Background
Brawner Builders, Inc. entered into a two-year procurement contract with the Maryland State Highway Administration (SHA) to provide labor and equipment — including traffic signs and vehicles — for highway maintenance. The contract included estimated quantities of items SHA expected to purchase and, as required by Maryland law, a Variations in Estimated Quantities (VEQ) clause. SHA agreed to pay only for quantities it actually purchased; idle equipment and unused labor were excluded from payment.
At the contract’s end, Brawner invoked the VEQ clause, claiming SHA had purchased less than 75% of the estimated quantities of 13 contract items and that the resulting underruns had driven up its actual costs per unit. SHA denied the demand, and Brawner appealed to the Maryland State Board of Contract Appeals (MSBCA), eventually settling on a claim of $1,806,493.63. The MSBCA denied the appeal, finding that while an underrun existed, Brawner had not demonstrated that the underrun caused its actual costs per unit to increase. The Circuit Court for Baltimore County reversed the MSBCA and ordered an equitable adjustment; SHA then appealed to the Appellate Court of Maryland.
Brawner also pressed two additional claims before the MSBCA — one based on a formula from a prior MSBCA decision (rejected below and not appealed) and one asserting SHA had “self-performed” Brawner’s obligations, entitling Brawner to the unpaid contract balance of $2,696,571.65. The circuit court had reversed the MSBCA on the self-performance claim as well, making that ruling a second issue on appeal.
The Court’s Holding
The Appellate Court of Maryland reversed the circuit court on both issues and reinstated the MSBCA’s decisions. Applying the four-prong test established in Genstar Stone Paving Products Co. v. State Highway Administration, 94 Md. App. 594 (1993), the court held that Brawner failed to satisfy prongs (2), (3), and (4). Brawner’s cost calculation never identified the contract cost per unit or what per-unit costs would have been absent the underrun, making it impossible to establish that actual costs exceeded those benchmarks as prongs (2) and (3) require.
The court further agreed with the MSBCA that Brawner failed prong (4) — that the underrun was the sole cause of the increased actual costs per unit. Stripping away the complexity of Brawner’s formula, the court explained that what Brawner labeled “increased actual costs” were simply the costs of purchasing items that SHA never ordered and that then sat idle — costs the contract expressly excluded from payment. Because those idle-equipment costs, not the underrun itself, drove up Brawner’s per-unit figures, causation was not established.
On the self-performance claim, the court held the claim was unpreserved because Brawner had never asserted it to SHA before raising it before the MSBCA, the record lacked sufficient evidence that SHA actually performed Brawner’s obligations, and the theory relied on a misreading of federal contract law inapplicable under Maryland authority.
Key Takeaways
- To obtain an equitable adjustment under a Maryland VEQ clause in an underrun scenario, a contractor must satisfy all four Genstar prongs: (1) government purchased less than 75% of estimated quantity; (2) actual cost per unit exceeds contract cost per unit; (3) actual cost per unit exceeds what it would have been absent the underrun; and (4) the underrun is the sole cause of the increased per-unit cost.
- A VEQ calculation that omits the contract cost per unit and the hypothetical cost absent the underrun cannot satisfy prongs (2) and (3), no matter how elaborate the arithmetic.
- Costs attributable to a contractor’s own business decision — here, purchasing and idling equipment the government never ordered and contractually declined to pay for — do not qualify as costs caused by an underrun under prong (4).
- The VEQ clause is a narrow remedy for a narrow problem; it does not rescue a contractor from an unwise bid or entitle it to the unpaid contract balance.
- A self-performance theory must be raised first with the contracting agency to be preserved for MSBCA appeal; an unpreserved claim cannot form the basis for reversing the agency board.
Why It Matters
This decision clarifies and reinforces the stringent showing Maryland contractors must make to recover under a VEQ clause. By walking through a simplified version of Brawner’s cost model and exposing it as a claim for idle-equipment costs rather than underrun-caused cost increases, the court signals that courts and the MSBCA will look through complex formulas to the economic substance of a VEQ claim. Contractors invoking the clause must be prepared to present side-by-side comparisons of actual, contract, and hypothetical-absent-underrun unit costs — not just a calculation of what they spent versus what they were paid.
The decision also underscores that the VEQ clause is not a safety net for unfavorable contract outcomes. Contractors who submit bids premised on purchasing large quantities of equipment bear the risk that the government will order less; the VEQ clause compensates only for the discrete cost distortion caused by an underrun, not for the broader consequences of a bid that proved commercially unwise.