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How Contract’s Scope and General Scope Define Available Remedies
Construction Practices Newsletter
Fall 2008
No construction project ever really proceeds as planned. There are just too many things that will unexpectedly arise that adversely impact the contractor’s ability to complete the project.
Unexpected events and circumstances are those that are not contemplated by the parties when the contract is formed. In most cases, one or both parties will seek some type of adjustment in the contract’s time, cost and/or requirements. Whether the contract will ultimately be adjusted, rescinded or terminated depends on: whether the unexpected events and circumstances were really unexpected (i.e., beyond the contract’s scope); and whether the unexpected event and/or circumstance’s risk was either expressly or impliedly allocated to a party in the contract.
As a general premise, all standard form contracts contain change provisions that authorize changes within the contract’s general scope. Therefore, any contract change analysis must involve analyzing the contract’s scope and general scope.
A contract’s scope refers to the work, obligations and risks that a contractor assumes in exchange for the contract’s price. A contract’s general scope refers to things outside of the contract’s scope but still within the contract’s broader general scope as determined by the contract’s general intent and legal concepts such as reasonableness, substantiality and materiality.
Changes within the contract’s scope are presumably covered by the contract; therefore, they are not compensable. Such changes might include routine, minor and expected changes that do not impact either the contract’s price or time. These types of changes result from specification clarifications, authorized product and/or material changes, field dimension clarifications, and some responses to requests for information.
Changes outside of a contract’s scope but within a contract’s general scope are considered non-material or partial breaches. Remedies include compensatory damages.
Changes outside of a contract’s general scope are material changes that may result in the contract’s rescission or termination. Unfortunately, identifying when a change falls outside of a contract’s general scope is difficult. The analysis is fact specific, and court opinions are all over the place.
Changes outside the contract’s general scope are generally referred to as cardinal changes in federal work and abandonment of contract in state work. Cardinal changes are substantial contract deviations that change the nature of the bargain and alter the contract so profoundly that they constitute material contract breaches.
Factors used to analyze whether a change is a cardinal change include the dollar amount of the change compared to the original contract price and the change’s impact on the contract’s duration and/or complexity. In other words, when changes unreasonably alter the character of the work, unduly increase the project’s cost, or constitute a radical departure from the original contract, the change is considered to be outside the contract’s general scope, and therefore, a cardinal change. On public contracts, another key factor affecting the analysis is the effect the change would have had on the competitive bidding process.
The consequences of cardinal changes include: the contractor’s right to pursue common-law damage and termination remedies for material breaches; the contract’s procedural requirements and damage limitations becoming inapplicable; the contractor’s right to abandon or terminate the contract without liability; the violation of applicable statutory bidding statutes; the application of sovereign immunity defenses to the claim; and the performance bond surety’s discharge.
Most contracts specifically define and limit the remedies (i.e., costs and profits) that can be recovered for contract changes within the contract’s general scope. If a change falls outside the general scope, however, the change is considered to be a material breach. In such a case, the contractual remedy limitations become inapplicable. Therefore, determining whether a change is within or outside a contract’s general scope is critical to determining the available remedies.
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