>> October 2010
>> Walking the Line Between Cardinal Change and the Changes Clause
A contractor directed to perform work on a government construction project perceived to be outside the scope of the contract is in a difficult spot. From a legal standpoint, an out-of-scope change is a new procurement that the government is not authorized to order and the contractor is not obligated to perform. In the field, however, such rules offer little guidance to the contractor faced with a critical decision.
If the contractor performs the extra work, it may not be fairly compensated. Conversely, if the contractor stops work on a change ultimately determined to fall within the scope of the contract, the contractor will breach the contract by violating the changes clause, which allows the government contracting officer to unilaterally direct the contractor to “make changes within the general scope of th[e] contract in the services to be performed.”
Unfortunately, it is often difficult to tell when government conduct rises to the level of a “cardinal change,” which one federal court recently defined as “a breach that occurs when the government effects an alteration in the work so drastic that it effectively requires the contractor to perform duties materially different from those originally bargained for.” The cardinal change test is principally a question of fact, and there is no precise way to determine whether a cardinal change has occurred.
However, several recurring themes in cardinal change case law apply to federal contracts, offering insight into what types of government conduct constitute a breach for which a contractor may be entitled to additional compensation.
First, significant changes in quantity of the major items under the contract can constitute a cardinal change. In the precedent-setting 1937 case General Contracting and Construction Co. v. United States, the government’s deletion of one building in a 17-building complex was not permissible under the changes clause.
Similarly, changes requiring an increase of construction material that affect bid-upon unit prices can constitute a cardinal change, even if the finished product (e.g., a levee embankment) is of the same character called for in the original contract, according to the 1961 case Saddler v. United States.
Second, dramatic increases or decreases in cost can indicate cardinal change. For instance, in the 1969 case Peter Kiewit Sons’ Co. v. Summit Constr. Co., a change in the method of a backfilling operation that increased the original estimated cost from $600,000 to $2 million constituted a substantial breach of the contract. Per an earlier case, the required addition of a wing to a hospital under construction at a cost increase of 33 percent was similarly held to be an out-of-scope change.
Third, the cumulative impact—or the impact of the combination of many smaller changes—is an important factor in determining the presence of a cardinal change. For example, in the 1969 case Air-A-Plane Corp. v. United States, the government’s decision to make more than 1,000 changes on a fixed-price contract for the procurement of smoke generators—disrupting the contractor’s production and essentially rendering the contract to be for design and development—constituted a cardinal change.
Similarly, in the 1991 case Atlantic Dry Dock Corp. v. United States, the cumulative impact of approximately 130 contract modifications upon a contractor charged with the overhaul of two Coast Guard ships indicated a cardinal change, even though the modifications significantly increased the contract price and contained express language releasing the government from future claims arising out of such modifications.
A contractor confronted with an out-of-scope change should position itself to preserve a right of recovery by informing the contracting officer as soon as possible, even if the contractor ultimately decides to proceed with the work. The important point to draw from these themes is that proof of their presence is not a guarantee of entitlement, even if they support entitlement based on cardinal change.
The more drastic the nature and amount of additional work requested, the more significantly the end product differs from the one originally contemplated by the parties, and the more radically the changed item differs in function from the original item, the more probable it is the requested change will be considered out of scope and support some form of entitlement for the contractor.