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I. Introduction

Construction projects requiring numerous change orders are increasing throughout the industry. Most construction contracts contain a clause allowing the owner/contractor to issue written changes for additional work. The changes clause allows the owner/contractor to effectuate certain changes within the general scope of work and to address unforeseen circumstances or field problems. After the change order is issued, the contractor/subcontractor is entitled to additional compensation and the extra time needed to perform the work. Certain contract clauses may limit the amount of recovery or time extension.

When the number and scope of changes on a project exceeds the parties' expectations, the doctrine of cardinal change or abandonment may apply. In Fundamentals of Construction Law (American Bar Association: Forum on the Construction Industry 2001), cardinal change is defined as follows: "A contractor's claim for breach of contract resulting from an owner-ordered change or changes which so substantially modify the original contract work that the contractor's performance becomes a new and substantially different undertaking." The cardinal change doctrine applies to government contracts and private projects. Air-A-Plane Corp. v. United States, 408 F.2d 1030, 1033 ( Ct. Cl. 1969) (public project); Atlantic Dry Dock Corp. v. United States, 773 F.Supp. 335 (M.D. Fla. 1991)(same); and L.K. Comstock & Co. v. Becon Constr. Co., 932 F.Supp. 906, 937-38 (E.D. Ky. 1993) (private project--citing numerous cases), aff'd without opinion, 73 F.2d 362 (6th Cir. 1995). A breach of contract based on a cardinal change occurs when one party effectuates certain changes in the work so monumental that the contractor/subcontractor is forced to perform duties substantially different in scope in comparison to the originally contemplated contract. "The doctrine is couched in terms which apply generally to modifications which are so fundamental that they cannot be redressed within the contract by an equitable adjustment to the contract price...." Allied Materials & Equipment Co. v. United States, 569 F.2d 562 (Fed. Ct. Claims 1978). Accordingly, the cardinal change doctrine provides an extracontractual remedy to a contractor/subcontractor where the ordered changes are so significant that they cannot be said to fall within the "changes clause" contained in the contract. The policy behind the cardinal change doctrine is based on the benefits accruing from the construction bidding process--and the concern that this process may be susceptible to manipulation by an owner who proposed one construction project, attracted a contractor, and then used its strengthened post-contract bargaining power to change the entire nature of the project completely.

II. Historical Background

In Beyond Changes: Abandonment and Cardinal Change (The Construction Lawyer Fall 2002), the author explains that "the abandonment and cardinal change doctrines are widely accepted." Id. In the article, the following historical information is recounted: "Courts applying federal contract law have recognized the idea of a cardinal change doctrine since the 1960s. (footnote 2) Some form of abandonment or cardinal change has been adopted under the laws of at least twenty-two states, (footnote 3) several of which have accepted it for more than seventy-five years. (footnote 4) The doctrine has been implicitly recognized by at least three other states and the District of Columbia. (footnote 5) Only Mississippi has expressly rejected the theories of abandonment and cardinal change. (footnote 6) " See Beyond Changes: Abandonment and Cardinal Change (The Construction Lawyer Fall 2002) (the footnotes from this article are included here and contain detailed information on particular states).

III. Ohio Developments

Recently, in Ebenisterie Beaubois Ltee, et al. v. Marous Brothers Construction, Inc., Case No. 02 CV 985 (N.D.Ohio 2004), the U.S. District Court evaluated the cardinal change doctrine in a diversity case for work performed in connection with the construction of the United States Federal Courthouse in Cleveland, Ohio. Ebenisterie Beaubois Ltee ("EBL") is a millwork and furniture fabrication subcontractor and Marous Brothers Construction, Inc. ("Marous") is a prime contractor for the project (who has provided a Miller Act bond to the U.S. Government's General Services Administration). According to the Court, "Marous changed the nature, scope, and timing of the work" to be performed by EBL by altering project designs, plans, and schedules and ultimately delaying the performance of EBL. Accordingly, EBL pursued a cardinal change claim using the total cost method for computing damages against Marous.

In moving to dismiss this claim, Marous indicated that the cardinal change doctrine is a unique doctrine of federal contract law and asserted that Ohio law should not be expanded to allow for a cardinal change claim. In answering the " Erie question" on the substantive law to apply, the Marous Court held that "[n]o Ohio court has addressed whether Ohio recognizes the ‘cardinal change' breach of contract claim." See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938). Because the Marous Court found no controlling authority exists, it sought to determine what the Ohio Supreme Court would do if confronted with the issue. Welsh v. United States, 844 F.2d 1239, 1245 (6th Cir. 1988). In so doing, the Marous Court determined that "the Ohio Supreme Court would decline to adopt the cardinal change doctrine as a rule of law in Ohio." In evaluating the leading Ohio case on this issue, the Marous Court indicated that Oberer Const. Co. v. Park Plaza, Inc., 88 Ohio Law Abs. 152, 179 N.E.2d 168 (Ohio Com Pl. Ct. 1961), does not stand for the proposition that Ohio recognizes a cardinal change breach of contract claim and explained:

In a typical "cardinal change" case, the contract contains a changes clause and a remedy provision, which specifically address the rights and responsibilities of the parties with respect to changes to specifications implemented by the owner. In Oberer, the contract did not contain such a provision. Instead, the contract specifically identified the scope of the contractor's work. During the course of performance, the owner unilaterally changed the requirements and imposed a significant change on the contractor. The court found that changes to specifications "otherwise than the contract permits" may result in a breach of contract sufficient to justify a repudiation of the contract. The contract did not contain an express term allowing changes to be made to the specifications. Oberer does not stand for the proposition that where an express contractual provision exists contemplating changes to specifications, a party nonetheless may breach the contract if the changes are substantial, thus allowing the non-breaching party to seek extracontractual remedies. Accordingly, the Court does not find Oberer relevant to the issue of cardinal change breach of contract.

In the absence of state court precedent on the issue, and because Ohio courts consistently refuse to allow recovery outside the contract where the parties have expressly agreed upon a subject, this Court finds that the Ohio Supreme Court would decline to recognize a claim for "cardinal change" breach of contract.

Id.

The decision in Marous runs counter to the analysis in two other federal decisions. In Peter Kiewit Sons' Co. v. Summit Constr. Co., 422 F.2d 242 (8th Cir. 1969) and L.K. Constock & Co., Inc. v. Becon Construction Co., 932 F.Supp. 906 (E.D.K. 1993), the federal courts cite to ObererConstr. Co., supra, for purposes of evaluating cardinal change and its application. In L.K. Comstock, supra, the Court explained:

In Oberer Constr. Co. v. Park Plaza, Inc. , 18 Ohio Op. 2d 198, 179 N.E.2d 168 (Oh. Ct. App. 1961) , the court considered a contractor's action to recover the reasonable value of excavation services performed in a private project. As to the applicable law, the court held:

The accepted law is that: "An owner commits a breach of a construction contract by changing plans and specifications otherwise than the contract permits and ordering substituted performance....A change that is wrongfully required may involve so great delay or expense as to amount to a total breach as a practical repudiation of the construction contract.

Id. at 170. The L.K. Comstock Court explained that "without naming the theory of cardinal change, the [ Ohio trial] court recognized the applicability of the theory and held that the plaintiff was entitled to restitution of value received by the owner." Id.

In Peter Kiewit Sons' Co. v. Summit Constr. Co. , supra, the federal appellate court upheld the jury's verdict that the prime contractor had ordered changes beyond the scope of the contract based on the cardinal change doctrine. In a construction project known as the Minuteman Missile Project at Ellsworth Air Force Base in South Dakota, the plaintiff was a prime contractor and subcontracted with Summit for site work, excavation and backfill. The Court discussed cardinal change based on the Summit's claim regarding backfill procedure and the scope of Summit's responsibility for the entire backfill operation. The Court found sufficient evidence to support the jury's finding that the "changes ordered by Kiewit went so beyond the scope of the subcontract, including the 'changes' provisions…, as to breach the Subcontract." Id. at 255. In making this determination, the Court cited two main cases-- a federal court of claims case, Saddler v. United States , 152 Ct. Cl. 557, 287 F.2d 411 (Ct. Cl. 1961); and the Ohio state court decision in Oberer Constr. Co., supra.

Most importantly, in L.K. Comstock, supra, the Court after a detailed analysis, indicated that "a number of courts in decisions based upon state law have applied the doctrine of cardinal change." Id. According to the L.K. Comstock Court, "[w]hile it may not always bear the name ‘cardinal change,' and may or may not be clearly borrowed from federal procurement law, the core theory that when an owner orders changes beyond the scope of the work agreed to be performed the contractor is entitled to damages (in some form) for breach, has been widely recognized." Id. Finally, as noted by the Court, "situations where ordered changes exceed the general scope of the contract are sometimes addressed under the principle of abandonment[; and—r]egardless of which theory is applied, the result is the same: the party performing the work is entitled to seek a remedy outside the contract for the reasonable value of work performed." Id.

In Ohio, there are two cases that are considered cardinal change cases: Oberer Construction Co., supra, and Tony Zumbo & Son Constr. Co. v. Ohio Dept. of Transportation, 490 N.E.2d 621 (Ohio App. 10 Dist. 1984).

In Tony Zumbo, supra, although not expressly discussing the cardinal change doctrine—the state court applied the doctrine. In Tony Zumbo, the Ohio Department of Transportation ("ODOT") contracted with Zumbo to resurface approximately two miles of highway. When Zumbo stripped the surface of the highway, a prerequisite to re-laying the asphalt, it discovered that the underlying concrete foundation had deteriorated to the point that new surface could not be laid - the entire highway would need to be replaced. Id. There was no time for re-solicitation of bids, and ODOT required Zumbo to undertake the re-building of the highway, despite the fact that it had originally contracted only to resurface the road. Id. Furthermore, ODOT instructed Zumbo to proceed with the rebuilding or Zumbo would be considered in breach of contract and would not be paid for the job at all. Id. Although Zumbo continued construction under protest--when construction was finished, Zumbo sued the state alleging that it had not been fairly compensated as required by the contract. The trial court found in favor of Zumbo, and the state appealed. The court of appeals found for the plaintiff and upheld payment to the contract of damages suffered by virtue of the unforeseen work. Id.

IV. Conclusion

Essentially, the cardinal change doctrine provides that the contract is breached where the owner/contractor orders a change so substantial that performance becomes a new and substantially different undertaking. In the Construction Law Handbook, with regard to the evaluation required to assert a cardinal change claim, the authors note:

A claim of cardinal change, particularly when asserted after-the-fact, is generally not successful In part, this lack of success may result from the fact that in many cases, the contractor seeks to apply the cardinal change doctrine to increase the measure of damages. If the changed work was not so disruptive that it could not be performed, it may be inferred that any additional costs can be compensated through the changes procedure.

While a cardinal change constitutes a material breach of contract, reliance on the doctrine by a contractor is risky because cardinal changes are so ill-defined. It is difficult to determine in advance whether a change, or an accumulation of changes, is so material that the contract no longer involves the same work. If a contractor asserts cardinal change and refuses to perform, the owner may well construe that act as an anticipatory breach or default. If there is not a cardinal change, the contractor is obligated to perform the work. (footnote 7) In sum, the contractor who seeks to exercise its "right" not to perform changed work on the ground that there is a cardinal change risks default if he is wrong.

Construction Law Handbook, Contractor Rights and Remedies at p. 955.

The burden of proof for cardinal change is difficult. In order to succeed on a cardinal change claim, the contractor/subcontractor must establish a nexus between unanticipated changes and additional costs. Finally, it is important to note that a certain amount of delay and productivity problems are expected in any construction project and a change becomes cardinal only when it surpasses the scope of predictable changes.

1 / Sean Culley, a summer associate at Kegler, Brown, Hill & Ritter, will graduate from Capital University Law School in 2006.

2 / See, e.g., In re Boston Shipyard Corp., 886 F.2d 451, 456 (1st Cir. 1989); Edward R. Marden Corp. v. United States, 442 F.2d 364, 369 (Ct. Cl. 1971); Air-A-Plane Corp. v. United States, 408 F.2d 1030, 1033 (Ct. Cl. 1969).

3 / Ala.: Hutchinson v. Cullum, 23 Ala. 622 (1853); Ariz.: County of Greenlee v. Webster, 25 Ariz. 183 (1923); Ark.: Hous. Auth. Of Texarkana v. E.W. Johnson Constr. Co., 264 Ark. 523 (1978); Cal.: C. Norman Peterson Co. v. Container Corp. of Am., 173 Cal. App. 3d 628 (1985); Colo.: H.T.C. Corp. v. Olds, 486 P.2d 463, 466 ( Colo. App. 1971); Ill.: Cook County v. Harms, 108 Ill. 151 (1883); Ind.: Rudd v. Anderson, 285 N.E.2d 836 (Ind. App. 1972); Ky.: L.K. Comstock & Co. v. Becon Constr. Co., 932 F.Supp. 906, 933 (E.D. Ky. 1993) (applying Ky. law); La.: Nat Harrison Assoc., Inc. v. Gulf Sates Utils. Co., 491 F.2d 578, 583 reh'g denied, 493 F.2d 1405 (5th Cir. 1974) (applying La. law); Md.: Westinghouse Elec. Corp. v. Garrett Corp., 437 F.Suppl. 1301, 1332( D. Md. 1977) (applying Md. law); Mich.: R.M. Taylor, Inc. v. General Motors Corp., 187 F.3d 809 (8th Cir. 1999); cert. denied, 528 U.S. 1159 (2000); (applying Mich. law); Minn.: Fuller Co. v. Brown Minneapolis Tank & Fabricating Co., 678 F.Suppl. 506, 509 (E.D. Pa. 1987) (applying Minn. law); Mo.: Baerveldt & Hong Constr. Co. v. Dye Candy Co., 212 S.W.2d 65, 69 ( Mo. 1948); N.Y.: Kole v. Brown, 13 A.D.2d 920 (1961); Ohio: Oberer Constr. Co. v. Park Plaza, Inc., 179 N.E.2d 1`68, 171 (Ohio Ct. App. 1961); Or.: Hayden v. Astoria, 74 Or. 525, 533 (1915); S.D.: Peter Kiewit Sons' Co. v. Summit Constr. Co., 422 F.2d 242, 254-55 (8th Cir. 1969) (applying S.D. law); Tex.: Nat';l. Envtl. Serv. Co., Inc. v. Homeplace Homes, Inc., 961 S.W.2d 632 635 ( Tex. App. 1998); Utah: Rhodes v. Clute, 53 P.990 ( Utah 1898); Wash.: Kieburtz v. City of Seattle, 84 Wash. 196 (1915); Wis.: Olbert v. Ede, 156 N.W.2d 422 ( Wis. 1968); and Wyo.: Scherer Constr., LLC v. Hedquist Constr., Inc., 18 P.3d 645, 656 (Wyo. 2001).

4 / Hutchinson, 23 Ala. At 622; County of Greenlee, 25 Ariz. At 183; Cook County, 108 Ill. At 151; Norton v. Brown, 89 Ind. 333 (1883); Hayden, 74 Or. At 533; Rhodes, 53 P. at 990; Kieburtz, 84 Wash. at 196.

5 / D.C.: Blake Constr. Co., Inc. v. C.J. Coakley Co., Inc., 431 A.2d 569, 578-79 (D.C. Ct. App. 1981); Me.: Claude Dubois Excavating v. Kittery, 634 A.2d 1299 (Me. 1993); Okla.: Watt Plumbing, Air Conditioning & Elec., Inc. v. Tulsa Rig, Reel & Mfg., Co., 533 P.2d 980 (Okla. 1975) (rejecting subcontractor's claim, and distinguishing cardinal change cases, based on express agreements between subcontractor and contractor regarding compensation for each change before altered work was performed); R.I.: Clark-Fitzpatrick, Inc./Franki Found. Co. v. Gill, 652 A.2d 440, 442 (R.I. 1994) (judgment below awarded contractor damages for cardinal change claim).

6 / Litton Sys., Inc. V. Frigitemp Corp., 613 F. Supp. 1377 (S.D. Miss. 1985) (applying Miss. law) (citing Jackson v. Sam Finley, 366 F.2d 148 (5th Cir. 1966); Citizens Nat'l Bank v. L.L. Glascock, Inc., 243 So. 2d 67 ( Miss. 1971); Delta Constr. Co. v. City of Jackson, 198 So. 2d 592 ( Miss. 1967); and Redd v. L&A Contracting Co., 151 So. 2d 205 (Miss. 1963)). In Litton, the district court quotes Redd, at 208, stating that "where there is a contract, parties may not abandon same and resort to quantum meruit." 613 F. Supp. at 1382. The court then concludes that " Mississippi does not subscribe to the cardinal change doctrine." Id. at 1384.

7 / C.F.R. §52.243-1(e); AIA Doc. A201, subpara.7.3.4.