A RECENT APPELLATE DECISION THAT PURPORTS TO EXPLAIN THE MEANING OF “CARDINAL CHANGE” ACTUALLY ONCE AGAIN DEMONSTRATES THE IMPORTANCE OF NEGOTIATING A FAIR CONTRACT

Change order provisions, which appear in most constructon contracts and contemplate changes being made to the work, contradict a fundamental premise of contract law.  Specifically, in order for there to be a legally enforceable agreement, “there must be mutual assent or a meeting of the minds.”  C.A.D.S., LLC v. Sundance Realty, LLC, 2019 Conn. Super. LEXIS 29, *25 (July 2, 2018).  A contract is supposed to be “based on an identical understanding of the parties.” Id. at *25-26.  Yet, as anyone in construction is aware, the project owner may order changes during the performance of the work that the contractor is contractually bound to perform, subject to appropriate adjustments in monetary compensation and the time to complete the work.

Notwithstanding the foregoing, there are limits in an owner’s ability to order changes in the work, because the owner is not allowed to require a contractor to perform “cardinal changes.”  “A ‘cardinal’ change is a change outside the general scope of the contract.”  Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner & O’Connor on Construction Law § 4:13.  The significance of a cardinal change is that it is not covered by a standard change order provision.  Id.  Instead, a cardinal change is an “abandonment of the contract.”  Id.  Interestingly, prior to last year, “cardinal change” was only mentioned in two Connecticut decisions – both Superior Court cases.

It was not until February of last year that Connecticut had an appellate decision which expressly discussed what constitutes a cardinal change, but it was not very enlightening.  In Semac Electric Company, Inc. v. Skanska USA Building, Inc., the Appellate Court explained that:

The standard courts look to in deciding whether a cardinal change is present is whether the modified job was essentially the same work as the parties bargained for when the contract was awarded. There is a cardinal change if the ordered deviations altered the nature of the thing to be constructed. The problem is a matter of degree varying from one contract to another and can be resolved only by considering the totality of the change and this requires recourse to its magnitude as well as its quality. There is no exact formula.  Each case must be analyzed on its own facts and in light of its own circumstances, giving just consideration to the magnitude and quality of the changes ordered and their cumulative effect upon the project as a whole.

(Internal citations omitted; internal quotation marks omitted.) Semac Elec. Co. v. Skanska USA Bldg., Inc., 195 Conn. App. 695, 710-711 (Conn. App. 2020).  Thus, the court’s guidance as to what constitutes a “cardinal change” is akin to Justice Potter Stewart’s often quoted opinion in an obscenity case where, when it comes to pornography, he said “I know it when I see it.”

Despite the dearth of case law in Connecticut specifically referencing cardinal changes, the Appellate Court in Semac Electric Company did not articulate a new rule.  In 1973, the Supreme Court stated that “In dealing with contract provisions allowing alterations or modifications, an appropriate standard for substantiality is whether such changes unreasonably alter the character of the work or unduly increase its cost, or effect such a material change as to constitute a radical departure from the original contract.”  Randolph Constr. Co. v. Kings East Corp., 165 Conn. 269, 274 (Conn. 1973).   Thus, Connecticut had long ago articulated a rule for cardinal change but referred to it as “substantiality.”

The real importance of the decision in Semac Electric Company is that it once again demonstrates why contract language should be carefully negotiated and understood.  In Semac Electric Company, the Appellate Court considered the various contract provisions pertaining to the construction schedule, including the acknowledgement that the Semac Electric Company had “taken into account and made allowances for all hindrances and delays incident to its work” and the provisions that provided Skanska with the ability to order changes to the schedule, including being able to order increases in labor and/or overtime work.  Semac Elec. Co., 195 Conn. App. at 711.  Based upon the contract language, the Appellate Court decided that there had not been a cardinal change despite the substantial delays that had occurred.  While it is true that very few Connecticut cases have found that a contract had been breached by cardinal change or “substantiality,” based upon the delays that had occurred on the project, it is conceivable that the court could have reached a different decision if the contract had been worded differently.  Id.

If you should have any question about what constitutes a cardinal change or what contract language is acceptable, please give me a call at (203) 640-8825.

Scott Orenstein

 

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