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THE “SIGNIFICANT CHANGE IN THE CHARACTER OF THE WORK” CLAUSE: UNCERTAIN FEDERALISM IN HIGHWAY CONSTRUCTION CONTRACTS

By James P. Wiezel*

I. INTRODUCTION...... 3

* James P. Wiezel ([email protected]) is an attorney/shareholder in the firm of Kronick Moskovitz Tiedemann & Girard, in Sacramento, California.

1 II. THE LEGISLATIVE AND ADMINISTRATIVE HISTORY OF THE FEDERAL STANDARDIZED CLAUSES...... 8

A. The Congressional Mandate...... 8

B. The Federal Highway Administration Regulations...... 10

III. IMPLEMENTATION OF THE FEDERAL CLAUSE BY THE STATES...... 15

A. Variations Among the States...... 15

B. Problems of Implementation...... 28

IV. RECOMMENDATIONS FOR REVISION OF THE CLAUSE...... 33

V. CONCLUSION...... 44

2 I. INTRODUCTION

For over twenty years, Federal-aid highway construction contracts entered into by all of the fifty States have been subject to a Federal requirement that the contract include certain standardized contract clauses generally addressing changes in the work.1 This The Federal requirement that all interstate highway contracts incorporate certain standardized clauses has been implemented by the Federal Highway

Administration (FHWA) and the departments of transportation of the various States;, those agencies have which have included the

Federal clauses, or State variants thereof, in their published standard specifications for road and bridge construction. 2

One of the Federal clauses, the differing site conditions clause, is no different from differing site condition clauses commonly used for other types of public works projects. 3 This

The differing site condition clause is well-knownwell known to construction industry professionals and construction lawyers, and has been the subject of much case law and commentary.4 The 1 2 3 4 See 23 C.F.R. § 131(a)(i)(1989). Cf. FAR 52.236-2 (a)(i). 48 C.F.R. §52.236-2(1991)) (1991) (FARS Differing Site Condition Clause); 40 C.F.R. §35 Subpart E app. C.2 (1991)(EPA differing site condition clause for federally funded pollution control projects); American Institute of Architects (AIA) Form A201 General Conditions of the Contract for Construction § 3.7.4 (2007 ed.); Engineers Joint Contract Documents Committee (EJCDC) Form No. 1910-8 Standard General Conditions of the Construction Contract §4.03 (2007 ed.).

3 recognized intent of the differing site conditions clause is to to transfer to the ownerimpose on the owner the monetary risk of the subsurface site conditions that materially differing from those indicated in the contract or ordinarily encountered and generally recognized as inherent in the work provided for in the contract. 5. TThe effect of the differing site condition clause is, at least in theory, to reduce the overall cost of public works projects by eliminating the need for contractors bidding on such projects to include moneys in their bids by way of contingency toinflate their bids in order to cover the potential costs resulting from the existence of a such differing site conditions. 6

A second federally required standardized clause is the

“significant change in the character of the work" clause.7 This clause is not common to public works projects, is less well- knownwell known to the construction industry and construction lawyers, and has been the subject of virtually no case law or commentary. 8 The purpose of the “significant change in the character of the work” clause is to provide for the adjustment of unit prices in a Federal-aid highway contract where the owner, by direction, changes the quantities or construction

5 6 7 See 23 C.F.R. §131(a)(3)(1989). There is no comparable “change in the character of the work” clause in FARS or in any AIA or EJCDC standard form. 8

4 methods required for the work in some material way. 9 Increases and decreases in quantities of unit price items in excess of twenty-five percent are to be presumed to be “significant changes in the character of the work.” 10 The intent of this presumption is to create an additional contract remedy for contractors on unit-price Federal-aid highway projects. 11 Where the quantity variation for a unit price item exceeds the twenty- five percent threshold, the contract price for some or all of the final quantity is to be changed by adjusting the unit price to be multiplied by the final number of units. 12 Whether this additional contract remedy has any overall effect on the cost of

Federal-aid highway projects is unknown and open to debate.

Both of these federally required standardized clauses originated in the same Congressional mandate to the Federal

Highway Administration. 13 The mandate in each case was to develop standardized contract clauses and require the States to include them in Federal-aid highway projects, unless the States were already implementing comparable clauses under their own statutory authority. 14 As will be seen below, however, the goal of federally enforced standardization has been imperfectly realized. For example, iIn regard to the case of the 9 10 11 12 13 14

5 “significant changes in the character of the work” clause, many

States have seen fit to vary the verbiage and substance of the clause from the Federal model. 15 The result is that there is no single “significant change in the character of the work” clause in use on all Federal-aid highway projects. 16 Moreover, the differences in the approaches adopted by the different States are telling;. for various reasons, mMany States have declined to incorporate substantial provisions of the Federal clause. 17

Some States have changed the Federal language to deal with problems of implementation which other States have not recognized.

In addition, as will be seen, the Federal model clause is itself a dubious effort to allocate risks of quantity variations and thereby affect the costs of highway projects. 18 The clause combines a vague standard of “significant changes in character” with a uniform presumption that quantity growth of amount price item beyond a uniform threshold should create a compensable event. 19 Neither of these aspects of the clause is essential to create an efficient allocation of risk or to lower the costs of highway projects as bid, and there are ample reasons to believe they may have the opposite effect in certain cases. 20 15 16 17 18 19 20

6 This article addresses the history, justification, implementation and potential economic effects of the FHWA clause and the State variants thereof. 21 Part II of this article provides a summary of the legislative and administrative history of the Federal standardized clauses, including the “significant changes in the character of the work” clause (“SCCW Clause”). 22

As Part II shows, Congress provided very little guidance as to the intended purpose for standardized clauses, and the approach to unit price contract changes adopted by the FHWA finds no express support in the legislative history. 23 Part III of this article provides an overview of how the States have implemented the Federal mandate for a SCCW Clause. 24 Part III shows that

States have deviated from the language of the Clause, resulting in less efficient risk allocations and thwarting the goal of contractual uniformity in federally funded transportation construction contracts. 25 Part IV provides a discussion of the shortcomings of the clause from an economic and risk allocation perspective. 26 Part IV recommends, as part of an effort to achieve both efficiency and uniformity in how States implement the SCCW Clause, that the FHWA revise the clause so that it allocates more cost-effectively the risk of material changes in 21 22 23 24 25 26

7 transportation construction contracts with the overall goal of reducing construction costs for the Federal government and the

States. 27

II. THE LEGISLATIVE AND ADMINISTRATIVE HISTORY OF THE FEDERAL S TANDARDIZED CLAUSES

The legislative and administrative history of the Federal standardized clauses includes a vague mandate from Congress and a separate administrative agenda implemented by FHWA, leading to agency-generated vagueness and lack of guidance reflected in the

Federal model of the SCCW Clause. 28 The States’ response to

Congress’ vague mandate response of the States has led to variations from the Federal clause not contemplated by either the Congress or the FHWA. 29 The results undermine the

Congressional goal of uniformity and create unpredictable economic effects. 30

A. The Congressional Mandate

In 1987, Congress passed the Surface Transportation and

Uniform Relocation Assistance Act (STURAA), which became law on

April 2 of that year.31 An obscure provision, Section 111(c) of that Act, amended Section 112 of Title 23 of the United States

Code to require the Secretary of Transportation to issue 27 28 29 30 31 See Surface Transportation and Uniform Relocation Assistance Act (STURAA) of 1987, Pub. L. 100-17, 101 Stat. 132, 147.

8 regulations, applicable to all Federal-aid highway contracts, requiring the inclusion of a contract clause which "equitably addresses each of the following: (A) sSite conditions; (B) sSuspensions of the work ordered by the State (other than a suspension of work caused by the fault of the contractor or by weather); and (C) mMaterial changes in the scope of work specified in the contract."32 Under Section 112 as amended, a

State is required to implement the Federal standardized clause unless the State either (1) had already adopted by statute its own procedure to develop a comparable contract clause or (2) had adopted a statute which does not permit inclusion of such a contract clause.33

The Congressional mandate that the Secretary of

Transportation “equitably address” items (A) – (C) made clear the intent of standardization but left the desired substance of the regulations largely opaque. 34 To the extent that the legislative history sheds any light at all, it is provided by a single report of the House of Representatives Committee on

Public Works and Transportation, concerning a prior version of

STURAA.35 That report stated that the purpose of the provision whichprovision that became Section 111(c) of STURAA was "to

32 See 23 U.S.C. § 112 (e)(1) (2006). 33 § 112 Id. § 112 (e)(2)(A). 34 See id. § 112 (e)(1) 35 See H.R. Rep. No. 99-665, at 8-11 99th Cong. 2d Sess. 8-11 (1986).

9 address the serious problems stemming from the lack of consistency in general conditions clauses in Federal-aid highway contracts."36 The House Committee Report specifically addressed what the committee wanted by way of a standard differing site condition clause, which was subsequently implemented by STURAA and the FHWA regulations promulgated under STURAA.37 Yet the

House Committee comments relating to the problem of "material changes in the scope of work" do not reflect any acknowledgement of, much less a focus on, the need for a clause to address adjustments to unit prices. 38 Instead, the House Committee

Report focused on the perceived need for a standard clause to provide for payment of lost productivity or "impact" costs. 39

The Report stated: "A change of work may substantially alter the productivity on the entire job. The Committee intends that an equitable adjustment be made in the entire contract price, not just an adjustment for the extra work."40 Whatever the

Committee's intent, it was not spelled out in Section 111(c) of

STURAA, which said nothing about a standard clause to address

"impact" costs. 41 The vagueness of Section 111(c) affected in turn the regulations promulgated by the FHWA under STURAA. 42 36 Id. at 8. 37 Id. at 9-10. 38 See id. 39 Id. at 10. 40 Id. at 10. 41 Id. at 8. 42 See Construction and Maintenance; Contract Procedures; Standardized Contract Clauses, 52 Fed. Reg. 45645 (Dec. 1, 1987)

10 B. The Federal Highway Administration Regulations

The FHWA published a Notice of Proposed Rulemaking pursuant to STURAA on December 1, 1987 and published a Final Rule on

January 30, 1989.43 The Final Rule amended the FHWA’s regulations to add a new regulation addressing differing site conditions, suspensions of work, and significant changes in the character of the work.44 The new regulation included specific contract clauses to be made part of, and incorporated into, each highway construction project approved under FHWA’s statutory authority.45 These included the “significant changes in the character of the work” clause, which provided as follows:

(3) Significant changes in the character of the work.

(i) The engineer reserves the right to make, in writing, at any time during the performance of the work, such changes in quantities and such alterations in the work as are necessary to satisfactorily complete the project. Such changes in quantities and alterations shall not invalidate the contract or release the surety, and the contractor agrees to perform the work as altered.

(ii) If the alterations or changes in quantities significantly change the character of the work under the contract, whether or not changed by any (codified at 23 C.F.R. pt. 635) 43 See id. 52 Fed. Reg. 45645 (Dec. 1, 1987); Construction and Maintenance; Contract Procedures; Standardized Contract Clauses, 54 Fed. Reg. 426901-70 (Jan 30, 1989) (codified at 23 C.F.R. pt. 635). FHWA’s explanation of its Final Rule recited that the 1986 House Committee Report (H.R. Rep. No. 99-665, 99th Cong. 2d Sess.at 8-11 (1986), note X635 supra) was “the primary legislative history of section 111(c) [of STURAA].” Id. 44 See 23 C.F.R. § 635.131 (1989). 45 Id. 23 C.F.R. § 635.131 (a)(3).

11 such different quantities or alterations, an adjustment, excluding loss of anticipated profits, will be made to the contract. The basis for the adjustment shall be agreed upon prior to the performance of the work. If a basis cannot be agreed upon, then an adjustment will be made either for or against the contractor in such amount as the engineer may determine to be fair and equitable.

(iii) If the alterations or changes in quantities do not significantly change the character of the work to be performed under the contract, the altered work will be paid for as provided elsewhere in the contract.

(iv) The term "significant change" shall be construed to apply only to the following circumstances: (A) When the character of the work as altered differs materially in kind or nature from that involved or included in the original proposed construction or (B) When a major item of work, as defined elsewhere in the contract, is increased in excess of 125 percent or decreased below 75 percent of the original contract quantity. Any allowance for an increase in quantity shall apply only to that portion in excess of 125 percent of original contract item quantity, or in case of a decrease below 75 percent, to the actual amount of work performed.46 46 Id. 23 C.F.R. § 635.131 (a)(3)(i)-(iv). The language of this regulation is a variation on a proposed clause published by the American Association of State Highway and Transportation Officials (AASHTO). See AASHTO Guide Specifications for Highway Construction §104.02(c) (1988) §104.02(c). AASHTO originated the “material change in the character of the work” language and suggested the 125 percent/75 percent thresholds for unit price adjustments, limited to “major” items exceeding 10 percent of the original contract amount. However, AASHTO’s language would have added two limitations not included in the FHWA language. First, AASHTO’s language would have limited unit price adjustments for quantities above or below its thresholds only “where such increase or decrease materially changes the character of the work.” (Id.) Second, AASHTO would have capped the allowable change in the unit price at 25 percent. Id. AASHTO’s language also did not include the words “whether or not changed by any such different quantities or alterations” in

12 Subsection (b) of the regulation made clear that the standardized Federal clauses were not required where a State statute does not permit them, or where a State has implemented its own clause pursuant to a specific State statute requiring such clauses.47

In 1991, the FHWA revised the wording of its regulation to add the following italicized insert to subsection (a)(3)(ii):

(ii) if the alterations or changes in quantities significantly change the character of the work under the contract, whether such alterations or changes are in themselves significant changes to the character of the work or by affecting other work cause such other work to become significantly different in character, an adjustment, excluding anticipated profit, will be made to the contract.48

The italicized language replaced an original clause whichclause, which read “whether or not changed by any such different quantities or alterations.” 49 By replacing this problematic language, FHWA implicitly recognized that a change in quantities could affect the “character” of other bid items for which the quantities were not changed. 50 Although FHWA’s explanation of the revision made no mention of “impact” costs, the revised

FHWA’s section (3)(ii). Id. 47 23 C.F.R. § 635.131(b). 48 23 C.F.R. § 635.109 (a)(3)(ii) (19921). See Contract Procedures, 56 Fed. Reg. 37000-01 (Aug. 2, 1991) (Final Rule) (codified at 23 C.F.R. pt. 635). 49 23 C.F.R. § 635.131 (a)(3)(ii) (1989). 50 See 23 C.F.R. § 635.109 (a)(3)(ii) (1992).

13 language was as close as FHWA ever came to recognizing the possibility of such costs.51

What is significant about the Federal verbiage is what is missing;. tThere is no Federal definition of "significant" or

"character" and no Federal guidance to the States as to what constitutes a "significant change in character." 52 There is, similarly, no Federal definition of what a "major item of work" is and no Federal guidance to the States. 53 The clause requires an “adjustment to the contract” for significant changes in the character of the work, but provides no guidance as to how to make the adjustment, except to require that it be made before the work is commenced. 54 There is no statement addressing the proper calculation of "impact" costs. 55 The results of the lack of adequate Federal verbiage are seen in the clauses implemented by the various States. 56 B. Because the States have not adopted a uniform version of the SCCW clause, the potential economic effects of the clause, which would be difficult enough to assess 51 FHWA’s explanation of its Final Rule revising its regulation stated that “it remains the FHWA’s position with respect to paragraph (a)(i), that impact costs may be provided for at the option of the SHA [State Highway Agency].” See, Contract Procedures, 56 Fed. Reg. at 37000-01 (Aug. 2, 1991).

52 See 23 C.F.R. § 635.102 (1992). 53 See id. 54 Id. § 635.109 (a)(3)(ii). 55 Id. 56 See e.g., Hawaii Department of Transportation, Standard Specifications for Road and Bridge Construction § 104.02 (2005), available at http://www.hawaii.gov/dot/highways/specifications/2005.

14 if it uniformly applied to all unit price bid items in all federally funded State projects, become even more problematic. 57

Lack of Federal guidance thus not only defeats any goal of creating uniformity, but also undermines any Federal effort to create a clause which positively affects the allocation of risks on federally funded projects to achieve the gcoal of reducing costs. 58

III. IMPLEMENTATION OF THE FEDERAL CLAUSE BY THE STATES

Despite the requirements of the Federal regulation, the

States have not uniformly incorporated the Federal clause into their standard specifications issued for highway construction. 59

A substantial number of States are noncompliant in different ways. 60 Moreover, the different State variations on the Federal clause reflect different State responses to potential deficiencies in the FHWA wording. 61 These divergent approaches result in potential regional variation in the economic effects of the SCCW Clause, and thwart the goal of nationwide uniformity. 62

57 See id. 58 H.R. Rep. No. 99-665 at 9. 59 See Hawaii Department of Transportation, Standard Specifications for Road and Bridge Construction § 104.02; Kansas Department of Transportation, Standard Specifications for State Road and Bridge Construction §104.2 (2007), available at http://www.ksdot.org/burconsmain/specprov/2007SSDefault.asp. 60 See Hawaii Department of Transportation, Standard Specifications for Road and Bridge Construction § 104.02. 61 See id. 62 See id.

15 A. Variations Among the States

Several States, including Georgia, Hawaii, Kansas, Maine,

Maryland, Massachusetts, South Carolina and South Dakota, have declined to incorporate any language referring to "significant changes in the character of the work."63 Of the States whichStates that purport to incorporate language referring to

“significant changes,” one-half have adopted FHWA’s 1991 revised language, while a few States have retained the original FHWA

1989 language.64 A substantial third group of States have

63 See Georgia Department of Transportation, Standard Specifications (2001) §104.03 available at http://www.dot.state.ga.us/doing business/The Source/Pages/Specifications.aspx; Hawaii Department of Transportation, Standard Specifications for Road and Bridge Construction (2005) §104, available at http://www.hawaii.gov/dot/highways/specifications/2005 Standard Specifications; Kansas Department of Transportation, Standard Specifications for State Road and Bridge Construction (2007) §104.2, available at http://www.ksdot.org/burconsmain/specprov/2007SSDefault.asp; Maine Department of Transportation, Standard Specifications (2002),GP-4.04, available at http://www.maine.gov/mdot/contractor-consultant- information/ss_standard_specification_2002.php; Maryland Department of Transportation, Standard Specifications for Construction and Materials (2008) GP4.04, available at http://www.marylandroads.com/ohd/frontpage.pdf; Massachusetts Highway Department; 2010 Supplemental Specifications to the 1988 English Standard Specifications for Highways and Bridges and the 1995 Metric Standard Specifications for Highways and Bridges, .§4.06, available at http://www.mhd.state.ma.us/downloads/manuals/1995Mspecs.pdf; South Carolina Department of Transportation, Standard Specifications for Highway Construction (2007), §104.2, available at http://www.scdot.org/doing/StandardSpecifications; South Dakota Department of Transportation, Standard Specifications for Roads and Bridges (2004), §4.2, available at http:/www.sddot.com/operations/specifications/index2004.htm. 64 States which have retained the original FHWA 1989 language include: Louisiana, Nevada, North Dakota, Vermont, and Washington. See Louisiana Department of Transportation, Standard Specifications for Roads and Bridges (2006) §104.02(c)

16 adopted their own “significant changes” language, which is similar to but does not follow either the FHWA 1989 language or the FHWA 1991 language.65 However, in three key areas, the

States have adopted diverging approaches: (1) the standard for

available at http://www.dotd.la.gov.highways;specifications/documents/2006%20 Standard%20Specifications%20 for%20Roads%20and%20Bridges; Nevada Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) §1104.03 available at www.nevadadot.com/uploadedfiles/2001StandardSpecifications.pdf ; North Dakota Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) §104.03 available at www.dot.nd.gov/manuals/environments/2008-Vol01.pdf; Vermont Agency of Transportation, Standard Specifications for Construction (2006) §109.02 available at http://www.aot.state.vt.us/conadmin/2006StandardSpecs.htm; Washington State Department of Transportation, Standard Specifications for Road, Bridge and Municipal Construction (2010) §1-04.4 available at http://www.wsdot.wa.gov/publications/manuals/fulltext/M41- 10/SS2010.pdf. 65 States in this third group include: Alaska, California, Delaware, Florida, Kentucky, New Mexico, North Carolina, Ohio, Oregon, Tennessee, Texas, and Wisconsin. See Alaska Department of Transportation, Standard Specifications for Highway Construction (2009) § 1.04-1.02(1) (b), available at http://www.dot.state.ak.us/stwddes/dcsspecs/assets/pdf/hwyspecs/ english/2004sshc.pdf;. California Department of Transportation, Standard Specifications (2010) § 4-1.05B, available at http://www.dot.ca.gov/hq/esc/oe/specifications/std_specs/2010_St dSpecs/2010_StdSpecs.pdf; Delaware Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) § 104-05, available at http://www.deldot.gov/information/pubs_forms/manuals/standard_sp ecifications/pdf/2001StdSpecForRoadAndBridgeConstruction.pdf;. Florida Department of Transportation, Standard Specifications for road and Bridge Construction (2010) § 4-3.1, available at http://ftp.dot.state.fl.us/LTS/CO/Specifications/SpecBook/2010Bo ok/2010Master.pdf; Kentucky Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) § 104.02.01, available at

17 determining when a change in quantity is “significant”; 66 (2) the standard for identifying which unit price items are “major” and therefore subject to adjustment; 67 and (3) the remedy for a

http://www.transportation.ky.gov/Construction/Standard%20amd %20Supplemental%20Specifications/Complete%20KYTC%20Standard %20Specifications%20-%202008.pdf ; New Mexico Department of Transportation, Standard Specifications for Highway and Bridge Construction (2007) 104.2, available at http://www.dot.state.nm.us/upload/images/contracts_unit/2007_Spe cs_for_Highway_and_Bridge_Construction.pdf ; North Carolina Department of Transportation, Standard Specifications for Roads and Structures (2006) § 104-3, available at http://www.ncdot.org/doh/preconstruct/ps/specifications/english/ 2006.html ; Ohio Department of Transportation, Construction and Material Specifications (2010) § 1.04.02D, available at http://www.dot.state.oh.us/Divisions/ConstructionMgt/OnlineDocs/ Pages/2010CMS.aspx ; Oregon Department of Transportation, Standard Specifications for Construction (2008) § 00195.20, available at http://www.oregon.gov/ODOT/HWY/SPECS/docs/08book/08_00100.pdfhttp://www.ore gon.gov/ODOT/HWY/SPECS/standard_specifications.shtml ; Tennessee Department of Transportation, Standard Specifications for road and Bridge Construction (2006), Supplemental Specifications 104.02, available at http://www.tdot.state.tn.us/construction/Supplemental%20Specs %202006/SS100.pdfhttp://www.tdot.state.tn.us/construction/specs.htm ; Texas Department of Transportation, Standard Specifications for Construction and Maintenance of Highways, Streets and Bridges (2004) Item 4.2, available at http://www.ftp.dot.state.tx.us/pub/txdot- info/des/specs/specbook.pdf ; Wisconsin Department of Transportation, Standard Specifications (2011) § 104.2.2.4, available at http://roadwaystandards.dot.wi.gov/standards/stndspec/sect104.pdf. http://www.roadwaystandards.dot.wi.gov/standards/stndspec/index. htm. 66 Compare Oregon Department of Transportation, Standard Specifications for Construction (2008) § 00195.20 "[t]he term 'Significant Changed Work' shall apply only to that circumstance in which the character of the Work, as changed, differs

18 contractor’s remedy in the event of a quantity change covered by the clause. 68

Regarding the issue of how large a change in quantities entitles a contractor to compensation, most of the States have retained a provision providing for equitable adjustment of unit materially in kind, nature, or unit cost from that involved or included in the originally proposed construction", available at http://www.oregon.gov/ODOT/HWY/SPECS/docs/08book/08_00100.pdf, with Tennessee Department of Transportation, Standard Specifications for road and Bridge Construction (2006) Supplemental Specifications 104.02 "[t]he term 'significant change' shall be construed to apply only to the following circumstances: (a) [w]hen the character of the work as altered differs materially in kind or nature from that involved or included in the original proposed construction or (b) [w]hen a major item of work is increased or decreased by more than 25 percent of the original contract quantity", available at http://www.tdot.state.tn.us/construction/Supplemental%20Specs %202006/SS100.pdf. 67 Compare Texas Department of Transportation, Standard Specifications for Construction and Maintenance of Highways, Streets and Bridges (2004) Item 1.75 "[m]ajor Item. An item of work included in the Contract that has a total cost equal to or greater than 5% of the original Contract or $100,000 whichever is less", available at http://www.ftp.dot.state.tx.us/pub/txdot- info/des/specs/specbook.pdf, with Tennessee Department of Transportation, Standard Specifications for road and Bridge Construction (2006) Supplemental Specifications 101.64 "[m]ajor Items will be determined as follows: a. Any original contract item having a value of 15% or more of the original contract amount, based on the original estimated quantity, shall be a major item. b. The accumulation of the least number of individual items that total at least 40% of the original contract amount also shall be major items. The items shall be totaled sequentially starting with the largest item (based on original prices and quantities). c. Any items that do not meet (a) or (b) above shall be minor items", available at http://www.tdot.state.tn.us/construction/specbook/2006_Spec100.p df. 68 Compare Delaware Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) § 104.05, available at

19 prices if quantities are increased or decreased in excess of a certain threshold. 69 However, the States do not apply a uniform approach; . aAlthough the Federal regulation requires a twenty- five percent threshold, Georgia has adopted a twenty percent threshold, Hawaii and North Carolina use a fifteen percent threshold and Ohio uses a five percent threshold.70 South Dakota http://www.deldot.gov/information/pubs_forms/manuals/standard_sp ecifications/pdf/2001StdSpecForRoadAndBridgeConstruction.pdf, with Indiana Department of Transportation, Standard Specifications (2012) § 104.02(d), available at http://www.in.gov/dot/div/contracts/standards/book/sep11/sep.htm. 69 See, e.g., Delaware Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) § 104.05(E) "[a]djustments to the unit price of a Contract item based on increases or decreases in Contract quantities will be considered only on major items and then only for the increase in excess of 125% or decrease below 75% of the original bid quantity", available at http://www.deldot.gov/information/pubs_forms/manuals/standard_sp ecifications/pdf/2001StdSpecForRoadAndBridgeConstruction.pdf; Wisconsin Department of Transportation, Standard Specifications (2011) § 104.2.2.4 "[t]he department will adjust the contract if the department or contractor demonstrates that quantity changes materially affect the character of the work and ... [t]he quantity of a major bid item, as defined in 101.3, is increased in excess of 125 percent or decreased below 75 percent of the original contract quantity", available at http://roadwaystandards.dot.wi.gov/standards/stndspec/sect104.pd f; Texas Department of Transportation, Standard Specifications for Construction and Maintenance of Highways, Streets and Bridges (2004) Item 4.2 "[w]hen the quantity of work to be done under any major item of the Contract is more than 125% of the original quantity stated in the Contract, then either party to the Contract may request an adjustment to the unit price on the portion of the work that is above 125%", available at http://www.ftp.dot.state.tx.us/pub/txdot- info/des/specs/specbook.pdf. 70 See South Dakota Department of Transportation, Standard Specifications for Roads and Bridges (2004) § 4.2, available at www.sddot.cover/operations/specifications/index2004.htm; Oregon Department of Transportation, Standard Specifications for Construction (2008) §00195.20; available at .See Georgia

20 and Oregon have no clause providing for any threshold of compensable quantity variation.71

In addition to specifying how great a change in quantity will justify a price adjustment, the Federal quantity variation clause is intended to apply only "major" unit price items rather

Department of Transportation, Standard Specifications (2001) § 104.03, available at www.dot.state.gov.us/doingbusiness/theSource/Pages/Specification s.aspx; Hawaii Department of Transportation, Standard Specifications for Road and Bridge Construction (2005) § 104, available at http://www.hawaii.gov/dot/highways/specifications/2005 Standard Specifications; North Carolina Department of Transportation, Standard Specifications for Roads and Structures (2006) § 104.3, available at htpp/www.ncdot.gov/doh/preconstruct/ps/specifications/english/20 06.html; Ohio Department of Transportation, Construction and Material Specifications (2010) § 104.02D, available at www.dot.state.oh.us/Divisions/ConstructionMgt/OnlineDocs/Pages/2 010CMS.aspx. 71 See South Dakota Department of Transportation, Standard Specifications for Roads and Bridges (2004) § 4.2, available at www.sddot.cover/operations/specifications/index2004.htm; Oregon Department of Transportation, Standard Specifications for Construction (2008) § 00195.20, available at http://www.oregon.gov/ODOT/HWY/SPECS/docs/08book/08_00100.pdf.See Georgia Department of Transportation, Standard Specifications (2001) §104.03, available at www.dot.state.gov.us/doingbusiness/theSource/Pages/Specification s.aspx; Hawaii Department of Transportation, Standard Specifications for Road and Bridge Construction (2005) §104, available at http://www.hawaii.gov/dot/highways/specifications/2005 Standard Specifications; North Carolina Department of Transportation, Standard Specifications for Roads and Structures (2006) §104.3, available at htpp/www.ncdot.gov/doh/preconstruct/ps/specifications/english/20 06.html; Ohio Department of Transportation, Construction and Material Specifications (2010) §104.02D, available at www.dot.state.oh.us/Divisions/ConstructionMgt/OnlineDocs/Pages/2 010CMS.aspx.

21 than all unit priced items. 72 However, the FHWA did not define what constitutes a “major” unit price item and instead left this choice to the States. 73 Not surprisingly, in the absence of clear federal guidance, the States have adopted no uniform standard as to which unit price items are "major." 74 In

Arkansas, Colorado, Delaware, Illinois, Iowa, Kentucky,

Louisiana, Maine, Mississippi, Missouri, Nebraska and New

Mexico, any unit price item in excess of ten percent of the bid is deemed "major."75 A “five percent of the bid” threshold is 72 See 23 C.F.R. § 635.109(a)(3)(B) "[w]hen a major item of work, as defined elsewhere in the contract, is increased in excess of 125 percent or decreased below 75 percent of the original contract quantity." 73 See 23 C.F.R. § 635.109. 74 Compare Texas Department of Transportation, Standard Specifications for Construction and Maintenance of Highways, Streets and Bridges (2004) Item 1.75 "[m]ajor Item. An item of work included in the Contract that has a total cost equal to or greater than 5% of the original Contract or $100,000 whichever is less", available at http://www.ftp.dot.state.tx.us/pub/txdot- info/des/specs/specbook.pdf, with Tennessee Department of Transportation, Standard Specifications for road and Bridge Construction (2006), Supplemental Specifications 101.64 "[m]ajor Items will be determined as follows: a. Any original contract item having a value of 15% or more of the original contract amount, based on the original estimated quantity, shall be a major item. b. The accumulation of the least number of individual items that total at least 40% of the original contract amount also shall be major items. The items shall be totaled sequentially starting with the largest item (based on original prices and quantities). c. Any items that do not meet (a) or (b) above shall be minor items", available at http://www.tdot.state.tn.us/construction/specbook/2006_Spec100.p df. 75 See Arkansas Department of Highways, Standard Specifications (2003) §104.02(b), available at www.arkansashighways.com/standard_spec_2003.aspx; Colorado Department of Transportation, Standard Specifications for Road and Bridge Construction (2011) §104.02(c), available at

22 used to define "major" items in Alaska, Florida, Indiana,

Kansas, Mississippi, Montana, Nevada, North Dakota, Oklahoma,

Rhode Island, Texas, Utah, Wisconsin and Wyoming.76 A “twenty percent of the bid” standard for "major" items is used in

http://www.coloradodot.info/business/designsupport/construction- specifications/2011-Specs; Delaware Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) §101.46, available at http://www.deldot.gov/information/pubs_forms/manuals/standard_sp ecifications/index.shtml; Illinois Department of Transportation, Standard Specifications for Road and Bridge Construction (2002) §104.02, available at http://www.dot.state.il.us/desenv/hwyspecs.html; Iowa Department of Transportation, Standard Specifications for Highway and Bridge Construction (2009) §1101, available at http://www.iowadot.gov/specifications/index.htm; Kentucky Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) §101.03, available at http://www.transportation.ky.gov/construction/spec/2008/2008%20s tandard%20specifications.pdf; Louisiana Department of Transportation, Standard Specifications for Roads and Bridges (2006) §101.03, available at http://www.dotd.la.gov/highways/specifications/documents/2006 Standard Specifications for Roads and Bridges Manual.pdf; Maine Department of Transportation, Standard Specification (2002) §10102, available at http://www.maine.gov/mdot/contractor- consultant-information/ss_standard_specification_2002.php; Mississippi Department of Transportation, Standard Specifications for Highway Construction (2004) §101.02, available at http://www.gomdot.com/Divisions/Highways/Resources/Construction/ pdf/2004StandardSpecs/specbook.pdf; Missouri Department of Transportation, Standard Specifications for Road and Bridge Construction (2011) §101.2, available at http://www.modot.org/business/standards_and_specs/highwayspecs.h tm; Nebraska Department of Transportation, Standard Specifications for Highway Construction (2007) §104.02, available at http://www.dor.state.ne.us/ref-man/specbook- 2007.pdf; New Mexico Department of Transportation, Standard Specifications for Highway and Bridge Construction (2007) §101.4, available at

23 Vermont.77 Alabama and Georgia expressly exclude certain types of work (e.g., excavation) from the category of “major” items, thus allowing no unit price adjustment based solely on quantity variation of such work.78

Other States have adopted more complicated formulas for http://www.nmshtd.state.nm.us/upload/images/Contracts_Unit/2007_ Specs_for_Highway_and_Bridge_Construction.pdf. 76 See Alaska Department of Transportation, Standard Specifications for Highway Construction (2004) §101, available at http://www.dot.state.ak.us/stwddes/dcsspecs/assets/pdf/hwyspecs/ 2004sshc.pdf; Florida Department of Transportation, Standard Specifications for Road and Bridge Construction (2010) §1-2, available at http://www.ftp.dot.state.fl.us/LTS/CO/Specifications/SpecBook/20 10Book/2010Master.pdf; Indiana Department of Transportation, Standard Specifications (2012) §101.30, available at http://www.in.gov/dot/div/contracts/standards/book/sep11/sep.htm ; Kansas Department of Transportation, Standard Specifications for State Road and Bridge Construction (2007) §101, available at http://www.ksdot.org/burconsmain/specprov/2007SSDefault.asp; Mississippi Department of Transportation, Standard Specifications for Highway Construction (2004) §101.02, available at http://www.gomdot.com/Divisions/Highways/Resources/Construction/ pdf/2004StandardSpecs/specbook.pdf;Montana Department of Transportation, Standard Specifications for Road and Bridge Construction (2006) §101.03, available at www.mdt.mt.gov/other/contract/enternal/standard_specbook/2006/20 06_std_specs.pdf; Nevada Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) §101.03, available at http://www.nevadadot.com/About_NDOT/NDOT_Divisions/Engineering/S pecifications/Standard_Specifications_and_Plans for_Road_and_Bridge_Construction.aspx; North Dakota Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) §101.02, available at http://www.dot.nd.gov/dotnet/supplspecs/standardspecs.aspx; Oklahoma Department of Transportation, Standard Specifications (2009) §101.05, available at http://www.okladot.state.ok.us/officeeng/specbook/2009specbook.p df; Rhode Island Department of Transportation, Standard

24 determining which unit price items are "major."79 Some States recognize "minor" unit price items and have provided for unit price adjustments for quantity variations in "minor" unit price items beyond a stated threshold.80

The States are also not entirely uniform in their description of the contractual remedy for "significant changes Specifications for Road and Bridge Construction (2004) §101.36, available at http://www.dot.state.ri.us/documents/engineering/Proj/BlueBook/C D-Bluebook.pdf; Texas Department of Transportation, Standard Specifications for Construction and Maintenance of Highways, Streets and Bridges (2004) Item 1.75, available at http://www.ftp.dot.state.tx.us/pub/txdot- info/des/specs/specbook.pdf; Utah Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) §00570.1.7.56, available at http://www.udot.utah.gov/main/uconowner.gf?n=4866300091936229; Wisconsin Department of Transportation, Standard Specifications (2011) §101.3, available at http://www.roadwaystandards.dot.wi.gov/standards/stndspec/index. htm; Wyoming Department of Transportation, Standard Specifications for Road and Bridge Construction (2010) § 101.5, available at http://www.dot.state.wy.us/files/content/sites/wydot/files/share d/Construction/2010%20Standard%20Specifications/2010%20Standard %20Specifications.pdfhttp://www.dot.state.wy.us/wydot/engineerin g_technical_programs/manuals_publications/2010_Standard_Specific ations. 77 See Vermont Agency of Transportation, Standard Specifications for Construction (2006) § 1094.04(e)2, available at http://www.aot.state.vt.us/conadmin/Documents/2006%20Spec%20Book %20for %20Construction/2006Division100.pdfhttp://www.aot.state.vt.us/co nadmin/2006standardspecs.htm. 78 See Alabama Department of Transportation, Standard Specifications for Highway Construction (2012) § 104.02(a)(2)1, available at http://www.dot.state.al.us/conweb/doc/Specifications/2012%20DRAF T%20Standard%20Specs.pdf; Georgia Department of Transportation, Standard Specifications (2001) § 104.03(c), available at http://dot.ga.gov/doingbusiness/TheSource/specs/ss104.pdfhttp:// dot.ga.gov/doingbusiness/theSource/Pages/specifications.aspx.

25 in the character of the work." 81 A majority of the States provide for a forward-priced lump sum adjustment or recalculation of the affected unit prices to take into account the contractor's increased unit costs.82 Where the contractor and the owner cannot agree on a revised unit price, several

79 See Arizona Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) § 101.02, available at http://www.azdot.gov/Highways/ConstGrp/contractors/PDF/2008Stand ardSpecifications.pdf; Connecticut Department of Transportation, Standard Specifications for Roads, Bridges and Incidental Construction (2004) § 1.01.01, § 1.04.023, available at http://www.ct.gov/dot/lib/dot/documents/dpublications/816/012004 /2004_816_original.pdf; Michigan Department of Transportation, Standard Specifications for Construction (201203) § 101.03, available at http://www.michiganltap.org/sites/ltap/files/publications/techni cal/MDOT%20-%202012%20Standard%20Specifications%20for %20Construction.pdfhttp://www.mdotwes1.mdot.state.mi.us/public/s pecbook; New Hampshire Department of Transportation, Standard Specifications for Road and Bridge Construction (2010) § 101.62, available at http://www.nh.gov/dot/org/projectdevelopment/highwaydesign/speci fications/documents/2010_Division_100.pdfhttp://www.nh.gov/dot/o rg/projectdevelopment/highwaydesign/specifications/index.htm; New York State Department of Transportation, Standard Specifications (2008) § 101-02, available at https://www.dot.ny.gov/main/business- center/engineering/specifications/english-spec-repository/espec- english-cd.pdf; Oklahoma Department of Transportation, Standard Specifications (2001) § 101.05(BC)(1), available at http://www.okladot.state.ok.us/c_manuals/specbook/oe_ss_2009.pdf. 80 See Indiana Department of Transportation, Standard Specifications (2012) § 109.03, available at http://www.in.gov/dot/div/contracts/standards/book/sep09/1- 2010.pdfhttp://www.in.gov/dot/div/contracts/standards/book/sep09 /sep.htm; Louisiana Department of Transportation, Standard Specifications for Roads and Bridges (2006) §109.03, available at http://www.dotd.la.gov/highways/specifications/documents/2006 Standard Specifications for Roads and Bridges Manual.pdf; Mississippi Department of Transportation, Standard Specifications for Road and Bridge Construction (2004) § 101.02,

26 States expressly provide that the owner may have the additional quantities (above the threshold requiring equitable adjustment) performed on a force account basis.83 In California, the quantity variation clause provides different calculations of the unit price adjustment for quantity increases and quantity available at http://www.msstateaidroads.us/doc/State_Aid_ %20Spec_Book_2004.pdfhttp://www.gomdot.com/Divisions/Highways/Re sources/Construction/pdf/2004StandardSpecs/specbook.pdf; Montana Department of Transportation, Standard Specifications for Road and Bridge Construction (2006) § 104.2.3, available at http://www.mdt.mt.gov/other/contract/external/standard_specbook/ 2006/2006_stand_specs.pdf; New York State Department of Transportation, Standard specifications (2008) § 104.04(C)9-02, available at https://www.dot.ny.gov/main/business- center/engineering/specifications/2008-standard-specs-us; North Carolina Department of Transportation, Standard Specifications for Roads and Structures (2006) §104-5, available at http://www.ncdot.gov/doh/preconstruct/ps/specifications/english/ 2006.html; North Dakota Department of Transportation, Standard Specifications or Road and Bridge Construction (2008) §101.02, available at http://www.dot.nd.gov/manuals/environmental/2008- Vol01.pdf; Rhode Island Department of Transportation, Standard Specifications for Road and Bridge Construction (2004) § 101.36, available at http://www.dot.state.ri.us/documents/engineering/Proj/BlueBook/C D-Bluebook.pdf; Wisconsin Department of Transportation, Standard specifications (2011) §101.3, available at http://www.roadwaystandards.dot.wi.gov/standards/stndspec/index. htm. 81 82 See, e.g., California Department of Transportation, 2010 Standard Specifications § 41-1.05(B),3. available at http://www.dot.ca.gov/hq/esc/oe/specifications/std_specs/2010_St dSpecs/2010_StdSpecs.pdf. (“The Department adjusts the unit price for an item if: 1. An ordered plan or specification change materially changes the character of a work item from that on which the bid price was based; 2. The unit cost of the changed item differs when compared to the unit cost of that item under the original plans and specifications; 3. No

27 decreases. 84 For either an increase or a decrease, the measure of adjustment is the difference between the unit price as-bid and the unit cost of the total pay item quantity. 85 However, in the case of quantity increases, the fixed costs of the excess above the twenty-five percent threshold are allocated to the

approved Change Order addresses the payment.”). 83 See, e.g., Delaware Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) § 104.05, available at http://www.deldot.gov/information/pubs_forms/manuals/standard_sp ecifications/pdf/2001StdSpecForRoadAndBridgeConstruction.pdf; Minnesota Department of Transportation, Standard Specifications (2005) § 1903.2(B), available at http://www.dot.state.mn.us/pre- letting/spec/2005/1100-1911.pdfhttp://www.dot.state.mn.us/pre- letting/spec/2005index; New Jersey Department of Transportation, Standard Specifications for Road and Bridge Construction (2007) § 104.03.03(1), available at http://www.state.nj.us/transportation/eng/documents/BDC/pdf/atta chmentbdc07s03.pdfhttp://www.state.nj.us/transportation/eng/spec s/2007/Division.shtml; North Carolina Department of Transportation, Standard Specifications for Roads Structures (2006) §104-5, available at http://www.ncdot.org/doh/preconstruct/ps/specifications/lists/20 06.html; Texas Department of Transportation Standard Specifications for Construction and Maintenance of Highways, Streets and Bridges (2004) § 4.2, available at ftp://ftp.dot.state.tx.us/pub/txdot- info/des/specs/specbook.pdfhttp://www.dot.state.tx.us/pub/txdot- info-des/specs/specbook.pdf. Notably, in announcing its Final Rule in 1989 (footnote 11 supr,a) the FHWA declined to amend its regulation to expressly provide for a force account remedy, recognizing that its regulation did not pre-empt force account procedures where the contractor and owner are unable to agree on a revised unit price, but also asserting “[I]t is the FHWA policy … that the use of force account be kept to a minimum.” Construction and Maintenance; Contract Procedures; Standardized Contract Clauses, 54 Fed.Reg. 427069-01 (Jan. 30, 1989) (codified at 23 C.F.R. pt. 635). In 1993, AASHTO published a revised set of Guide specifications for Highway Construction. These included a “change in the work” clause that incorporated “character of the work” standard and 125 percent/75 percent

28 quantity below the threshold, i.e., the excess final quantity is presumed to have required only variable costs and no additional overhead.86.

Other States apply yet other approaches to calculating the contract price adjustment resulting from a change in quantity covered by the SCCW Clause. 87 In Indiana, the standard specifications specifically disclaim any liability for costs calculated on a "total cost" basis, "based on calculations of costs as the difference between the Contractor's bid for the quantity variation thresholds similar to the FHWA language. See AASHTO Guide Specifications for Highway Construction (1993) §§101.11, 104.03. AASHTO’s 1993 language dropped the 25 percent cap on unit price changes proposed in its 1988 language. (See note 1446, supra). The 1993 language also expressly provided a force account alternative to an agreed upon unit price revision. 84 See California Department of Transportation, Standard Specifications § 9-1.06B&C (2010), available at http://www.dot.ca.gov/hq/esc/oe/specifications/std_specs/2010_St dSpecs/2010_StdSpecs.pdf 85 Id. 86 Id. at § 9-1.06B(2).See California Department of Transportation, Standard Specifications (2010) §9-1.06B&C, available at http://www.dot.ca.gov/hq/esc/oe/specifications/std_specs/2010_St dSpecs/2010_StdSpecs.pdf. 87 See Indiana Department of Transportation, Standard Specifications (2012) §104.02, available at http://www.in.gov/dot/div/contracts/standards/book/sep11/2012Mas ter.pdf; Kentucky Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) § 104.02.01, available at http://transportation.ky.gov/construction/Standard amd Supplemental Specifications/complete KYTC Standard Specifications - 2008.pdf; Massachusetts Department of Transportation, Supplemental Specifications to the 1988 English Standard Specifications for Highways and Bridges and the 1995 Metric Standard Specifications for Highways and Bridges (2010) §4.06, available at http://www.mhd.state.ma.us/downloads/manuals/SSP022510MetEng.pdf.

29 work and the Contractor's calculation of the costs for the work."88 In Kentucky, certain unit price items are subject to a formula used to calculate a revised unit price for the excess quantity installed, which substitutes a fixed percentage multiplier in lieu of any calculation of cost.89 In

Massachusetts, the quantity variation clause provides that “no unit (price) adjustment will be made for any item of work… having an unrealistic (as-bid) unit price.”90 Some States provide that, in case of quantity reduction, the total amount to be paid for the reduced quantity is subject to a cap.91 88 See Indiana Department of Transportation, Standard Specifications (2012) §104.02(d)(4)(a), available at http://www.in.gov/dot/div/contracts/standards/book/sep11/2012Mas ter.pdfsep.htm. 89 See Kentucky Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) §104.02.02, available at http://transportation.ky.gov/construction/Standard amd Supplemental Specifications/complete KYTC Standard Specifications - 2008.pdf http://www.transportation.ky.gov/maintenance/documents/intranet/ roadway preservation/transport notes/special provisions/2-4 04.pdf. 90 See Massachusetts Highways Department, Supplemental Specifications to the 1988 English Standard Specifications for Highways and Bridges and the 1995 Metric Standard Specifications for Highways and Bridges (2010) §4.06, available at http://www.mhd.state.ma.us/downloads/manuals/SSP022510MetEng.pdf. 91 See Alaska Department of Transportation and Public Facilities, Standard Specifications for Highway Construction (2004) § 109- 1.04(1)(b)5, available at http://www.dot.state.ak.us/stwddes/dcsspecs/assets/pdf/hwyspecs/ 2004sshc.pdf (cap at seventy-five percent of bid); Arizona Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) §9-1.06C, available at http://www.azdot.gov/Highways/ConstGrp/contractors/PDF/2008Stand ardSpecifications.pdf (cap at seventy-five percent of original bid); California Department of Transportation, Standard

30 B. Problems of Implementation

From the variety of State responses to the FHWA language, several problems of implementation can be recognized.. FFirst, although over half the States have implemented some version of the Federal “significant change” language, the inherent vagueness of the Federal language, coupled with the lack of FHWA guidance, clearly has raised basic implementation problems in some States. 92 Although no State has formulated its own Specifications (2010) §9-1.06C, available at http://www.dot.ca.gov/hq/esc/oe/specifications/std_specs/2010_St dSpecs/2010_StdSpecs.pdf (cap at seventy-five percent of item total75% cap); New Jersey Department of Transportation, Standard Specifications for Road and Bridge Construction (2007) § 104.03.03(1), available at http://www.state.nj.us/transportation/eng/documents/BDC/pdf/atta chmentbdc07s03.pdfhttp://www.state.nj.us/transportation/eng/spec s/2007/Division.shtml (75% cap); New York State Department of Transportation, Standard Specifications (2008) §104.02, available at https://www.dot.ny.gov/main/business- center/engineering/specifications/english-spec-repository/espec- english-cd.pdf (cap at original bid price for original quantity); North Carolina Department of Transportation, Standard Specifications for Roads and Structures (2006) §104-3(c) available at http://www.ncdotgov/doh/preconstruct/ps/specifications/english.2 006.html; North Dakota Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) §101.02, available at http://www.dot.nd.gov/dotnet/supplspecs/standardspecs.aspx (seventy-five percent of bid); Washington Department of Transportation, Standard Specifications for Road, Bridge and Municipal Constructions and Bridges (2012) §1-04.6(4), available at http://www.wsdot.wa.gov/publications/manuals/fulltext/M41- 10/SS2012.pdf (75% capcap at seventy-five percent of bid). 92 States that have retained “significant change” language include Louisiana, Nevada, and North Dakota. See Louisiana Department of Transportation, Standard Specifications for Roads and Bridges (2006) § 104.02(c), available at http://www.dotd.la.gov/highways/specifications/documents/2006%20 Standard%20Specifications%20for%20Roads%20and%20Bridges

31 definition of “significant” changes in “character,” it is significant that several States have chosen to drop this language entirely. 93 It is also noteworthy that some States have chosen to drop entirely the Federal requirement for equitable adjustment based on quantity variation. 94

Second, the Federal quantity variation language (increases over 125 percent and decreases under 75 percent) raises other %20Manual/05%20-%202006%20-%20Part%20I.pdf; Nevada Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) § 104.02(b), available at http://www.nevadadot.com/uploadedFiles/NDOT/About_NDOT/NDOT_Divi sions/Engineering/Specifications/2001StandardSpecifications.pdf; North Dakota Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) § 104.03A, available at http://www.dot.nd.gov/manuals/environmental/2008-Vol01.pdf.

93 See, e.g., Georgia Department of Transportation, Standard Specifications (2001) § 104.03A, available at http://www.dot.state.ga.us/doingbusiness/TheSource/specs/ss104.pdf; Hawaii Department of Transportation, Standard Specifications for Road and Bridge Construction (2005) § 104.02, available at http://hawaii.gov/dot/highways/specifications2005/specifications/specs pdf/specspdf-100-199-and-toc/104C__Scope%20of%20Work__Print.pdf; Kansas Department of Transportation, Standard Specifications for State Road and Bridge Construction (2007) § 104.2, available at http://www.ksdot.org/burconsmain/specprov/2007/104.pdf; Maine Department of Transportation, Standard Specifications (2002) § 109.1, available at http://www.state.me.us/mdot/contractor-consultant- information/ss_combined.pdf; Maryland Department of Transportation, Standard Specifications for Construction and Materials (2008) GP-4.04, GP-4.06, available at http://www.marylandroads.com/ohd/part1.pdf. 94 See, e.g., California Department of Transportation, Standard Specifications (2010) § 9-1.06B, available at http://www.dot.ca.gov/hq/esc/oe/specifications/std_specs/2010_St dSpecs/2010_StdSpecs.pdf (providing that when a change order issued by the engineer does not address payment for the quantity exceeding 125% of the quantity shown on the Bid Item List, the Engineer may either adjust the unit price for the excess quantity under the force account provision or by calculating the difference between the unit price and unit cost of the total item pay quantity).

32 issues of implementation in specific contexts, reflected in the

State descriptions of the remedy to be implemented. 95 The FHWA regulation, as revised in 1991, generally provides for an adjustment to be agreed upon “prior to the performance of the work,” or as the engineer unilaterally determines to be fair and equitable. 96 At the same time, the FHWA regulation specifically provides that in case of quantity growth, the “allowance” is to apply only to the portion in excess of 125 percent. 97 Although

95 Some states have established a different threshold for changed unit costs for excess quantities, for which negotiation is appropriate. See, e.g., South Dakota Department of Transportation, Standard Specifications for Roads and Bridges (2004) § 4.2, available at http://www.sddot.com/business/contractors/specs/specbook04/4.pdf;(no threshold); Georgia Department of Transportation, Standard Specifications (2001) § 104.03(D), available at http://www.dot.state.ga.us/doingbusiness/TheSource/specs/ss104.pdf (20% threshold); Hawaii Department of Transportation, Standard Specifications for Road and Bridge Construction (2005) § 104.07, available at http://hawaii.gov/dot/highways/specifications2005/specifications/specs pdf/specspdf-100-199-and-toc/104C__Scope%20of%20Work__Print.pdf (15% threshold); Ohio Department of Transportation, Construction and Material Specifications (2010) § 104.02D, available at http://www.dot.state.oh.us/Divisions/ConstructionMgt/OnlineDocs/Specif ications/2010CMS/2010%20CMS%20Final%2012222009%20.pdf (5% threshold). Other states allow the engineer to direct the excess quantity to be installed on a force account basis if negotiation does not lead to agreement. See, e.g., Delaware Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) § 104.05F, available at http://www.deldot.gov/information/pubs_forms/manuals/standard_sp ecifications/pdf/2001StdSpecForRoadAndBridgeConstruction.pdf; Minnesota Department of Transportation, Standard Specifications (2005) § 1903.2B, available at http://www.dot.state.mn.us/pre- letting/spec/2005/div-i.pdf.

96 23 C.F.R. § 635.109(a)(3)(ii) (1991). 97 23 C.F.R. § 635.109(a)(3)(iv)(B).

33 the revised FHWA wording contemplates “changes in character” to a bid item that affect the costs of other bid items, the FHWA does not contemplate quantity increases that affect the per-unit cost of the original as-bid quantity. 98 The FHWA regulation thus contemplates, where feasible, that the engineer and contractor negotiate forward-priced unit price change orders that recognize changed unit costs for excess quantities (over 125 percent) only. 99 The infeasibility of such forward-priced change orders is reflected in those State clauses that expressly provide that, in the absence of such a forward-priced change order, the engineer may direct the excess quantity to be installed on a force account basis. 100

The force account solution, however, may face its own problems of implementation. The FHWA regulation, and any State

“force account” version thereof, assume that where excess unit price quantities are involved, there will be a clear demarcation between the quantity subject to the original unit price and the excess quantity subject to the unit price adjustment or force

98 23 C.F.R. § 635.109(a)(3)(ii). 99 See 23 C.F.R. § 635.109(a)(3)(iv)(B). 100 See, e.g., Delaware Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) § 104.05F, available at http://www.deldot.gov/information/pubs_forms/manuals/standard_sp ecifications/pdf/2001StdSpecForRoadAndBridgeConstruction.pdf; Minnesota Department of Transportation, Standard Specifications (2005) § 1903.2B, available at http://www.dot.state.mn.us/pre- letting/spec/2005/div-i.pdf.

34 account. 101 This assumption is reasonable where the unit price item is performed over time, so that a point in time can be identified where the 125 percent threshold is exceeded and the price adjustment is triggered or the item becomes a force account item. 102 The assumption becomes problematic where no such point in time can be determined, because the work created by the excess quantity is integral to and contemporaneous with the original bid quantity. 103 In that circumstance, the unit costs of the excess may not be severable from the unit costs of the original quantity, and it may be difficult to identify which work is to be paid for on force account. 104

101 See 23 C.F.R. § 635.109(a)(3)(iv)(B); see also, e.g., Delaware Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) § 104.05E-F, available at http://www.deldot.gov/information/pubs_forms/manuals/standard_sp ecifications/pdf/2001StdSpecForRoadAndBridgeConstruction.pdf (providing that in an absence of an agreement, payment can be made for increased quantities above the 125% threshold on the basis of a force account). 102 See, e.g., Delaware Department of Transportation, Standard Specifications for Road and Bridge Construction (2001) § 104.05E-F, available at http://www.deldot.gov/information/pubs_forms/manuals/standard_sp ecifications/pdf/2001StdSpecForRoadAndBridgeConstruction.pdf (providing that in the absence of an agreement, payment can be made for increased quantities above the 125% threshold on the basis of a force account). 103 See California Department of Transportation, Standard Specifications (2010) § 9-1.04A, available at http://www.dot.ca.gov/hq/esc/oe/specifications/std_specs/2010_St dSpecs/2010_StdSpecs.pdf (contemplating that there may be discrepancies between the contractor and Department about when the 125% threshold is passed, and therefore, about the point at which work becomes payable on a force account basis). 104 See id.

35 The FHWA clause applicable to quantity decreases raises its own problems of implementation. 105 First, where a unit price item is eliminated entirely, there is no unit price adjustment to be made, but there may be costs of partial termination, which some

States have recognized and provided for in separate contract language whichlanguage that supplements the FHWA clause.106

105 See 23 C.F.R. § 635.109(a)(3)(iv)(B). 106 See California Department of Transportation Standard Specifications (2010) §9-1.06D, (eliminated items) available at http://www.dot.ca.gov/hq/esc/oe/specifications/std_specs/2010_St dSpecs/2010_StdSpecs.pdf; Kansas Department of Transportation, Standard Specifications for State Road and Bridge Construction (2007) §104.4 available at www.ksdot.org/burconsmain/specprov/2007/104.pdf; Louisiana Department of Transportation, Standard Specifications for Roads and Bridges (2006) §104.02(d) available at http://www.dotd.la.gov/highways/specifications/DirListing.aspx? txtPath=/highways/specifications/documents/2006 Standard Specifications for Roads and Bridges Manual; Maine Department of Transportation, Standard Specifications (2002) §109.2 available at http://www.maine.gov/mdot/contractor-consultant- information/ss_standard_specification_2002.php; Minnesota Department of Transportation, Standard Specifications (2012) § 1905, available at http://www.dot.state.mn.us/pre- letting/spec/2005/1100-1911.pdfhttp://www.dot.state.mn.us/pre- letting/spec/2012/2012index.html; New Hampshire Department of Transportation, Standard Specifications for Road and Bridge Construction (2010) § 104.02(E), available at http://www.nh.gov/dot/org/projectdevelopment/highwaydesign/speci fications/documents/2010_Division_100.pdfwww.nh.gov.dot.org.proj ectdevelopment/highwaydesign/specofications/documents/2010_Spec_ Book.pdf; New Jersey Department of Transportation, Standard Specifications for Road and Bridge Construction (2007) § 104.03.03(1), available at http://www.state.nj.us/transportation/eng/documents/BDC/pdf/atta chmentbdc07s03.pdfhttp://www.state.nj.us/transportation/eng/spec s/2007/Division.shtml; North Carolina Department of Transportation, Standard Specifications for Roads and Structures (2006) §104-6 available at http://www.ncdotgov/doh/preconstruct/ps/specifications/english.2 006.html; Ohio Department of Transportation, Construction and Material Specifications (2010) §104.02D, available at

36 Second, where the quantity is decreased below 75 percent but not eliminated, the FHWA clause contemplates a unit price adjustment to the entire “actual” quantity. 107 This suggests that, where the quantity of an item is reduced below the threshold after some of that item has been completed, the unit price adjustment should apply to the quantity already completed as well as the reduced quantity yet to be completed. 108 The unit price adjustment in that circumstance is not a purely forward-priced change order, and the FHWA direction that the adjustment “shall be agreed upon prior to the performance of the work” is not feasible. 109 Third, the FHWA clause does not address the circumstance where the owner and contractor cannot agree on a unit price adjustment for quantity reduction, except to provide that the “allowance” is to apply to the entire “actual” quantity. 110 This suggests that any force account alternative must apply to the entire unit price item. 111 Some States, which provide for an overall “cap” in case www.dot.state.oh.us/Divisions/ConstructionMgt/OnlineDocs/Pages/2 010CMS.aspx; Utah Department of Transportation, Standard Specifications for Road and Bridge Construction (2008) §00570.1.7.56, available at http://www.udot.utah.gov/main/uconowner.gf?n=4866300091936229; Wisconsin Department of Transportation, Standard Specifications (2011) §101.3, available at http://www.roadwaystandards.dot.wi.gov/standards/stndspec/index. htm. AASHTO has similarly proposed a separate clause for elimination of items. See AASHTO Guide Specifications for Construction (1993) §109.05. 107 108 109 110 111

37 of quantity decreases, effectively use the “cap” to prevent a quantity decrease from turning a unit price item into a purely force account item.112

In sum, the lack of guidance and key definitions of terms in the FHWA regulations permits States to implement diverging variations of the SCCW Clause. 113 These different approaches to determining which unit prices are subject to the Clause, how great a quantity change is required to trigger the Clause, and how the contractor is compensated for covered changes, have economic consequences for States (and ultimately for taxpayers). 114 These provisions affect the allocation of risk of quantity changes between the public owners and contractors, which in turn potentially compels contractors to address this risk differently in their prices on a jurisdiction-by- jurisdiction basis. 115

IV. RECOMMENDATIONS FOR REVISION OF THE CLAUSE

As implemented over the last twenty years, the FHWA’s

“significant changes in the work” clause has not achieved uniformity or standardization in State highway construction contracts, and FHWA’s revisions have not achieved clarification of this clause or eliminated all problems of implementation. 116

112 See footnote 33X, supra. 113 114 115 116

38 This article recommends that the FHWA reassert federal control over the SCCW Clause in federally funded transportation construction contracts by issuing a revision of the clause that addresses; such a revision should clarify the extant ambiguities, in order to achieve uniformity and efficiently allocate the risk of quantity changes between public owners and contractors.

Any attempt to argue for further revisions, however, must first address the basic question whether the FHWA clause is really necessary to serve an important contractual purpose;. tThe answer to this question is a qualified “yes.” Because these projects are subject to changing circumstances, it is necessary that the States each have some contract language whichlanguage that allows their highway engineers to vary the quantity of unit price items, and provide for a price adjustment, without such variations being deemed to be a material breach of contract. 117 Contract language which generally reserves the owner’s right to vary the quantitieslanguage that generally reserves the owner’s right to vary the quantity is generally usually deemed sufficient in this regard. 118

Therefore,. tThe FHWA clause, to the extent it includes such language, serves an important contractual purpose.

117 118

39 The other language of the FHWA clause, including both the reference to “significant changes in character” and the quantity variation language, could well use further clarifying revisions. 119 Although the FHWA last revised the clause in 1991, and the States have been implementing their own variants for the last twenty years, this should not deter FWHA from issuing a revised SCCW Clause with clarifying revisions, further standardization, or the wholesale replacement of the FHWA clause with something entirely different. 120 The following comments may assist in the revision or reformulation of the FHWA clause or some State variant thereof.

First, a revised clause should avoid relying on inherently vague and undefined concepts such as the “character of the work” and “significant” changes. Such ambiguous words thwart the goal of uniformity and certainty that is critical to the policy goal of having contractors efficiently price their bids for these contracts. The clause will be clearer and more efficient if it provides that the owner is responsible for the extra costs of performance arising from an owner-imposed change in contract requirements, including quantity of unit priced items and method of performance. No inquiry into the “character” of the work, or whether it is “significantly changed,” should be necessary. The

119 120

40 Changes clauses of the Federal Acquisition Regulation121 provide a potential model for revised language, since they expressly recognize as compensable the following “changes in the work within the general scope of the contract”; (1) changes in the specifications (including plans); (2) changes in the method or manner of performance of the work; (3) changes in the Government furnished property or services, and (4) directed acceleration.

122 123 The FHWA language, following the FAR, should explicitly recognize the basic principle that owner-directed changes in quantity, means and methods of unit price items can be compensable events. 124 When pricing contingencies in preparing a bid, offerors should not be required to bear the risk of owner- imposed changes that may not be deemed “significant” or enough to affect the “character of the work.” 125 By preventing bidders from having to price such unknowable contingencies, owners will receive lower bid prices and pay the costs of actual changes

121 See 48 C.F.R. §52.243- 1 (1995), 2 (2007), -3 (2000) and -4 (2007). Although these clauses generally address the contracting officer’s authority to implement changes, it is noteworthy that they do not, by their terms, apply to unit price contracts.

122 See FAR 52.243- 1 (1995), -2 (2007), -3 (2000) and -4 (2007). Although these clauses generally address the contracting officer’s authority to implement changes, it is noteworthy that they do not, by their terms, apply to unit price contracts. 123 See FAR 52.243-4. 124 See id. 125 See 23 C.F.R. § 109(a)(3)(ii)(2012).

41 during contract performance rather than a speculative estimate included in the contractor’s price. 126

Second, the FHWA should reconsider the language in its clause whichclause that limits the scope of the unit price adjustment to quantities above or below a certain threshold amount. 127 Because an owner-directed change in means and methods should be recognized as a compensable event, there is no defensible basis to limit extra compensation to that additional quantity in excess of a defined threshold (e.g., 125 percent).

In other words, if an owner-directed quantity increase entails a change in means or methods, and if the change in means or methods applies to some quantity other than the excess over 125 percent, the extra compensation should cover the full quantity affected by the change. There is no legitimate reason to limit the changed compensation to the quantity in excess of 125 percent, nor is there any legitimate reason to include the entire excess quantity in the changed compensation if not all of it is affected by the change in means or methods. The FHWA language should recognize that a quantity variation which requires a change in means and methodsvariation that requires a change in means and methods should not be subject to any rule limiting the changed compensation to the quantity in excess of

125 percent, nor should the changed compensation necessarily 126 Possible new source 127 See 23 C.F.R. § 109(a)(3)(iv)(2012).

42 extend to the entire quantity in excess of that threshold. 128 A contrary rule compels prudent contractors to build into their prices the contingency of paying for changes below the 125 percent threshold. 129 This, in turn, means that governments (and taxpayers) will be paying for this contingency in many contracts that experience no such changes. 130 Thus, by abandoning any limitations on compensable changes by deleting any requirement that the change be “significant” or meet a certain threshold), the public owner will bear the risk that it controls – the decision to order changes to contract requirements. 131 More importantly, States will pay only for the changes they order rather than the speculative cost estimates of potential changes that prudent contractors include into their prices.

Third, the idea of a unit price revision based solely on quantity variation should itself be re-examined. Such examination should focus specifically on the economic effects of alternative clauses as means of risk transfer in the particular context of unit price contracts. Intrinsic to unit price contracts is the recognition that changes in quantity of unit price items do not necessarily entail changes in means or methods and do not necessarily require changes in unit prices. 132

128 See id. 129 Possible new source 130 Possible new source 131 132 Possible new source.

43 A unit price bid is a bid to perform an estimated quantity of a unit-price item, with the express recognition that the actual quantity subject to the unit price may vary. 133 The contractor bids to a scope of work defined by a set of plans and specifications and an owner’s estimate of quantities, and the owner and contractor both expect that, provided that the plans and specifications do not change, and that the owner does not otherwise direct changes to means or methods, any quantity variance in unit price items from the quantities estimated will be paid for by a change order which applies the as-bid unit prices to the actual quantities of those unit price items. 134 The owner thus legitimately expects that, assuming no owner-directed change in scope, means or methods, the contractor has priced into its bid the risk of increased material cost if the actual quantity is larger or smaller than the quantity estimated pre- bid. 135 Quantity increases or decreases that increase the contractor’s per-unit materials costs are the contractor’s risk, but the owner effectively pays the contractor to absorb this risk provided the contractor has built the risk into its unit prices. 136

When considering its approach to revising the SCCW Clause, the pertinent questions the FHWA should consider include: wWhat 133 Possible new source 134 Possible new source 135 Possible new source 136 Possible new source

44 are the effects on risk, and resulting effects on unit prices, of contract clauses which relieve the contractor of its unit price for quantity variations, and what are the effects on risk, and resulting unit prices, of alternative clauses? Is the FHWA quantity variation approach the most cost-effective, i.e. does it most efficiently allocate the risk of unit cost variation from quantity variation to the entity best able to both price and control that risk, with the result that it yields the lowest unit prices consistent with the normal expectations of the parties to a unit price contract? A contract clause which entitles the contractor to adjust its unit price for quantity increases or decreases beyond a certain threshold will provide a contractual benefit to the owner only to the extent that it allows the contractor to reduce its as-bid unit prices because it need not include any contingency for material cost escalation from quantity increases or decreases. 137 A uniform clause providing for unit price adjustment for quantity increases or decreases (e.g., over 25 percent of estimate) is thus cost- effective (or more cost-effective than having no clause) only to the extent that the chosen threshold (e.g., 25 percent) allows bidders to reduce their unit price bids by eliminating any risk of larger quantity variances. 138 Whether any particular chosen threshold (a fortiori, 25 percent) has this beneficial effect on 137 Possible new source 138 Possible new source

45 every federally funded transportation project is open to question.

Conversely, a contract clause which requires a contractor to maintain its unit prices for quantity increases up to a certain threshold (e.g., 125 percent) potentially requires the contractor to either pre-commit its suppliers to hold their per- unit prices for quantities beyond those estimated for the project, or add a contingency to its bid to cover unit cost escalation from quantity increases up to the threshold beyond which it is relieved of its unit price. 139 Whether contractors on

Federal aid highway projects routinely commit their suppliers to hold their as-bid prices up to 125 percent of estimated quantities is open to doubt. In the absence of such a practice, a contract clause providing for unit price increases for quantities beyond 125 percent of estimate may, in certain cases, actually increase as-bid prices for certain unit price items, by incentivizing bidders to add contingency for cost escalation from quantity variation. 140

In general, a quantity variation clause that requires the contractor to bear the risk of unit cost increases for quantity variations up to a particular threshold, but relieves the contractor of the risk of unit cost variations beyond that threshold, will result in lower as-bid unit prices only where it 139 Possible new source 140 Possible new source

46 reduces any contingency built into as-bid unit prices. 141 It will eliminate contingency only if the unit price items are subject to increase in unit cost for quantity variation beyond a certain threshold, and only if the threshold identified in the clause is less than or equal to that threshold of real-world unit cost change. 142 If there is no unit cost increase with quantity variation, or if the contractual threshold is too high, no unit price reduction will be achieved. 143

The effects of a uniform 25 percent contractual threshold on the as-bid unit prices for all “major” items on all State and local projects bid with the FHWA clause, or any State variant, are simply unknown, and were unknown when FHWA adopted its clause. There is reason to believe, however, that an alternative to the FHWA quantity variation clause may be more cost-effective simply because it requires no calculation of the appropriate threshold and no calculation of any potential contingency other than whatever contingency is required by the bid documents themselves. 144 As an alternative to the 25 percent variation threshold, a quantity variation clause should provide that quantity variations causing increased material costs to the contractor will cause adjustments to unit prices to the extent that they are caused either by changes to the scope defined by 141 Possible new source 142 Possible new source 143 Possible new source 144 Possible new source

47 the plans and specifications, or by owner-directed changes to the contractor’s reasonable means and methods. Such a clause recognizes the owner’s legitimate expectation that the contractor will bear the risk of ordinary material cost escalation, but also relieves the contractor of the risk of other unforeseeable material cost escalation not intrinsic to the unit price contract as bid. It is thus more consistent with the actual expectations of the parties to a unit price contract concerning the allocation of risk. 145 By relieving the contractor of the risk of unforeseeable material cost escalation, the clause relieves the owner of any increase in the contractor’s as-bid unit prices for a contingency meant to cover the risk. 146

The only contingency to be recognized and paid for is that inherent in the bid documents themselves. Neither party thus has to consider the potential cost effects of quantity variations up to 25 percent.

By recognizing the material cost escalation risks intrinsic to unit price contracting, and by providing for the transfer of other extraordinary risks of material cost escalation to the party best able to manage the risks it assumes, the suggested clause arguably allocates risk more cost- effectively between owner and contractor. The owner controls the bid documents and transfers to the contractor only the risk of quantity variation 145 Possible new source 146 Possible new source

48 foreseeable from the bid documents themselves. Risks of larger quantity variation due to changes in the bid documents are not transferred but remain with the owner, who ultimately decides whether to direct any such change.

The FHWA clause, by contrast, transfers to the contractor the risk of quantity variation up to 25 percent of all “major” unit price items, leaving the owner in control of the decision whether to increase or decrease such quantities. 147 The 25 percent threshold represents an arbitrary number to be applied to every “major” item without regard to its effects on as-bid unit prices. 148 The FHWA’s quantity threshold, and all the State variations thereof, ultimately suffer from the same flaw;. tThey do not amount to well-considered, efficient risk control or risk transfer. 149 Indeed, given their legislative and administrative histories, it is doubtful that the overall economic effects of the FHWA clause, in comparison to alternative clauses, were ever thoroughly investigated. 150

V. CONCLUSION

As the foregoing history and discussion indicates, the

FHWA’s effort to create a standardized change clause applicable to all federally funded highway construction projects has not

147 See 23 C.F.R. 635.109(a)(3)(iv)(2012). 148 See id. 149 150

49 achieved a uniform, cost-effective result. 151 To better serve both the Congressional mandate for standardization and the goal of economy, the Federal SCCW clause should be re-examined and revised in order to eliminate vagueness, restrict State variations, eliminate unnecessary quantity variations provisions, and better define compensable events, in a manner which considers the potential economic effects of the clause.

The Changes clauses of the FAR provide a suitable model whichmodel that FHWA and the various State departments of transportation should consider seriously. 152

151 See supra Part IV. 152 See FAR 52.243- 1 (1995), -2 (2007), -3 (2000) and -4 (2007).

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