Government Contracting Database
Variation in Estimated Quantity
Many federal construction contracts include unit price schedules where the contractor quotes a unit price for an estimated quantity of work. Unit price contracts are considered to be a mechanism for the government and the contractor to allocate risk in instances where the actual quantity of work varies from the estimated. Unit prices assure that an agency only pays for the actual quantity of work performed and provides the government with the opportunity and flexibility to avoid overpaying if it perceives that the price is disadvantageous, resulting in the belief that a contractor is “reaping a windfall.”
With the intent to further protect the government, and the contractor, from potential losses in instances where the actual quantity varies greatly from the estimated, the government often includes in its construction contracts a clause entitled Variation in Estimated Quantity, FAR 52.211-18, which provides that:
If the quantity of a unit-priced item in this contract 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 the demand of either party. 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.
For many years, the theory behind the VEQ clause was that both parties entered into contracts expecting to be bound to the contract unit price within a reasonable range of quantity, but that large variations may require some adjustment to the unit price to prevent windfalls and losses, potentially even enormous windfalls or ruinous losses. See Bean Dredging Corp., ENGBCA No. 5507, 89-3 BCA ¶ 22,034. However, in a 1993 decision, the United States Court of Appeals for the Federal Circuit held that the plain language interpretation of the clause requires that any adjustment in the contract price must be based only upon any increase or decrease in costs due solely to the variation. Foley Co. v. U.S., 11 F.3d 1032 (CA Fed, 1993). In reaching its decision, the Federal Circuit concluded that it was bound by earlier decisions of the United States Court of Claims and that its ruling in Foley had to be consistent with the Court of Claims’ decision in Victory Construction Co. v. U.S., 510 F.2d 1379 (1975). The Federal Circuit’s decision means that, absent proof of an increase or decrease in unit costs due solely to the change in quantity, the parties are bound by the unit prices in the contract. This situation could be potentially disastrous to a contractor where the contract unit price is not sufficient to compensate for the actual costs of performance. Conversely, the government is bound to pay the original unit price, no matter how large a windfall to the contractor, for the actual quantity of work performed. While the government has the option to limit its losses by issuing a deductive change order or a partial termination of the contract to reduce the quantity, the contractor, unless relief is available under another provision of the contract, such as the Changes or Differing Site Conditions clause, cannot contractually limit its loss.
Updated: July 10, 2018