Owners and contractors have broad discretion when it comes to making changes on a construction project. But what happens when changes alter the very spirit of the contract? The cardinal change doctrine limits how much project plans can be altered.
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What is a Cardinal Change?
A cardinal change fundamentally alters the scope of work set forth in the construction contract. In other words, a cardinal change occurs when the purpose of the agreement has been frustrated or made impossible by extensive changes. In some states, this is also referred to as an “abandonment of the contract.” These changes can be the result of either a single change order, a change directive, or a series of smaller change orders that constitute a significant change when taken as a whole.
The Cardinal Change Doctrine
The cardinal change doctrine limits the ability to make significant changes to a project’s scope of work after the contract is signed. This doctrine prevents a contractor or sub from having to perform work that wasn’t initially bargained for.
The ability to identify cardinal changes is an important tool for contractors and subs to protect their rights and ensure they get paid what they’ve earned. Without knowing what is and isn’t allowable, construction businesses can’t be empowered to stand up for themselves when they’re getting yanked around. The cardinal change doctrine grants construction businesses a way out when confronted with a cardinal change.
How to Prove a Cardinal Change
Recognizing what constitutes a cardinal change isn’t a simple task, and mistakes can have serious implications. If the proposed change is determined to be a cardinal one, it could be considered a material breach of contract. But, if a construction business refuses to perform because they think the change is a cardinal change, that business might find themselves in breach if they’re wrong.
Elements Taken into Account with Cardinal Changes
As always, the specific elements necessary to prove a cardinal change varies from state to state. It is, however, always the contractor’s burden to prove that the change is a cardinal one. Unfortunately, there is no exact method to determine if a change is cardinal.
The typical factors to be considered are:
- (1) Whether the change significantly increased the amount of work to be performed;
- (2) Whether the change drastically modifies the type of work initially agreed upon; and
- (3) Whether the cost of the work ordered greatly exceeds the original contract costs.
What to do When Substantial Changes Are Requested
When a change order or change directive is made that seems to fundamentally alter a contract, refer back to the agreement. Then, a contractor or sub might have a decision to make. Here are some potential paths forward.
Discuss the Change with the Customer
If a proposed (or demanded) change seems too substantial, it’s generally a good idea to start by reaching out to the customer to talk about the situation. Explaining why the changes can’t or shouldn’t be undertaken could help. If the customer is reasonable, explaining the situation might convince them the change would be unnecessary or improper. Or, bringing in a third party to look at the situation could help to establish an unbiased voice in the matter.
Find the Middle Ground
Alternatively, there might be a middle ground. When discussing substantial (and potentially cardinal) changes, other options could be available. For instance, executing a new contract that covers the proposed change might work. Or, amending the existing contract could do the trick. Either way, changes can be properly compensated and accounted for. Finally, if the changes are substantial and would create delays, proposing that another contractor or sub be hired to help institute the changes might be an option.
Accept the Changes
Keep in mind that accepting the change is always an option. If it’s clear that the changes will be compensated, that the project schedule will be properly adjusted, and that there won’t be some other issue created by accepting changes – there might not be a good enough reason to argue about it. Deciding to move forward based on a customer’s wishes might be a good idea if there aren’t any negative repercussions that are readily apparent.
Reject the Changes
Ultimately – many times an understanding can’t be reached regarding changes. If you think a change constitutes a cardinal change, and if the agreement can’t be altered to accommodate it, a contractor or sub might simply reject the changes. This would put the ball in the customer’s court. How will they respond?
Rejecting the changes might be a safer option than walking off the job outright. Walking off the job can be a risky proposition – and that could actually create liability for the party who walks off (instead of the party demanding the change). But, if a customer terminates the contract based on a rejected change order or directive that’d constitute a cardinal change – the customer might be in breach of the contract, themselves.
Walking Off the Job Can Be Dangerous
What Does the Law Say?
Whichever option a construction business chooses, it’s important to note that courts will usually prefer what’s written in the contract. When faced with any significant change, contractors should refer back to the contract terms. Often, there are some notice requirements or dispute resolution procedures that should be complied with.
Regardless, document everything that pertains to the change. Prepare the cost estimates and anticipated impact on the schedule, then compare them to the initial scope of work – even if the change isn’t undertaken. Having documentary evidence of any cost increases can be a contractor’s best weapon if a dispute ultimately arises.
The cardinal changes doctrine provides protection against any excessive changes. But when confronted with a scope-changing order or directive, contractors and subs should proceed with caution. Invoking the cardinal change doctrine is a seemingly enticing option, but it is extremely hard to prove. Reliance on the doctrine is incredibly risky due to the lack of a concrete standard to evaluate the changes. Before doing anything, be sure to review the contract with a construction attorney to evaluate the best options.