THE CARDINAL CHANGE DOCTRINE

imagesThe cardinal change doctrine is a doctrine that originated from government contract work in the United States Court of Federal Claims and, until recently, was not really discussed or applied in a Florida case. This changed when the Southern District of Florida in Hartford Casualty Insurance Co. v. City of Marathon, 825 F.Supp.2d 1276 (S.D. Fla. 2011), applying Florida law, discussed the cardinal change doctrine and used it to relieve a performance bond surety of obligations under a performance bond. While the specific facts of this case will not be discussed in detail, the Court’s discussion of the cardinal change doctrine will be because it is a doctrine that contractors on very difficult projects (i.e., completed project is substantially different than original plans, there were never-ending or wholesale, material changes, and the completed project cost substantially more than original contract amount) may want to argue under.

 

In this case, the Court held:

 

To determine whether a change order is outside the general scope of the underlying construction contract so as to qualify as a cardinal change, courts look to the following factors:

 

(i) whether there is a significant change in the magnitude of work to be performed; (ii) whether the change is designed to procure a totally different item or drastically alter the quality, character, nature or type of work contemplated by the original contract; and (iii) whether the cost of the work ordered greatly exceeds the original contract cost.”

 

City of Marathon, 825 F.Supp.2d at 1286 citing Becho, Inc. v. United States, 47 Fed.Cl. 595, 601 (Fed.Cl.2000).

 

The Court expressed that these factors are all fact-intensive analyzed on a case-by-case basis and the party utilizing this doctrine must prove the factors with particularity. Id. citing PCL Const. Serv., Inc. v. United States, 47 Fed.Cl. 745, 804 (Fed.Cl. 2000).

 

Regarding the first factor—whether there is a significant change in the magnitude of work to be performed—the Court will look to see whether the completed project is substantially different than the project called for in the original plans and specifications. Id. citing Wunderlich Contracting Co. v. United States, 173 Ct.Cl. 180 (1965). For instance, in City of Marathon, the Court found this factor applied because the government gave the contractor a change order that added a new water treatment plant to the contract that was to be built on a separate location with different plans and specifications. Additionally, the cost of the new water treatment plant was more than 100% of the contract amount.

 

Regarding the second factor—whether the change is designed to procure a totally different item or drastically alter the quality, character, nature or type of work contemplated by the original contract—the Court will look to see whether the change is contemplated by the contract. City of Marathon, supra, citing Becho, 47, Fed.Cl. at 601. In City of Marathon, the Court found that while the contract contemplated changes (as most construction contracts do), the magnitude of the change from both a scope and cost standpoint was not contemplated.

 

And, regarding the third and last factor—whether the cost of the work ordered greatly exceeds the original contract cost—the Court will look to see the total increase of the original contract amount due to the change or changes. In this regard, the Court noted that increases of the original contract amount of 100% or more tend to suggest a cardinal change whereas increases less than this percentage tend not to. In City of Marathon, as previously stated, the change increased the original contact amount by more than 100%, thus satisfying this factor.

 

Although the application of this doctrine carries a heavy burden, there are certain projects where it may apply. Contractors that end up constructing a project substantially different then the plans and specifications their contract is based on which results in extensive change orders / wholesale, material changes and massive cost increases may, depending on the circumstance, want to argue under this doctrine in order to circumvent harsh contractual provisions to recoup their costs, etc. for performing additional work.

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

Posted in Changes / Change Orders, Government Contracting and tagged , , .