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The Cardinal Change Rule: Is There Any Way To Get Out From Under A Changed Contract?

The rigidity of the contract bidding system begs the question as to what happens when there are changes that are so excessive or extensive in scope as to fundamentally alter the contract to the point that the normal change-order system will not serve to properly protect the contractor. Who bears the brunt of fundamental and unforeseen changes that profoundly change the underlying contractual obligations of the contractor? How does the contractor protect itself from significant owner overreaching in these situations? How does the contractor prevent itself from being bound to an obligation that it never undertook in the first place?

Cardinal Change Doctrine

The Cardinal Change doctrine, founded in government contract law, has evolved in response to this situation. The rule permits the contractor to disregard the provisions of the contract where there has been a change or series of changes so profound to change the very nature of the contract. It essentially establishes a limit to an otherwise unlimited ability of the owner to direct a contractor to perform additional work.

The term "cardinal change" was coined by the Federal Court of Claims to describe changes to a contract that were severe enough to constitute a breach of the original contract. [Aircraft Charter Solutions, Inc. v. United States (2013) 109 Fed. Cl. Ct.] Various tests have been used to determine if the changes amount to a cardinal change. One test looks to the nature of the work to be performed. Still another looks at the amount of effort the Contractor will be required to perform. A third test examines whether the change is within the scope of the original contract.

Since the late 1930's, the law has developed significantly in this area, allowing government contractors to circumvent the often slavish formalism of government contract clauses where the nature of the contractual undertaking has been fundamentally changed. The doctrine's expansion makes it a powerful weapon against harsh contract clauses that would otherwise permit the owner to force the contractor to decide between breach and performance.

Nature of Work

Case law suggests that if the change order is within the general scope it "should be regarded as having been fairly and reasonably with the contemplation of the parties when the contract was entered into." [Freund v. United States (1922) 260 US 60, 63.] The Court of Claims stated that the test was whether the work was "essentially the same work as the parties bargained for when the contract was awarded." [Aragona Construction Co. v. United States (1964) 165 Cl. Ct. 382; Air-A-Plane Corp. v. United States (1969) 408 F.2d 1030.]

Performance of Contractor Duties

The Court of Claims stated in Airprep Tech., Inc. v. United States (1994) 30 Fed. Ct. Cl. 488, that if the change order required the Contractor to perform more or different work, that would constitute a cardinal change. [Info. Sys & Networks, Corp. v. United States (2008) 81 Fed. Cl. Ct. 740, 746.]

Change to Original Scope of Contract

A change to the original scope of the contract occurs when the change requires work materially different from that specified in the contract. [The Redland Co., v. United States, (2011) 97 Fed. Cl. Ct. 736, 755-56.] Protests sometimes occur over these type of changes by loser to the bid competition who believe that the changes should be subjected to a new bidding process. The court in AT&T Communications, Inc. v. Wiltel, Inc. (1993) 1 F. 3d 1201 stated that the doctrine should be applied when the modifications change the contract enough to circumvent the statutory requirements of the bid process.

Contractor Bears Burden of Proof

The contractor should be forewarned, however, that the remedy of the Cardinal Change Doctrine is not given freely. Each case is analyzed on its own facts and circumstances, giving consideration to the magnitude and quality of the changes and their effect on the project as a whole. [Atlantic Dry Dock Corp. v . United States (1991) 773 F. Supp. 335.] The contractor bears the heavy burden in demonstrating that the change was a fundamental and profound change.

As with any (and almost every) construction contract, there are disputes as to the scope of work and changes that really have no significant effect on the outcome of the contractual obligations of the parties. These type of disputes are easily remedied by contractual provisions devoted to such problems and are not within the purview of the doctrine. Instead, the Cardinal Change doctrine applies only to those contracts that have been so fundamentally changed that the present undertakings of the contractor bear no likeness to those as originally undertaken.

In Conclusion

In sum, the Cardinal Change Rule provides contractors limited protection against excessive changes. The contractor, however, must be aware that invoking its protections is a risky, and at best, requires a case-by-case analysis affording little predictive value as to outcome. Obviously, before invoking its protections, the contractor must carefully weigh its options and review its contract with counsel to determine whether the doctrine may apply.

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