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11/1999 |
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Paul S. Sugar John A. Wolf Appeared in ABC Newsletter / Baltimore Chapter Suppose you contract with an owner to perform grading services and like virtually all construction contracts your contract includes a changes clause. Does the change clause give the owner the authority to order you, for example, to furnish and install underground utilities or to order changes which triples the original contract? Maybe yes. Maybe no. Changes to a contract are limited. Specifically, a change which alters the general scope of the contract to something not contemplated by the parties at the time of contract signing is a breach of contract. When the essential identity of the thing contracted for is so altered, or when the method or the manner of anticipated performance is so drastically and unforeseeably changed, then it is not work under the changes clause of the contract and the parties must create a new agreement. When the changes are not within the scope of the contract, a breach of contract may exist and a contractor cannot be compelled to perform what is oftentimes described as a "cardinal change." Developed originally in the context of federal contracts, the concept of cardinal changes is one that recognizes that an owner's power to order changes has limits. A Sweet on Construction Contracts, points out that "while changes are normally anticipated in construction contracts, ones which would go beyond the contractor's reasonable expectations cannot be demanded under most change clauses." The standard used in public works contracting in Maryland to determine whether a change is a breach is a similar concept of "totality of the change in magnitude as well as quality." The concept underpinning cardinal changes in federal and other public contracts should apply with equal force to private contracts, although there has been only limited acceptance in reported court opinions. For example, in one case a contractor contracted to modernize a paper mill. After completion, the contractor sued, alleging that, because of numerous errors and changes in the construction plan which resulted in extra work, it was entitled to recover the total costs that it had expended in completing the project. The owner contended that both parties were aware at the outset that revisions would have to be made, that there was no material change in the scope of the work to be performed, and that the contract set forth the procedure for compensating the contractor for extra work. After trial and appeal, change orders and extra work imposed by the owner were found to be of such magnitude as to change the scope of the work originally contemplated under the contract. The court ruled that the parties had abandoned the original contract and that the contractor was entitled to the reasonable value of the work that it had performed on a quantum meruit basis, without being limited by the original contract amount. The court found abandonment based on certain critical factors: dramatic growth in costs above the original contract in terms of dollars and percentage; excessive and prolonged design drawing reviews; delays in drawings; large scale redesign that occurred well after construction commenced and as represented by a large growth in engineering manhours; excessive changes having a dynamic impact on successive phases of the planned construction, affecting productivity and increasing the costs of performing both original contract and change work; and, an extensive number of changes that were beyond the contemplation of the parties when the contract was executed. By comparing the owner demanded changes and their consequences against these factors, you can gain some insight into whether the owner has exceeded the limits of the changes clause and whether you may be required to perform the changed work. Principals John A. Wolf and Paul S. Sugar are attorneys in the Baltimore office of Ober|Kaler's Construction Industry Group. Ober|Kaler is one of the oldest and largest firms on the east coast. It has more than 120 attorneys and offices in Maryland, Washington, DC and Virginia. |
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Ober, Kaler, Grimes & Shriver Maryland
Washington, D.C. Virginia
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