What is the Cardinal Change Rule, and How it has Nothing to do with Religion

No, the Cardinal Change Rule has nothing whatsoever to do with religion.  It originated in the federal courts, a body far and away from the Catholic church. The rule was created to address fundamental  changes to federal government contracts.  Changes that were so material and  fundamental they impacted the nature and scope of the contract. And while the cardinal change rule is typically applied in the construction industry, nothing within the rule prohibits its application to contracts in other industries.  

The term "cardinal change" was coined by the Federal Court of Claims in the 1930's.  The term was used to describe changes to the scope of work that were so material and fundamental they caused a material breach of the contract.  In its most recognized form as a noun, the term cardinal identifies a person or a bird.  But as an adjective, the term cardinal signifies something of “greatest importance” or “fundamental”.   Another example of a word that has material differences between its usage in the English language.

The U.S. Supreme Court has defined a cardinal change as “when the government effects an alteration in the work so drastic that it effectively requires the contractor to perform duties materially different from those originally bargained for.” Allied Materials & Equip. Co., Inc. v. U. S., 569 F.2d 562, 563–64 (Ct. Cl. 1978).   A “cardinal change is so profound that it is not redressable under the contract, and thus renders the government in breach.” Id. at 564.  Over the last 90+ years, the cardinal change rule has been adopted my multiple Federal courts as well as State Courts, and been applied to both public and private contracts. State and Federal Courts have therefore developed various tests to identify a when a change is so material and fundamental as to be a “cardinal change”.   

One test looks to the “nature of the work” to be performed and whether the changed work falls within the original scope.  A “cardinal change” will not result from changes that reflect the same work as was required y the original contract, such as in increase in square footage.  However, “cardinal changes” will be found where a contract requires a change in the nature of the deliverable, such as changes replacing an office building with a warehouse  This test focuses upon whether the function or nature of the changed work is generally the same as required by the original contract.  

Another test focuses upon the determination as to whether the “amount of effort” as represented by disruption of the work and the resulting increased costs.  In one case requiring a subcontractor to place backfill simultaneously with the work of other subcontractors, the change was considered so disruptive as to be a cardinal change because it added over 200% to the cost of the backfill work. In another case a cardinal change was found where where there had been 130 changes, the time of performance had doubled, and costs of $4.6 million were incurred above the contract price of $5.8 million. But it should be noted that contractors have rarely been successful in arguing for cardinal changes on the basis of amount of effort.

A third test focuses upon whether the changed work should have been issued under a separate procurement .  This test looks to what the competitors should have anticipated to be within the scope of the competition. An important factor to be considered is "whether the original solicitation adequately advised offerors of the potential for the type of changes during the course of the contract that in fact occurred . . . or whether the modification is of a nature which potential offerors would reasonably have anticipated under the changes clause." This issue is an important one because the Changes clause lends itself to potential abuse in the matter of ordering quantities not originally competed. This practice tends to become an expedient on public contracts to avoid the time and expense of a new procurement action, but it is improper when the additional quantities exceed the scope of the original competition. Such additional quantities should either be bought through a new competitive procurement, or processed as a sole source action with the requisite organizational approvals.

A fourth test focuses upon the “quantity of changes” to a contract - whether additive or deductive.  Major additions in the quantity should be processed as new competitive procurements. Large reductions in quantity should be processed as contract termination actions. The Comptroller General has held that a change adding quantities above the contractual maximums was outside the scope and therefore a cardinal change.  However, the number of changes by itself, is seldom found to create a “cardinal change”, so long as the cumulative changes fall within the original scope of the contract.  Courts have found that 100 and 200 change orders was not a cardinal change when such changes were to the original scope of work.  

The cardinal change doctrine presents both risks and rewards if and when invoked.  When properly invoked, a cardinal change constitutes a material breach of contract and entitles the victimized party to cease performance and file suit for damages.   But when improperly invoked,  no material breach occurs, and the victimized party will be in material breach if performance is interrupted. These risks and rewards are compounded by the the unpredictable results obtained under the various tests established by State and Federal courts. A a practical matter, the doctrine of cardinal change is seldom asserted and when asserted is seldom found to exist.   But when cardinal change is asserted and found to exist, the risks and rewards to contracting parties are profound.