The Limit of Construction Contract Changes
Changes vs. Cardinal Changes: The Limit of Construction Contract Changes
John Caravella
September 1, 2011
Changes are an unavoidable aspect of construction. Although thorough effort and coordination are required in preparing the original project contract, specifications and construction drawings, there will still be changes. This is why owners are provided the right to make changes to the work under a typical contract changes clause.
However, the ability for owner requested changes, even if provided in the contract, are not without limitations, restrictions and consequences. After all, what purpose would any of the project documents, contracts and drawings serve if they were subject to constant change? What good would the contract serve if the owner could make any change(s) without consequence?
The reign of the owner to make changes provided for under a typical contract changes provision is limited by the general scope of work provided for in the construction contract.[1] The limit of changes available to the owner is the main purpose for which the contract was created. For example, should an owner enter into a construction contract with a contractor for the construction of a proposed ice rink, with an accessory snack bar, a change seeking to remove the construction of the ice rink from the contract would violate the purpose of the original contract. On the other hand, should the owner decide to go ahead with the construction of the ice rink without the snack bar, the original purpose in constructing an ice rink would not be violated, and that would be a permissible change.
A “Cardinal Change” is one where the purpose of the original agreement has been frustrated or made impossible by the extent of the requested change. A cardinal change amounts to the contractor’s agreement being breached by the owner.
“The test to be applied is whether the supplemental work [or change] ordered so varied from the original plan, was of such importance, or so altered the essential identity or main purpose of the contract that it constitutes a new undertaking.”[2] Indeed, under New York construction law, it is the impact on the original purpose of the construction contract of the proposed addition or omission[3], not the size of the change, which is the court’s consideration in determining a cardinal change. This is an issue which will vary from project to project as the underlying facts and purposes of construction will vary from project to project. New York courts have found in some settings changes of +/- 40% or more may be an allowable change[4], where others seeking changes of 2% have been found to be cardinal changes[5], allowing the contractor to potential damages for breach of contract.
In the private construction context, the contractor may accept a cardinal change and proceed to perform its revised duties, which would result in the creation of a new agreement. The contractor may also be entitled to consider a proposed cardinal change as an abandonment of the original agreement by the project owner, and recover damages for the value of its work in excess of the contract value.
In the public construction context however, the contractor runs the risk of non-payment for work if it accepts a cardinal change. Although a public owner may make changes within the existing scope of work, without complying with competitive bidding statutes, it cannot make a new or different contract.[6] Further, simply performing work ‘under protest’ may not be sufficient to preserve the contractor’s right to compensation.
When faced with a potential cardinal change or a deductive change order it is wise to seek legal advice as the contractor may waive their right to compensation and right to its lost profits, among other possible remedies under New York Construction Law.
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