Request for Contract Reformation

The Veterans Administration (VA) requested a determination as to whether its contract for chilled water and steam should be reformed. The VA and a firm entered into a written contract whereby the firm would supply a VA domiciliary with chilled water and steam. The original contract included an estimate of the demand for both chilled water and steam that was expected to be used during the calendar year. It also provided that the basic rate to be charged to the VA would be modified according to a set formula tied to the contractor's cost for fuel, energy, water, labor, and taxes. When the contract was renewed and modified, all parties believed that the estimates for yearly usage were accurate and that the adjustment formula would accurately determine the appropriate amount due the contractor. Since then, usage at the domiciliary dropped to less than half of the anticipated amounts due to effective conservation measures by the VA. Because the rates paid by the VA were based on expected consumption, the contractor claimed it has incurred heavy losses, and requested that the contract be reformed. The VA recommended that the request be granted on the ground that the modification agreement was based on a mutual mistake regarding the actual needs of the domiciliary. In considering the equities for reformation of a contract because of an inaccurate estimate, the Government's estimate is not generally regarded as a warranty that such amounts will be required. However, reformation will be allowed if the Government does not base its estimate on all relevant information that is reasonably available to it. Both the VA and the contractor believed that the estimate was accurate at the time of the agreement. The record did not indicate that a conservation plan was under consideration at the time of the agreement; moreover, if a plan was under consideration, there was no evidence that the contracting officials should have been reasonably aware of it. Further, there was no evidence to indicate that a conservation plan would be instituted to reduce usage. In fact, the record indicated that the VA anticipated increases in its requirements at the time of the agreement. Therefore, GAO could not conclude that the contract estimates were based on less than the best information available, and there was no basis upon which to permit reformation of the contract.