The doctrine of “cardinal change” is recognized in federal construction contracting. If the right factual setting exists for a finding of cardinal change, the contractor claimant might be able to cease performance or recover the value of the work performed independent of limitations of the contract’s “changes” clause or unit prices.See, e.g., Saddler v. United States, 287 F.2d 411 (1961).

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While reported decisions are few, state courts in our readership area have applied a similar concept to provide the claiming contractor similar relief to that under the “cardinal change” doctrine but under a different name—“contract abandonment.”See, e.g., Cook County v. Harms, 108 Ill. 151 (1883) (public owner’s significant change to courthouse foundation system constituted abandonment of contract); Rudd v. Anderson, 285 N.E.2d 836 (Ind. App. 1972) (owner’s changes exceeding amount of original home remodeling contract held abandonment of contract by owner); Schwartz v. Shelby Construction Co., 338 S.W.2d 781, 788-89 (Mo. 1960) (structural changes and relocation of 160 bathrooms resulting in major plumbing changes constituted abandonment of apartment complex contract); Baerveldt & Honig Construction Co. v. Dye Candy Co., 212 S.W.2d 65 (Mo. 1948) (numerosity of substantial and trivial changes to repair work to fire-damaged building amounted to contract abandonment); Olbert v. Ede, 156 N.W.2d 422 (Wisc. 1968) (69 changes to single-family house including substantial structural, mechanical and material changes and owner separate contractors’ disregard of prime contractor’s work constituted contract abandonment).

Most “changes” provisions in contracts require the contractor or subcontractor to continue working without right to suspend performance despite ordered changes, to submit claims if additional time or compensation is sought and to follow the contract disputes process. Do those type of “changes” provisions preclude a party from relying on the “cardinal change” (or “contract abandonment”) doctrine? That was an issue in Global Engineering & Construction, LLC v. Merchants Bonding Co., 2007 U.S. Dist. LEXIS 43588 (S.D. Ga. Jun. 15, 2007).

Roof Replacement

Global Engineering was a dispute concerning a construction subcontract. Global Engineering & Construction LLC was the general contractor for various construction and renovation work for the United States Corps of Engineers at Fort Stewart, Ga. All American Markets Inc. was the roofing subcontractor for replacement of six roofs.

The subcontract provided that, prior to replacement, the subcontractor was to remove the existing roof system “down to the roof deck.” On three of the six roofs, the subcontractor encountered a layer of lightweight concrete insulating material. When the contractor refused to grant the subcontractor a change order to remove that layer, the subcontractor abandoned the project. The contractor hired a replacement subcontractor at excess cost.

The contractor sued the subcontractor’s surety, and the subcontractor to recover the excess. The subcontractor contended that the concrete material was the “roof deck” and it, therefore, had no obligation to remove that layer. The contractor’s order to the subcontractor to do so without additional compensation, the subcontractor contended, was a “cardinal change” permitting the subcontractor legally to abandon the project.

As the trial date approached, the contractor made a motion for an order precluding the subcontractor from presenting any evidence or argument in support of the subcontractor’s “cardinal change” theory. The contractor relied on Paragraph 5.4 in the contractor’s subcontract form requiring the subcontractor to abide by the subcontract’s disputes provisions and prohibiting discontinuance:

“Changes ordered by the Contractor shall be performed . . . and be subject to all rights of dispute and appeal as set forth herein, provided that reservation and/or exercise of such rights shall not interfere with progress of the work or in any way diminish, suspend, or abrogate Subcontractor’s obligation to proceed diligently with performance of this Subcontract, notwithstanding any change . . . and comply with any decision of the Contractor. Under no circumstances, relating to a change order, or modification, shall Subcontractor have a right to suspend or discontinue performance of [*6] its work unless ordered by the Contractor” Global Engineering, 2007 U.S. Dist. LEXIS 43588 at *5 – 6.

Actually, the subcontract contained two “dispute” clauses as the Global Engineering court read the subcontract.

Because the subcontract was for federal construction, the standard federal contract disputes clause, 48 C.F.R. § 52.233-1, was incorporated into the subcontract. Both the contractor and subcontractor agreed that if the court held that the modifications at issue constituted a “cardinal change,” then under federal law, the subcontractor would be relieved of its obligations under that federal contract disputes clause.

The contractor argued, however, that the quoted Paragraph 5.4 above meant the parties had agreed to contract around the “cardinal change” doctrine into the subcontract. The subcontractor argued that a “cardinal change” was not a “change” or “modification” as referenced in Paragraph 5.4 at all but, rather, a “material breach” of the subcontract.

Court Agrees with Subcontractor

The Global Engineering court agreed with the subcontractor. First, the court characterized Paragraph 5.4 not as a “changes” clause but as a “disputes” clause.

Second, the court reasoned “it is well-established that a cardinal change is a material breach of contract that relieves a contractor from its obligations under a disputes clause” Global Engineering, 2007 U.S. Dist. LEXIS 43588 at *6. For that proposition, the court cited In re Boston Shipyard Corp., 886 F.2d 451, 456 (1st Cir. 1989).

Third, the subcontract clause referred only to “changes” and “modifications” and not to a “cardinal change.”

Finally, anticipating a possible argument on appeal that the court was placing too much weight on the absence of the term “cardinal change” from the clause, the Global Engineering court remarked that the contractor “offers no authority for the proposition that parties are free to contract around the cardinal change doctrine” Global Engineering, 2007 U.S. Dist. LEXIS 43588 at *6.

By denying the contractor’s motion, the Global Engineering court was not determining whether a “cardinal change” existed. Rather, the subcontractor’s victory was that the subcontractor could provide evidence and argue at trial that its discontinuing its work was justified under the “cardinal change” doctrine despite the subcontract’s language prohibiting the subcontractor from leaving the work because of disputes regarding changes.

Of course, the decision to discontinue work is a serious one. If the Global Engineering court does not find a cardinal change at trial, the subcontractor or its surety will be obligated to pay the contractor. Therefore, the more prudent approach for the contractor or subcontractor who can finance continuation of the work as changed is to keep working but accelerate the disputes process to early suit.