This article was originally published in the January 21, 2022 edition of the Daily Journal of Commerce Oregon.
Most construction contracts which include scopes of work that are measured in unit quantities provide for a unit price, rather than a lump sum, for those items. Owners typically provide an estimate of the necessary quantities in the bid package in order to guide the contractor in bid preparation. However, many contractors have experienced situations in which the actual quantities varied from the quantity estimate provided by the owner.
Frequently, owners attempt to disclaim complete reliance on the estimates by inserting language such as Section 00120.20 of the Oregon Standard Specifications for Construction (2021) (“ODOT Standard Specifications”), which provides that “[q]uantities appearing in the Bid Schedule are approximate” and that ODOT does not “warrant that the actual individual items.”
However, generally, when an owner provides an estimate of quantities, the contractor is entitled to rely on that estimate in preparing its bid. Subject to the terms of the contract, such estimates are typically binding on the owner and it must bear the cost of any quantity overruns. Indeed, the purpose of unit prices is to alleviate the risk that a lump sum bidder faces when the actual units exceed the estimate—that the bidder under bid the project and has no recourse for payment for the extra units. Unit price bidding provides the per-unit price, which the owner should pay for actual number of units performed.
Many contracts address variations in estimated quantities with contract provisions specific to the issue. However, there are significant differences in contracts for federal and State of Washington public works contracts, on one end of the spectrum, and State of Oregon public works contracts and private construction project contracts, on the other end of the spectrum.
On the clearer end of the spectrum, contracts impose certain thresholds and limitations on payment for variations in estimated quantities and on the fuzzier end of the spectrum, contracts contain ambiguous, subjective criteria for payment.
As an example on the clearer end of the spectrum, Federal Acquisition Rule (“FAR”) 52.211–18 provides that a contractor is entitled to an equitable adjustment if the variation in estimated quantities is above 15 percent. Similarly, the Division 1-04.6 of the Washington Standard Specifications for Road, Bridge, and Municipal Construction (2022) (“WSDOT Standard Specifications”) provides for an equitable adjustment if the variation in estimated quantities is great than 25 percent. As the above illustrates, some contracts lay out very clearly the conditions under which a contractor may expect payment for variations in estimated quantities. In the case of most federal and State of Washington public works projects, the variation must be 15 or 25 percent respectively before an equitable adjustment to the contract price will be made.
On the fuzzier end of the spectrum, Oregon public works projects subject to the ODOT Standard Specifications have a more subjective method for addressing variations in estimated quantities. Section 00140.30 of the Specifications acknowledges that variations in estimated quantities may occur, but does not use the percentage variation method used on federal and State of Washington projects. Instead, the ODOT Standard Specifications distinguish between “Insignificant Changed Work”—that is, changes that “do not significantly change the character or unit cost of the Work”—and “Significant Changed Work”—that is, when “the character of the Work, as changed, differs materially in kind, nature, or unit cost from that involved or included in the originally proposed construction.” In the case of Insignificant Changed Work, the Specifications provide that the owner will only pay the bid price, but for Significant Changed Work, the owner will adjust the contract price, based on an amount agreed to by the parties.
Thus, a contractor who experiences a variation in estimated quantities on a project which is subject to the ODOT Standard Specifications must show that the variation meets the definition of “Significant Changed Work.” Obviously, a determination of whether a change is “significant” is much more subjective that determining whether there was a 15 or 25 percent variation. Therefore, contractors on Oregon public works projects subject to the Specifications will likely bear a heavier burden in proving their claims than their counterparts on federal and State of Washington public works projects.
As for private construction contracts, they are not subject to the statutes and regulations governing public works contracts, and therefore may or may not contain variation in estimated quantities provisions at all and, if they do, there is no universally used form of provision. As with the ODOT Standard Specifications, estimated quantities provisions in popular form contracts for private construction projects are often open to interpretation. For example, the provision contained in the General Conditions of the American Institute of Architects (“AIA”) set of form contracts is illustrative. AIA A-201, Section 9.1.2 provides that the contractor is entitled to an equitable adjustment if the variation causes “substantial inequity” to the contractor. The term “substantial inequity” is not defined in A-201, leaving it to the affected party to argue that the inequity of a given variation in estimated quantities is “substantial.” Such disputes would ultimately be decided by a court, likely after protracted, costly litigation.
As the Oregon and AIA examples show, some contracts leave the issue of when a contractor is entitled to payment for a variation in estimated quantities up for debate. Use of subjective criteria such as “Significant Changed Work” and “substantial inequity” leave contractors at risk of not being paid for variations in estimated quantities. While an Oregon public works contractor has little choice but to accept the Standard Specifications, a private contractor should attempt to negotiate a clear method, such as those offered by the FAR and WSDOT Standard Specifications, for addressing variations in estimated quantities. In any event, as with any claim, a contractor should put the owner on notice as soon as it experiences or foresees a variation in estimated quantities and keep detailed records of its increased costs.
Brent Carpenter is a shareholder at the law firm Jordan Ramis PC. His practice is focused on construction law. Contact him at 503-598-5524 or brent.carpenter@jordanramis.com.
Tags: Construction, Construction and Development
