as supplemented by the Forest Service, is that the government must pay the contractor for the contract quantity unless the actual quantity exceeds it by more than 15 percent. If the actual quantity exceeds the contract quantity by more than 15 percent, the government must pay the contractor for the entire excess quantity, not just the amount in excess of 15 percent. I believe that SAE 84 is entitled to be paid for the entire excess -- 360 cubic yards. I do not believe that the Forest Service CO's interpretation, that the contractor is to be paid for only for 90 cubic yards, the amount in excess of 15 percent, is reasonable. If I were the contractor I would immediately submit a claim, certified if over $100,000, demanding payment for the entire 360 cubic yard excess.

[Jacques]

This whole thing strikes me as a lesson in the perils of starting from scratch and not building on readily available tools (assuming the CO's position today reflects what the government intended at time of award).

FAR 52.211-18 (and less clearly 52.211-17) provide two examples of how to draft a clause that expressly addresses whether the government pays for the entire variation. FAR 52.211-18 provides, "The equitable adjustment shall be based upon any increase or decrease in costs due solely to the variation above 115 percent or below 85 percent of the estimated quantity." FAR 52.211-17 essentially defines an excess quantity after considering any allowable variation in quantity.

I'm not saying don't be innovative, I'm saying try to consider recurring issues when being innovative.

[Guest Vern Edwards]

I re-read and re-thought this morning, and I think I might have to change my interpretation of FP-03.

Reading FP-03 and the Forest Service supplement as a whole, including the bid preparation instructions, which is what I should have done before writing my last post, I can now see why the CO said that he would pay for only the amount in excess of a 15 percent variation. If a bidder is told that it must base its bid on the estimated quantity, and if it is also told that the quantity will not be adjusted for payment purposes unless a variation exceeds 15 percent, then the bidder should have taken the +/- into account when setting its bid price. In other words, the bid price covers the estimated quantity +/- 15 percent. Any adjustment is for amounts in excess of the +/- 15 percent.

This thread has bothered me from the start, because the original poster asked a question about the interpretation of a contract. I ignored the thread at first, because I could not figure out how to answer the question without seeing the contract. But I got interested as the discussion proceeded and decided to offer an opinion, which was a mistake. I'm still not sure what the proper interpretation of the contract would be, FP-03 plus the Forest Service supplement, because I still haven't seen the whole contract. My last post was a rookie mistake.

I should point out that while Jacques is right about writing clauses, the Variation in Estimated Quantities clause is not a model of clarity. I don't have time to go into all of the issues now, but Professors Cibinic and Nash have written extensively about the lack of clarity in the clause, which has resulted in litigation appealed all the way to the Federal Circuit. See The Nash & Cibinic Report, "Variation in Estimated Quantity Clause: Groping for Meaning" (Sept. 1989), "Postscript: Variation in Estimated Quantity Clause" (Dec. 1992), and "Postscript II: Variation in Estimated Quantity Clause" (Dec. 1993).

[joel hoffman]

This whole thing strikes me as a lesson in the perils of starting from scratch and not building on readily available tools (assuming the CO's position today reflects what the government intended at time of award).

FAR 52.211-18 (and less clearly 52.211-17) provide two examples of how to draft a clause that expressly addresses whether the government pays for the entire variation. FAR 52.211-18 provides, "The equitable adjustment shall be based upon any increase or decrease in costs due solely to the variation above 115 percent or below 85 percent of the estimated quantity." FAR 52.211-17 essentially defines an excess quantity after considering any allowable variation in quantity.

I'm not saying don't be innovative, I'm saying try to consider recurring issues when being innovative.

Jacques, et al. Don't confuse the VEQ clause at 52.211-18 with the issue of whether or not the owner will pay for overruns. The VEQ clause doesn't say anywhere that the government will pay for actual quantities delivered, whether at the contract price or at an adjusted price. The clause addresses when some type of adjustment to unit-priced items may be applicable, not whether or not a variation in quantities will be paid for.

The prescription for the clause at 11.703 ( c) says to use it "...in solicitations and contracts when a fixed-price construction contract is contemplated that authorizes a variation in the estimated quantity of unit-priced items." Thus, the contract must first authorize a variation somewhere else in the contract.

When one includes unit priced line items in a construction contract (and probably for other type contracts), they should include specifications for "measurement and payment" terms. Sometimes the notes accompanying various bid items explain this. Many of the guide specifications and commercial specifications like MasterSpec include measurement and payment terms and conditions. Construction contracts have traditionally authorized payment for actual quantities in the specs, in special contract requirements or in the CLIN notes - not in the FAR VEQ clause.

That clause was intended to establish the rules for determining whether or not the contractor has to furnish actual quantities at the agreed upon unit price or when one or both parties can request an adjustment to the unit-price. There has been some litigation over this over the years as to whether the clause means that you totally re-price quantities outside the variation range or if you just include an equitable adjustment for certain variations between the contractor's actual cost for the units within the range or outside the range. I wont get into the details right now, because this thread doesn't concern what unit-price to apply to overruns. However, that clause isn't crystal clear about its intended subject, either.

However, the point is this: One should clearly describe in the contract, under some type of measurement and payment provision/clause/term, etc., how the unit-priced items are measured and paid. The VEQ clause at 52.211-18 doesn't have anything to do with that aspect of payment.

Government employees should not develop claims for contractor's (Vern Edwards has certain freedoms that I don't have). But the wording isn't clear to me.

[joel hoffman]

I edited my post above after I posted it and read Vern's intervening 9:55 AM post. I dropped some details about how the FS provision might be interpreted differently by the government authors or by a contractor. I just don't think it it clearly written.

My reference to Vern is not intended to be disparaging. As a non-government employee, he has some more latitude in advising a contractor than Carl Culham or me.

[Guest Vern Edwards]

I didn't take what you said as disparaging. However, I don't see why a government employee can't suggest that a contractor submit a claim. A claim is nothing more than a request or a demand for something. Telling a contractor to submit a claim is simply a way of saying that if it thinks it's entitled to something, and wants it, it should ask for it in no uncertain terms. When I was a government employee I often told contractors that they should submit a claim if they wanted something that I or some other contracting officer thought they shouldn't have. I even suggested format and content, the same as I suggested how to submit a proposal. That's not the same as "developing" a claim. Claims don't have to be adversarial.

[joel hoffman]

I didn't take what you said as disparaging. However, I don't see why a government employee can't suggest that a contractor submit a claim. A claim is nothing more than a request or a demand for something. Telling a contractor to submit a claim is simply a way of saying that if it thinks it's entitled to something, and wants it, it should ask for it in no uncertain terms. When I was a government employee I often told contractors that they should submit a claim if they wanted something that I or some other contracting officer thought they shouldn't have. I even suggested format and content, the same as I suggested how to submit a proposal. That's not the same as "developing" a claim. Claims don't have to be adversarial.

Vern, I agree. I do believe however, that I shouldn't help develop the claim for SAE 84. I am having a hard time reading the "clause" or whatever it is the same way that Carl explained it. Let me leave it at that...

[Guest Vern Edwards]

Discussing possible interpretations of a clause is not "developing" a claim for anybody. We discuss such things all the time.

I think Carl meant the same thing that I do: If the contract says 1,800 cubic yards you get paid for that amount unless the actual amount exceeds it by more than 15 percent, in which case you get paid an additional amount for the quantity in excess of the 15 percent variation. In other words, the contractor's bid is assumed to have covered variations up to and including +/- 15 percent. If you don't think it says that, what do you think it says?

[joel hoffman]

Discussing possible interpretations of a clause is not "developing" a claim for anybody. We discuss such things all the time.

I think Carl meant the same thing that I do: If the contract says 1,800 cubic yards you get paid for that amount unless the actual amount exceeds it by more than 15 percent, in which case you get paid an additional amount for the quantity in excess of the 15 percent variation. In other words, the contractor's bid is assumed to have covered variations up to and including +/- 15 percent. If you don't think it says that, what do you think it says?

I think it may have been intended to say that. The contract in essence says that contract quantities will be adjusted when there are errors in the original design of 15% or more or when there are changes in the work. It doesn't say how the quantities will be adjusted. Neither the clause nor the supplement specifically limit adjustments to overruns, as Carl maintains. There seems to be a unit price identified for this sort of lump sum work, but unless there is a description elsewhere in the contract, it didn't specify that the unit price was binding on either party.

[Guest Vern Edwards]

Here is an excerpt from the FP-03 instructions for preparation of bids, Section 102.02, pages 12 - 13:

Insert a unit bid price, in figures, for each pay item for which a quantity appears in the bid schedule. Multiply the unit bid price by the quantity for each pay item and show the amount bid. Should any mathematical check made by the Government show a mistake in the amount bid, the corrected unit price extension shall govern.

When the words "lump sum" appear as a unit bid price, insert an amount bid for each lump sum pay item.

When the words "contingent sum" or a fixed rate appears as a unit bid price, include the Government inserted amount bid for the item in the total bid amount.

Total all of the amounts bid for each pay item and show the total bid amount.

The quantities shown in the bid schedule are approximate, unless designated as a contract quantity, and are used for the comparison of bids. Payment will be made for the actual quantities of work performed and accepted or material furnished according to the contract. The scheduled quantities may be increased, decreased, or deleted. Bid schedule quantities are considered the original contract quantities.

Note that it says that payment will be made for actual quantities. I do not know if the Forest Service supplements that section.

Here again is the text of the quantity measurement provision, Section 109.02(:

( Contract quantity. The quantity to be paid is the quantity shown in the bid schedule. The contract quantity will be adjusted for authorized changes that affect the quantity or for errors made in computing this quantity. If there is evidence that a quantity specified as a contract quantity is incorrect, submit calculations, drawings, or other evidence indicating why the quantity is in error and request, in writing, that the quantity be adjusted.

Now, here is the Forest Service supplemental language to that provision:

Contract quantities will be adjusted only when there are errors in the original design of 15% or more.

Taken all together, I think that the effect of the Forest Service supplement is to condition the payment for actual quantities to bid quantity plus actual quantities in excess of +/- 15 percent. However, there may be more language of which we are unaware.

[Jacques]

The prescription for the clause at 11.703 ( c) says to use it "...in solicitations and contracts when a fixed-price construction contract is contemplated that authorizes a variation in the estimated quantity of unit-priced items." Thus, the contract must first authorize a variation somewhere else in the contract.

Joel, from a drafting (forward-looking) perspective, I couldn't agree with you more. It wouldn't take much to authorize a variation in quantity. "EST" somewhere in the contract line item would likely be sufficient.

From a contract interpretation (backward-looking) perspective, though, I would speculate that if a contract includes FAR 52.211-18, includes unit priced items, and doesn't otherwise provide a means for identifying to which CLINs the clause is intended to apply, a board or court would find a way to either make the clause apply to the unit priced items in question (or would find a Change, differing site condition, negligent or unreasonable estimate, etc.) to reach what it considered a fair outcome.

[joel hoffman]

See below

[joel hoffman]

Joel, from a drafting (forward-looking) perspective, I couldn't agree with you more. It wouldn't take much to authorize a variation in quantity. "EST" somewhere in the contract line item would likely be sufficient.

From a contract interpretation (backward-looking) perspective, though, I would speculate that if a contract includes FAR 52.211-18, includes unit priced items, and doesn't otherwise provide a means for identifying to which CLINs the clause is intended to apply, a board or court would find a way to either make the clause apply to the unit priced items in question (or would find a Change, differing site condition, negligent or unreasonable estimate, etc.) to reach what it considered a fair outcome.

Jacques, the VEQ clause applies to all unit-priced items unless otherwise indicated in the contract. But it doesn't authorize payment for actual quantities. The purpose of the clause is to provide the means for an adjustment to a unit-price under certain conditions.

If you are going to write a construction contract with unit-priced items, you need to include measurement and payment terms/conditions that explain how to measure and how to pay for unit priced items.

I helped write the USACE policy and guidance for making adjustments under the VEQ clause and had considerable experience negotiating awarding and administering unit priced contracts. The government's VEQ clause is different than the ones we typically used in private practice. Those contracts often included terms which allowed total repricing outside a certain range.

But in Germany, the unit prices applied to all actual quantities. So, there is no universal rule that applies to unit prices.

The clause in the instant contract doesn't discuss unit pricing. It is intended to discuss payment limitations for quantity variations on lump sum "Contract quantity" items.

It could certainly be clearer.

And even though not germaine to the present issue, there is no basis in the wording to say that it only applies to overruns.

[Guest Vern Edwards]

This thread may have gotten confusing to some people. I?m going to try to explain it. If you already understand all of the issues, you might want to skip this post.

Fixed-price construction contracts may be priced on a lump sum or unit-priced basis, or on the basis of some combination of the two methods. See FAR 36.207.

Construction costs are usually estimated by reviewing the project drawings and calculating the kinds and amounts of work to be done, then pricing that work. Those calculations are called ?take offs.? However, some work, such as site preparation excavation, cannot be estimated precisely. When that is the case, it may be fairer to both parties to initially price such work on a unit basis, such as for cubic yards of earth to be removed or cubic yards of imported material (?borrow?) to be emplaced, and to pay the contractor for actual quantities. When the contract will include such unit-priced items, separate line items are established for each such item. Offerors are told (a) to propose unit prices based on an estimated quantity stated in the solicitation and ( that payment to the contractor will be based on actual quantities at the unit prices. An offeror?s total price includes the product of the of estimated number of units for each such item, multiplied by the proposed unit price.

When a construction contract total price includes unit-priced items and payment is to be made on the basis of actual quantities, there are two potential pricing issues: first, there is the method of measurement of the actual quantities of each such item; second, there is the determination of the unit price to be paid when actual quantities vary from estimated quantities. If you are familiar with cost-volume-profit analysis, it will be apparent why the unit price might be an issue.

SAE 84?s original question was about the first issue⎯the determination of the quantity on which basis payment is to be made. That is the issue in interpreting FP-03 and the Forest Service supplement. The problem is caused in SAE 84?s case by the language of the supplement. I discussed that in my posts number #8 and #10, above. SAE 84 did not raise an issue about unit price. However, because of Joel?s response to something that Jacques wrote, Jacques and Joel have lately been talking about the Variation in Estimated Quantity (VEQ) clause, FAR 52.211-18, which addresses only the second issue: the equitable adjustment of the unit price based on variations in quantity exceeding +/- 15 percent. As Joel has pointed out, the VEQ clause does not address the determination of the quantity of work on which payment is to be based.

Here is what the VEQ clause is about: When actual quantities vary from the solicitation estimate, the variation in quantity may affect the contractor?s cost. The VEQ clause provides that if actual quantity varies from estimated quantity by more than +/- 15 percent, and if that variation in excess of +/- 15 percent affects the contractor?s costs, then either the government or the contractor is entitled to an ?equitable adjustment? of the unit price of the units above or below the +/- 15 percent. The adjustment is limited to the effect of the variation in excess of +/- 15 percent. Other causes of increased costs are excluded. The adjustment is made only to the unit price of the quantity in excess of +/- 15 percent, not the total quantity. You will find a more extensive discussion of the VEQ clause in Administration of Government Contracts, 4th ed., Chapter 5, Section VIII, pages 532 and 534 ? 536.

To illustrate, suppose that the contract (a) calls for an estimated quantity of 100,000 units at a price of $10 per unit, ( says that the contractor will be paid at the unit price for the actual number of units, and ( c) includes the VEQ clause, which provides for an equitable adjustment to the unit price when actual quantity varies from estimated quantity by more than 15 percent. Now suppose that the actual quantity turns out to be 125,000 units, a 25 percent variance. The result is that the contractor will be paid for 115,000 units at $10 per unit. In addition, if the contractor can show that the additional 10,000 units caused its costs to increase by $5 per unit, it will be entitled to $15 per unit for those units. (I'm leaving out profit for the sake of simplicity.) Entitlement and quantum are based on the effect of that last 10,000 excess units, not on the first 15,000 excess units.

Interpretation of the VEQ clause had been controversial for a number of years. The full meaning of the clause is not apparent on its face. However, I think it was largely settled by the Court of Appeals for the Federal Circuit in Foley Co. v. U.S., 11 F.3d 1032 (1993), which was based in part on a precedent set in Victory Construction Co. v. U.S. 510 F.2d 1379 (Ct.Cl., 1975).

[formerfed]

Thanks Vern for explaining it. I thought I understood the issues but your post showed me I didn't. I learned a lot.

[joel hoffman]

This thread may have gotten confusing to some people. I?m going to try to explain it. If you already understand all of the issues, you might want to skip this post.

Fixed-price construction contracts may be priced on a lump sum or unit-priced basis, or on the basis of some combination of the two methods. See FAR 36.207.

Construction costs are usually estimated by reviewing the project drawings and calculating the kinds and amounts of work to be done, then pricing that work. Those calculations are called ?take offs.? However, some work, such as site preparation excavation, cannot be measured precisely. When that is the case, it may be fairer to both parties to initially price such work on a unit basis, such as for cubic yards of earth to be removed or cubic yards of imported material (?borrow?) to be emplaced, and to pay the contractor for actual quantities. When the contract will include such unit-priced items, separate line items are established for each such item. Offerors are told (a) to propose unit prices based on an estimated quantity stated in the solicitation and ( that payment to the contractor will be based on actual quantities at the unit prices. An offeror?s total price includes the product of the of estimated number of units for each such item, multiplied by the proposed unit price.

When a construction contract total price includes unit-priced items and payment is to be made on the basis of actual quantities, there are two potential pricing issues: first, there is the method of measurement of the actual quantities of each such item; second, there is the determination of the unit price to be paid when actual quantities vary from estimated quantities. If you are familiar with cost-volume-profit analysis, it will be apparent why the unit price might be an issue.

SAE 84?s original question was about the first issue?the determination of the quantity on which basis payment is to be made. That is the issue in interpreting FP-03 and the Forest Service supplement. The problem is caused in SAE 84?s case by the language of the supplement. I discussed that in my posts number #8 and #10, above. SAE 84 did not raise an issue about unit price. However, because of Joel?s response to something that Jacques wrote, Jacques and Joel have lately been talking about the Variation in Estimated Quantity (VEQ) clause, FAR 52.211-18, which addresses only the second issue: the equitable adjustment of the unit price based on variations in quantity exceeding +/- 15 percent. As Joel has pointed out, the VEQ clause does not address the determination of the quantity of work on which payment is to be based.

Here is what the VEQ clause is about: When actual quantities vary from the solicitation estimate, the variation in quantity may affect the contractor?s cost. The VEQ clause provides that if actual quantity varies from estimated quantity by more than +/- 15 percent, and if that variation in excess of +/- 15 percent affects the contractor?s costs, then either the government or the contractor is entitled to an ?equitable adjustment? of the unit price of the units above or below the +/- 15 percent. The adjustment is limited to the effect of the variation in excess of +/- 15 percent. Other causes of increased costs are excluded. The adjustment is made only to the unit price of the quantity in excess of +/- 15 percent, not the total quantity. You will find a more extensive discussion of the VEQ clause in Administration of Government Contracts, 4th ed., Chapter 5, Section VIII, pages 532 and 534 ? 536.

To illustrate, suppose that the contract (a) calls for an estimated quantity of 100,000 units at a price of $10 per unit, ( says that the contractor will be paid at the unit price for the actual number of units, and ( c) includes the VEQ clause, which provides for an equitable adjustment to the unit price when actual quantity varies from estimated quantity by more than 15 percent. Now suppose that the actual quantity turns out to be 125,000 units, a 25 percent variance. The result is that the contractor will be paid for 115,000 units at $10 per unit. In addition, if the contractor can show that the additional 10,000 units caused its costs to increase by $5 per unit, it will be entitled to $15 per unit for those units. (I'm leaving out profit for the sake of simplicity.) Entitlement and quantum are based on the effect of that last 10,000 excess units, not on the first 15,000 excess units.

Interpretation of the VEQ clause had been controversial for a number of years. The full meaning of the clause is not apparent on its face. However, I think it was largely settled by the Court of Appeals for the Federal Circuit in Foley Co. v. U.S., 11 F.3d 1032 (1993), which was based in part on a precedent set in Victory Construction Co. v. U.S. 510 F.2d 1379 (Ct.Cl., 1975).

Thanks, Vern. I'm glad to see that there is finally a reference which may explain what I call the "Victory Principle" for overrun adjustments, using the FAR VEQ Clause. For years there was really no explanation of how to consider the adjustment in any of the contract admin references, unless one went directly to the case law.

Then, for about 3-4 years or so, the issues were complicated by the 1989 "Bean Decision" (Corps of Engineers Board of Contract Appeals ENG BCA 5507, 89-3 BCA, 22034), which applied to USACE Civil Works contracts.

The ASBCA didn't recognize the Bean method (required repricing of additional quantities outside the 115% range based upon actual cost for the requested adjustment). So we had two conflicting methodologies for Military vs. Civil Works contracts. The Claims Ct. Complicated things for awhile, but eventually reaffirmed Victory in 1992's Foley Decision.

The Foley Decision finally settled the matter, rejecting the Bean methodology and applying the Victory Principle to the adjustment.

The Bean Decision was bad case law because it essentially established cost plus percentage of cost as the method to reprice overruns.

I think that the ENG Board was trying to find a way to help the Contractor cope with a massive overrun in dredging quantities that were deposited by 2 hurricanes after the contract was awarded. The Board couldn't apply the Differing Site Conditions Clause, because the conditions weren't pre-existing. They occurred after award.

I'm going to have to break down and buy the 4th Edition of "Administration of Government Contracts", I guess!

[Guest Vern Edwards]

Bean Dredging Co., ENGBCA 5507, 89-3 BCA ? 22,034. Nash and Cibinic discuss the Victory and Bean principles at length in The Nash & Cibinic Report, "Variation in Estimated Quantity Clause: Groping for Meaning," 3 N&CR ? 65 (September 1989). They discuss Foley in "Postscript II: Variation in Estimated Quantity Clause," 7 N&CR ? 71 (December 1993).

[joel hoffman]

Bean Dredging Co., ENGBCA 5507, 89-3 BCA ? 22,034.

At any rate, the VEQ clause in FAR (52.211-18) is not germaine to the issues that SAE 84 raised. I only brought it into the discussion after a poster mentioned it in the context of crafting a clause to cover "contract quantity" variations. There is a huge misconception that the VEQ clause authorizes actual quantities when they vary from the estimated quantity. As Vern and I said earlier, the VEQ clause doesn't authorize payment for actual quantities and doesn't apply to the hybrid type lump sum line items that the Forest Service has developed.

Sorry if I confused folks. I didn't want to get into the mechanics or background of the VEQ clause. I have a folder over 2" thick in my file cabinet on the topic. If you think overruns are "fun", that ain't nothin' compared with underruns! Although I've dealt with Civil Works, building and horizontal facilities, I have to say that dredging contractors are the masters of creative thinking concerning overruns, underruns, differing site conditions or just about any other contract admin matter.