Federal Claims Court Holds That A Variance In Estimated Quantities Clause Affords A Contractor Relief Only To The Extent That The Contractor Can Prove An Increase In Unit Costs Due Solely To Increased Quantities

Thermocor, Inc. v. United States,
1996 U.S. Claims LEXIS 68 (Cl. Ct. 1996).

On October 16, 1989, the United States Army Corps of Engineers (“Corps”) awarded ThermoCor, Inc. (“ThermoCor”) a contract in the amount of $15,500,000 to excavate and treat soils contaminated with polychlorinated biphenyls (“PCB’s”) in Erie County, New York. In part, the contract provided for estimated quantities, from which ThermoCor submitted a unit price bid. The contract also provided a Variance in Estimated Quantity Clause (“VEQ”), which provided, in pertinent part:

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. 48 C.F.R. [[section]] 52.212-11 (1989) (emphasis supplied).

A year into the project, ThermoCor anticipated increases in quantities under two bid items, and sent a letter to the Corps requesting an equitable price adjustment pursuant to the VEQ clause. The Corps directed ThermoCor to continue its performance. After the two parties were unable to reach agreement on ThermoCor’s request, ThermoCor filed its complaint with the Court of Federal Claims, requesting damages for additional time and expenses allegedly due to, inter alia: (1) differing site conditions; (2) changes, delays and additional requirements by the contracting officer; (3) misleading and defective contract specifications causing plaintiff to process waste water offsite and to pay royalties for technology required by the contract; and (4) the need to process and transport additional quantities of soil.

The motions before the Court addressed, inter alia, entitlement for performance of work on unit-priced bid items in excess of the quantities which were estimated in the contract. After laying out the appropriate standards of review for cross-motions for partial summary judgment, the Court examined the meaning of the VEQ clause.

ThermoCor contended that it was entitled to an equitable adjustment for all actual costs plus a reasonable profit for overruns in excess of the estimated quantity, regardless of whether the unit costs had changed. By contrast, the Corps asserted that an equitable adjustment was due only when the increase in quantity causes a change in unit cost. Thus, while the two parties acknowledged that they were locked into the contract unit price for quantities up to 115 percent of those estimated in the contract, they disagreed on the interpretation of the VEQ clauses’ language “due solely to the variation.” Citing the interpretations afforded the VEQ clause by different courts, ThermoCor then argued that the VEQ clause was ambiguous, and therefore it should be interpreted against the drafter, i.e., the government.

Relying upon a recent Federal Circuit case, Foley Co. v. United States, 26 Cl. Ct. 296 (1992), aff’d, 11 F.3d 1032 (Fed. Cir. 1993), the Court found the clause not to be ambiguous and held that an equitable adjustment under the VEQ clause requires proof of an actual increase or decrease in unit costs due solely to the quantity variation. In Foley, the Federal Circuit held that nothing in the clause’s legislative history indicates that an equitable adjustment should be based on actual costs plus profit. To the contrary, an equitable adjustment is warranted only when there has been a showing of the realization of cost economies or increased costs attributable to the excess volume.

Applying this test to ThermoCor’s claim, the Court found that ThermoCor would be entitled to an equitable adjustment if it could prove that the unit costs associated with the overrun were greater than the unit costs associated with the base contract quantity. However, because the Court did not have evidence of such material facts, it was precluded from entering summary judgment on the claim.

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