A case before the Armed Services Board of Contract Appeals ("ASBCA" or "board") presented a direct question of whether the Variation in Estimated Quantity clause ("VEQ" clause) or the Differing Site Conditions clause ("DSC" clause) applied when the final quantity varied substantially from the estimated quantity set forth in the contract. Met-Pro Corp., ASBCA No. 49694, 98-2 BCA p. 29,766.
Met-Pro Corporation bid on an Army Corps of Engineers contract which required the removal of a fuel tank farm at the former Greenville Air Force Base in Mississippi, the excavation and disposal of petroleum contaminated soil, and the excavation and removal of hazardous, contaminated soil. The Corps of Engineers ("Corps" or "Government") solicitation initially estimated total contaminated soil removal at 1500 cubic yards. This anticipated amount was reduced to 750 cubic yards and finally to 400 cubic yards twelve days prior to bid opening. In addition, the solicitation contained a geotechnical soils report which indicated there were no contaminated soils requiring removal. Met-Pro was awarded the contract based upon its bid which contained a unit price for contaminated soil excavation and disposal of $40.00 per cubic yard. This unit price was deemed reasonable and not underbid when compared with other responses to the solicitation.
Nine-Fold Quantity Increase
Although the Corps had estimated that Met-Pro would be required to remove 400 cubic yards of contaminated soil, Met-Pro removed 3,832 cubic yards of contaminated soil. The unit price did not come close to covering the cost of the work. Met-Pro submitted a claim under the DSC clause for the additional cost associated with the excavation, disposal, and backfill necessary. The Corps asserted that the VEQ clause governed and set for the conditions affecting a unit price adjustment, and that Met-Pro should only be compensated at $40.00 per cubic yard, the unit-price bid, rather than the $101 per cubic yard claimed.
The VEQ clause states:
If the quantity of a unit-priced item is an estimated quantity and the actual quantity of the unit-priced item varies more than 15 percent above or below the estimated quantity, an equitable adjustment in the contract price shall be made upon demand of either party.
The VEQ clause allows an adjustment of unit prices for quantities that vary from the estimate by more than 15%, but only to the extent that the quantity variation caused an increase in the actual performance cost per unit. Satisfying the causation link in the VEQ clause (cost and quantity variation) can be difficult. The DSC clause allows for a price adjustment based upon the contractor's cost of performance due to the differing site condition.
The board determined that Met-Pro's cost of excavating the overrun of contaminated soil greatly differed from the $40.00 per cubic yard bid price. According to the ASBCA, the "unforeseen need to purchase and transport clean backfill from offsite borrow areas" was the major reason for the increased costs.
The board ruled that the DSC clause, rather than the VEQ clause, applied due to the fact that the overall nature and condition of the soils differed materially from the representations in the contract. The board relied on a prior decision in United Contractors v. United States, 177 Ct.Cl. 151, 171; 368 F.2d 585, 601 (1966) which provides:
The [VEQ] clause is a ready vehicle for adjusting, with a minimum of haggling, the compensation received by contractors who are called upon in the course of performance to do, within limits, more or less work than could be estimated. But we have held that clauses of this type do not control when the cost of doing the extra work greatly differs from the stated unit-price because of factors not foreseen by either party. In that event the [differing site conditions] clause comes into play and overrides the [VEQ] clause.
Even though the ASBCA held that recovery would be determined under the DSC clause, Met-Pro still had to prove that a differing site condition existed. In order to succeed under a Type 1 differing site conditions claim, the contractor must typically demonstrate the following:
- The contract documents contained reasonably plain or positive indications of site conditions that formed the basis of the claim;
- The contractor reasonably interpreted the contract documents and relied upon the indicated site conditions;
- The conditions actually encountered at the contract site differed materially from those indicated in the contract;
- The site conditions encountered existed at the time the contract was executed and were unforeseeable based on all the information available at the time of bidding; and
- The contractor's injury was caused by the materially different conditions.
The board determined that Met-Pro had met its burden to establish the elements of a Type 1 differing site conditions claim. Met-Pro had reasonably relied upon the soil testing report contained in the solicitation and the Government's relatively small estimate of soil to be removed. The amount of contaminated soil at the site differed materially from the Government's representation in the contract. Neither the Government nor Met-Pro knew of nor could have reasonably foreseen the substantial quantity of subsurface petroleum contaminated soil requiring removal. Met-Pro's additional cost was a direct result of the excessive quantities of contaminated soil encountered.
The ASBCA's decision illustrates two situations in which the DSC clause will override the VEQ clause. First, as in Met-Pro, where the actual quantities clearly exceed the contemplation of the parties, courts and boards will rely upon the DSC clause for relief. Continental Drilling Co., ENG BCA No. 3455, 75-2 BCA p. 11,541. Second, the DSC clause has been used in lieu of the VEQ clause when the "cost of doing the extra work greatly differs from the stated unit-price because of factors unforeseen by either party". United Contractors v. United States, 177 Ct.Cl. 151, 171 (1966). Therefore, if either the amount of additional quantity or the cost greatly exceeds that which was contemplated at the time of contracting, the DSC may provide relief.
The DSC clause has also been held to override the VEQ clause when the government estimate is negligently made. Womack v. United States, 182 Ct.Cl. 399 (1968). In addition, if the government fails to disclose "superior knowledge" which results in a quantity overrun, the contractor's adjustment will not be limited by a quantity variation clause. Chemical Technology, Inc. v. United States, 227 Ct. Cl. 120; 645 F.2d 934 (1981). In situations where the government orders the contractor to perform unit-priced work in excess of that contemplated when the quantity estimates were established, recovery will not be determined under the VEQ clause. Morrison-Knudsen Co. v. United States, 184 Ct.Cl. 661; 397 F. 2d 826 (1968).
The VEQ clause does not always operate to a contractor's detriment. In many cases, the government has attempted to avoid its application to insure that the contractor did not profit from "economies of scale" or the perceived savings associated with excess volume. See, e.g., Foley Co. v. United States, 11 F.3d 1032 (Fed.Cir. 1993) aff'g, 26 Cl.Ct. 936 (1992) and Clement-Mtarri Co., ASBCA No. 38170, 92-3 BCA p. 25,192. Unlike Met-Pro, in these cases, the government asserted that the unit price exceeded the actual cost of the extra work required by the quantity overrun.
Comment: The practical lesson to be drawn from this decision is that contractors must keep complete documentation, including records of all expenditures associated with the changed or extra work. Regardless of whether the VEQ clause applies or the DSC clause, proper documentation and notice to the contracting officer are the keys to recovery. An adjustment under either clause is not automatic. The advantage of recovery under the DSC clause is that the contractor is not limited to the unit price but rather can recover its costs plus a reasonable overhead and profit.