LEGALLY SPEAKING Variations in Estimated Quantities When Add and Deduct Prices Are Not Adequate Predicting subsurface conditions is an inexact science. The most comprehensive and well-executed geotechnical investi- gations provide valuable information for the design and construction of foundation elements, but they cannot eliminate the uncertainty inherent in underground work. Variations in subsurface conditions, including the elevations of bearing and friction-producing strata, are to be expected. Contemplating these variations, many contracts and subcontracts include unit-pricing for the payment of actual quant i t ies of subsurface elements constructed. In most cases, such unit pricing is adequate for the reconciliation of modest variations between estimated and actual quantities. What happens, however, when longer Kelly bar, more powerful rotary, etc.). Such a change could increase the cost per unit for that foundation element. What recourse is there for the con- tractor or subcontractor to recover these increased costs? Where variations in quan- constructed quantities vary substantially from estimated quantities? Significant quantity underruns impact a contractor by reducing the units across which the contractor can spread fixed costs, costs that are incurred irrespective of the actual quantities constructed. The result is a higher effective unit cost and lower margin/profit per unit. In many cases, the contractors and subcontractors address the issue of unamortized direct costs by providing a lower “deduct” price than “add” price. If the quantity variation is significant, though, even these lower deduct prices may not be sufficient to compensate the contractor for the impact to the unit cost- to-price ratio. Furthermore, while there is a presumption that increases in actual quantities have the opposite effect to the cost-to-price ratio and that the contractor benefits from economies of scale, increases in quantities can, under certain circum- stances, increase the effective unit cost. For example, increases in the depth of bearing material may exceed the reach/capacity of the rig initially selected to construct the foundation element, forcing the contractor to use a rig with greater capacity (e.g., tities result from conditions that are materially different from those indicated in the contract documents, contractors and subcontractors may be entitled to an equitable adjustment for such differing site conditions. Courts, however, have generally declined to hold that quantity variations alone constitute differing site conditions. Only significant variations in quantities have been found to be com- pensable differing site conditions. Thus, absent a showing that the subsurface profile and/or materials are different than indicated, a contractor could be left with little recourse. Recognizing the impact of variations in quantities on the costs and pricing of the work, public agencies have long included terms in their contracts providing for adjustments to unit prices where the actual quantities underrun or exceed the estimated quantities by a specified percentage. For federal contracts, FAR 52.211-18 establishes the variation threshold at 15 percent, as follows: 52.211-18 Variation in Estimated Quantity. 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 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. Brian Wood Attorney Of Counsel Smith, Currie and Hancock State departments of trans- portation (DOTs) have adopted simi lar provisions, wi th di ffering percentage thresholds for price adjust- ments. For example, the Maryland State Highway Administration’s General Provisions contain a provision nearly identical to FAR 52.211-18, but with the “What happens, however, when constructed quantities vary substantially from estimated quantities?” variation threshold of 25 percent above or below the estimated quantity. A word of caution to subcontractors: some public agencies impose additional requirements before allowing equitable adjustments for quantity variations. For example, the Florida DOT’s Standard Specifications for Road and Bridge Construction provides for an equitable adjustment for actual quantities below 75 percent and above 125 percent of the estimated quantities, but only if the item of work in question is a “major item of work.” The specifications define a “major item of work” to be “[a]ny item of work having an original Contract value in excess of five percent of the original Contract amount.” While a foundation element may constitute a large percentage of the subcontract value, any many cases, it will not exceed five percent of the prime contract amount. Accordingly, even substantial variations in these items may not be subject to a price adjustment, unless the subcontract provides for separate relief (a very atypical situation). DEEP FOUNDATIONS • MAY/JUNE 2017 • 129
