For this week’s Guest Post Friday, Musings welcomes Jennifer Watt (@jenniferlwatt). Jennifer is an Indiana litigator with experience litigating construction disputes, representing surety companies and contractors following project defaults and advising on bankruptcy matters. Jennifer, maintains Legal Construction Zone, a blog built for Indiana construction professionals to monitor legal news and developments. Jennifer is an attorney at Kroger, Gardis & Regas, LLP in Indianapolis, Indiana.
I would like to thank Chris for inviting me back as a guest blogger here at Construction Law Musings. It is always an honor to write for this wonderful blog.
In life you’ve got death and taxes. On a construction project you’ve got change orders, modifications, alterations, scheduling changes…shall I go on? It’s practically inevitable that a construction project will require some type of alteration or change from the original bid specs. But, when are the changes and alterations so drastic that they effectively change the entire contract?
Typical construction contracts provide for additional compensation for modifications or changes in the contracts. However, these provisions are often accompanied by limitations in the compensation and a contractor may not be fairly compensated. If a contractor refuses to perform the changes it may risk a claim by the owner for breach of contract. However, some requested changes, known as cardinal changes, are so big that it effectively changes the scope of the project.
A cardinal change is typically viewed as a breach of contract by the owner and a contractor is not obligated to proceed with a cardinal change if directed to do so by the owner. “A cardinal change occurs when one party affects an alteration in the work so drastic that it effectively requires the contractor to perform duties materially different from those originally bargained for.” Rumsfeld v. Freedom NY, Inc., 329 F.3d 1320, 1332 (Fed. Cir. 2003). However, because of the risk that a requested change or modification may not be viewed as a cardinal change, most contractors choose to continue with the work.
So what is the difference between a reasonable request and an unreasonable request where the owner essentially breaches the agreement by demanding the alteration? Unfortunately, there is no bright line rule and each jurisdiction is different. The circumstances of each case vary. But, generally courts have found that the most important factors are: (1) substantial increases in the work; (2) significant alterations in the complexity of the work that increase the contractor’s risks of performance; and (3) time.
Even if one of these factors is present, it may not be sufficient by itself to invoke the cardinal change doctrine. Some courts look to the overall impact on the project, the cost and the impact multiple factors have and the burden to the contractor.
The contractor bears the burden of demonstrating that the change was so fundamental and profound that performance should be excused. Due to the unique factors of each project and circumstance, it can be difficult to predict whether a contractor will be successful. Therefore, before abandoning a project and invoking the cardinal change defense to an owner’s breach of contract claim, the contractor should analyze the impact of the change and the likelihood of success versus the consequences that may result if a contractor is unsuccessful on its cardinal change claim.
As always, Jennifer and I welcome your comments below. Please subscribe to keep up with this and other Guest Post Fridays at Construction Law Musings.
