Equitable Adjustment Not Available to Remedy “Wholly Artificial” Bids

The Massachusetts Appeals Court has declined to award an equitable adjustment to a contractor who bid $0.01 to excavate a cubic yard of rock from a project site. See Celco Construction Corp. v. Town of Avon, 87 Mass. App. Ct. 132 (March 2, 2014).  The contractor constructed its bid based on its belief that the amount of rock on the site would be considerably less than the unverified estimate indicated in the contract bid documents, so that its low unit price would give it a competitive advantage when compared to the other bidders who assigned a unit price to rock removal that more closely approximated the actual cost.  When the amount of rock turned out to be 2524 cubic yards, and not 1000 cubic yards, as estimated, the contractor sought an equitable adjustment.  Initially, the contractor sought to increase the contract from $0.01 per cubic yard to $220 per cubic yard, and eventually dropped the request to $190 per cubic yard.

Massachusetts General Laws, c. 30, § 39N, which governs equitable adjustments in public construction contracts, provides that in all public construction contracts (such as the one at issue here), there must be a provision allowing either party to request an equitable adjustment in the contract price “if, during the progress of the work, the contractor or the awarding authority discovers that the actual subsurface or latent physical conditions encountered at the site differ substantially or materially from those shown on the plans or indicated in the contract documents.”  The contractor argued that the approximately 1500 more cubic yards of rock presented an appropriate occasion for an equitable adjustment to compensate it for the increased costs it incurred to remove the additional rock.

The Court disagreed, noting that there was nothing to suggest that the nature of the rock itself, and the means to remove it, differ in any way from what was anticipated in the contract.  The Court decided that in a contract in which the contract price is comprised of the aggregate of line items for various elements of the work, which in turn are based on unit prices for the quantities involved in each line item, no equitable adjustment is warranted by reason of a variation in the estimated quantities, standing alone, as compared to a deviation in the condition or character of the physical condition.  The Court confirmed that an equitable adjustment is required only when the contractor encounters a material difference in the “actual subsurface or latent physical conditions . . . at the site . . . of such a nature as to cause an increase or decrease in the cost . . . of the work.” 

The Court included in its opinion advice for all contractors in bidding on public construction jobs (and on all jobs in general): “Had [the contractor] in its bid assigned to rock removal a unit price reasonably approximating its estimated cost for such removal, instead of assigning the wholly artificial and unrealistic value of one penny, it would be in no need of adjustment to the contract price.  Put another way, [the equitable adjustment statute] is designed to protect contractors from unknown and unforeseen subsurface conditions, not from the consequences of their decisions to bid a unit price for the performance of work that is wholly unrelated to their anticipated cost to perform the work.  In such circumstances, it defies logic to invoke ‘equity’ as a basis for adjustment to the contract price.”