Equitable Adjustments in Massachusetts Public Construction Contracts

Sometimes businesses must bid on jobs and sign contracts while there is still some level of uncertainty regarding the extent of work that must be performed and how much it will cost. Massachusetts law allows a contractor entering a public contract to ask for an equitable adjustment if the actual conditions are materially or substantially different from what was stated in the plans or contract documents. In a recent case, the Massachusetts Appeals Court decided what happens when a contractor underbids a unit price based on an assumption of the total amount of units involved. 

In Celco Construction Corp. v. Town of Avon, the plaintiff contractor had made a successful bid on a water main extension project. In setting its fees for the bid, the contractor set a unit price for excavating and disposing of rock at $.01 per cubic yard. The bid documents listed 1,000 cubic yards as the estimated quantity on that line item, but the amount was marked with an asterisk, indicating that the rock was an “[i]ndeterminate quantity….” According to the opinion, the rate the contractor bid on the line item was less than its cost, but the contractor believed that the estimate on the amount of rock was high and had adjusted other unit prices to make up the difference.

Unfortunately for the contractor, the amount of rock at the site was underestimated by more than 1,500 cubic yards. The contractor asked for an equitable adjustment of the contract fee, requesting that the $.01 per cubic yard be increased to $220, but the town refused. The contractor then sought an equitable adjustment to $190, but the town again refused. The contractor then filed suit, but the trial court granted a motion for summary judgment in favor of the defense. The contractor appealed.

The contractor alleged that it lost productivity as a result of the additional rock and provided specific information regarding the average production with and without rock. The Appeals Court noted, however, that the contractor did not claim that the rock was different from what was in the contract documents or that there was any increase in the actual unit cost to remove it as a result of the additional amount or any concealed condition.

Pursuant to Massachusetts General Laws Chapter 30, Section 39N, public construction contracts have to contain provisions allowing the contractor to seek an equitable adjustment if the subsurface or latent physical conditions are materially or substantially different from what was represented in the plans or contract documents. The appellate court noted that the statute is intended to protect the parties from unknown risks. With this provision, bidders do not have to build a cushion into their bids to protect themselves from unknown conditions leading to greater expense than they could have estimated with the information available at the time of the bid.

The Appeals Court pointed out that the bid documents contained no representation that there were 1,000 cubic yards of rock, but instead specifically stated that there was an indeterminate quantity. There was no evidence that the rock was of a different nature from that described in the bid documents. Furthermore, there was no evidence that the unit cost changed as a result of the increase in rock. The court noted that when the bid is made up of line item unit pricing, there should be no need for an equitable adjustment based solely on the number of units. If the contractor had made a bid representing its actual cost to remove a unit of rock, it would not need to adjust the contract. The contractor chose to make a bid on the price per unit that was not related to actual cost, and the appeals court stated it “defies logic” to adjust the contract price based on equity in those circumstances. The appeals court also found against the plaintiff on the issue of promissory estoppel.

This case shows that, although there may be legitimate business reasons to underbid a particular aspect of a contract, a contractor does so at its own risk. A court will not adjust the price of a contract due to the actual amount when the government entity specifically did not make a representation as to the amount involved. Furthermore, the courts will not adjust the price because the amount involved was underestimated if the bid was based on a unit cost and that cost did not change. Any contractor making a low bid on some aspect of a government contract should be aware that an equitable adjustment may not be available in these circumstances.

If you have a legal issue involving the payment terms of a contract, an experienced Massachusetts business litigation lawyer can help you. Call the Law Offices of Richard Mucci at (781) 729-3999 to discuss your case.