Rely on Bad Numbers Estimated For a Contract? Consider Filing a “Negligent Estimate” Claim or Similar Legal Claim

Numbers

Numbers (Photo credit: Jon Matthies)

Some contractors and subcontractors working on U.S. Government (USG) projects discover too late that numbers quoted in the solicitation or contract were bad estimates.  Worse, a contractor in that situation may have relied on those numbers being accurate, with this reliance turning out to cause the contractor to lose money.

For example, a contractor relying on contract numbers that are overestimated may over-order supplies, and overspend on personnel and facility costs, only to learn later that such extra expenses were wasted because the scope or volume of the contract turned out to be far less than the estimates originally given. Worst of all, a contractor or subcontractor in this position may learn that the other party (USG or prime contractor) had known, or had good reason to know, that the numbers were inaccurate from the first day.

If you find yourself in a bad-estimate situation like this, and you are a contractor on a USG project, you should know there are potential legal options, including a potential legal claim for having made a “negligent estimate” on your contract scope of work.

The rules and criteria for a negligent estimate claim are stated as follows (in a legal case titled Rumsfeld v. Applied Companies, Inc.)

“[w]here a contractor can show … that estimates were ‘inadequately or negligently prepared, not in good faith, or grossly or unreasonably inadequate at the time the estimate was made[,]’ the government could be liable for appropriate damages resulting.” Rumsfeld, 325 F.3d 1328, 1335.

If a negligent estimate is found, it is treated like a breach of contract, and the contractor can recover money that was lost due to the bad estimates.  Of important note, a wrongful estimate does not have to be intentional in order to violate the law.  If the estimate is negligent or careless– in other words, if the USG should have known the estimate was wrong, regardless of what it told you it knew– that is sufficient to violate the law.

If you are a prime contractor to the USG and think you may have grounds for a negligent estimate claim, you should consider speaking with an attorney for an evaluation.  Depending on the details and circumstances, you may have grounds for a negligent estimate claim or other legal claim.

Other Legal Claims That Could Apply to Bad Estimates

Depending on the circumstances, a negligent estimate claim may not be available, whereas other claims might be.  For example, a subcontractor doing work on a USG project may learn of bad estimates in that subcontractor’s contract with a primary contractor, but that type of contract (because it is not directly with the USG) will be subject to laws other than the particular negligent-estimate law above.

Most likely, other potential legal claims would exist under the laws of a given State within the U.S.  As we described in another article, subcontractor/prime contractor issues are usually subject to laws of a particular State (e.g. California, Texas, New York, etc.) and that law usually is named in the contract.

Once a given State is identified as a source of laws those laws can be reviewed for potential claims that apply to a bad-estimate situation.  For example, many States recognize a legal claim for promissory estoppel, which can help some contractors or subcontractors who had relied on promises that were not fulfilled.  Many States also recognize a legal claim for unjust enrichment, which sometimes prohibits one party unjustly making money or benefitting at the expense of another.  State-law claims of misrepresentation (such as making false statements to persuade someone to sign a contract) could also apply to some bad-estimate situations, depending on the circumstances.

Consider Getting an Attorney’s Evaluation of Your Bad-Estimate Situation

This article gives a general overview of some, but not all, potential legal claims that might apply to a bad-estimate situation.  Before you take any legal action or tell anyone you might do so, you should strongly consider having an attorney evaluate your situation and potential legal claims and rights.  An attorney could review your situation in detail, determine what laws and legal forums might be involved with your situation, and advise you about potential options and plans.

If you are a contractor or subcontractor for a USG project and have any questions about a bad-estimate situation, please feel free to contact blog author Attorney Vonda Vandaveer at vonda@vkvlaw.com.  There is no charge for an initial phone consultation.

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