June 2025
A Preliminary Analysis of the Contractor’s Obligation to Perform Cardinal Change Instructions Before Agreement on Price and Time Adjustments (Taiwan)
I. Introduction
Changes in design and adjustments to the scope of work are very common during the execution of construction contracts, especially in public construction and large-scale projects. To address functional needs, site conditions, or budget revisions, the owner may issue variation instructions affecting the original design, construction methods, sequence, quantities, materials, or overall scope. However, when these changes have a significant impact on costs, timelines, or even the structure of the contract itself, disputes frequently arise over whether the contractor is required to comply with such variation orders immediately.
A key issue in disputes is whether a contractor must comply with a unilateral variation instruction from the owner when the parties have not yet agreed on the corresponding price adjustment or extension of time. This article examines relevant contract terms, judicial trends, and risk management perspectives to assess whether a contractor is obligated to carry out significant variation instructions before mutual agreement is reached. It also provides practical recommendations on contract structuring and risk response strategies for both owners and contractors.
II. Effect and Limits of Variation Instructions in Construction Contracts
Most of the construction contracts grant the owner a certain degree of authority to issue variation instructions, enabling adjustments to drawings, quantities, materials, construction methods, or the sequence of work during the contract period when necessary. For instance, Article 20(1) of Taiwan’s Model Contract for Construction Work Procurements states: “Where necessary, the Owner may instruct the Contractor to change the contract (including the addition of items) within the agreed scope. Upon receiving such notice, unless otherwise agreed by the parties, the Contractor shall, within 30 days, submit documents concerning the changes in the subject matter, price, performance period, payment schedule, or other contractual terms…” This type of provision reflects the owner’s power to modify contract terms as needed for effective project execution.
However, the owner’s authority to issue variation instructions is not without limits. Such instructions must remain within the reasonable scope contemplated by the original contract. If a variation substantially alters the unit pricing structure, construction methods, or the fundamental nature of the contract, it may be considered a “cardinal change” and exceed the permissible boundaries of contractual modifications. In such cases, whether the contractor’s obligation of performance is still established must be evaluated based on the nature of the variation and whether the contract contains appropriate provisions addressing such scenarios.
In practice, courts often assess the validity of a variation based on two key considerations: whether the contract remains fundamentally the same (i.e., the concept of the same contract) and whether the variation was reasonably foreseeable at the time of contracting (i.e., reasonable foreseeability). If the variation was foreseeable at the time the contract was formed and does not alter the essential nature of the agreement, the contractor is generally required to carry out the variation instruction under the existing contract. On the other hand, if the variation departs from the original design intent, pricing structure, or technical specifications (as further discussed below), it may be treated as a new offer. Otherwise, enforcing such a variation would result in a clear imbalance in the parties’ contractual obligations 1 .
In conclusion, while construction contracts typically grant the owner a certain level of authority to issue variation instructions, this authority is limited by the concept of the same contract and reasonable foreseeability. When a variation goes beyond the scope originally contemplated by the contract, a key legal issue arises as to whether the contractor remains obligated to carry out the variation instruction under the existing contract. The following sections will examine how courts have addressed this issue in practice.
III. May the Contractor Refuse to Perform a cardinal change without mutual consent?
When the owner issues a variation instruction concerning construction items before the parties have agreed on the corresponding price and time adjustments, the contractor’s right to refuse to carry out the instruction must be assessed on a case-by-case basis. Courts generally consider whether the variation remains within the scope of the original contract and whether the contract includes provisions that address such circumstances in advance.
A. Court Decisions Recognizing the Contractor’s Right to Refuse Performance
1. If the variation exceeds the original contractual scope to the extent that it raises the question of whether the contract remains fundamentally the same, the contractor is not obligated to carry out the variation instruction.
If a variation instruction issued by the owner departs from the original contractual design, technical methods, material specifications, or pricing structure, and if such a variation was not reasonably foreseeable at the time the contract was formed, courts in practice tend to find that the variation raises the question of whether the contract remains fundamentally the same. In such cases, the contractor may be entitled to refuse to carry out the variation instruction.
For example, in Taiwan High Court 2013-Shang-Yi-Zi-792 Civil Judgment, the court considered a variation in which the adjusted unit price was more than double the original price, and both the materials and construction methods had been completely changed. The court found that the variation was beyond what could reasonably be regarded as part of the same contract, and was not foreseeable at the time of contracting. It stated: “The variation has already exceeded the originally agreed scope of the disputed item, resulting in a change to the basis of the original agreement. It is sufficient to be recognized that this change is no longer within the scope of the original contract…” Accordingly, the contractor was not bound by the variation and had no obligation to carry out the revised work.
Similarly, in Tainan District Court 2008-Jian-Zi-6 Civil Judgment, the court held that the contracted works included only the “Building B Swimming Pool Complex” and the “fire-resistant rock wool composite metal roofing panels of the service hall.” It did not include the “architectural metal roofing panels on the top floor of Building C.” According to the wording of Article 12, Paragraph 1 of the contract, the owner’s right to modify the design and adjust the quantity of works was limited to the scope expressly defined in the contract. Since the roofing panels on Building C were not within the original scope, the court concluded that, in the absence of mutual agreement, the contractor was not obligated to carry out work beyond the contractual scope.
In another example, Taipei District Court 2011-Jian-Zi-214 Civil Judgment 2 found that, due to a policy change, the owner introduced a design variation during contract execution that increased the scope of work by 62 percent compared to the original contract. The court stated that “the variation clearly exceeded the general scope of the original contract and went beyond what both parties could have reasonably anticipated at the time of contracting. It concluded that the variation fundamentally changed the nature of the original contract, and therefore constituted a cardinal change.” As a result, the original contract was deemed terminated prior to renegotiation, and the contractor was not obligated to carry out the additional work.
2. If the cost of newly added items has not been agreed upon, and the amount involved is substantial, the contractor may refuse to carry out the corresponding variation work.
If the variation constitutes a new item and the parties have not agreed on a reasonable unit price, and the amount involved is substantial, the contractor may argue that, without confirmed compensation, there is no obligation to carry out the variation work. Taiwan High Court Tainan Branch Court 2013-Jian-Shang-Zi-8 Civil Judgment is such an example. The court noted that the cost of the new item accounted for over 70 percent of the original contract price. Before price negotiations were concluded or confirmation was received from the owner, the contractor had justifiable grounds to refuse to carry out the variation work.
3. Where the contract provides that both parties must sign a formal contract amendment before the variation becomes binding, the contractor may have the right to refuse to carry out the variation work until such agreement is reached.
Where the contract provides that both parties must sign a formal contract amendment before the variation becomes binding, the contractor may have the right to refuse to carry out the variation work until such agreement is reached. For example, in Taiwan High Court Taichung Branch Court 2020-Jian-Shang-Geng-Yi-Zi-18 Civil Judgment 3 , the second variation involved additional works. The court held that, under the contract, a separate written agreement was required. In the absence of such agreement, the contractor had no obligation to carry out the variation work.
B. Circumstances in Which the Contractor May Not Refuse to Carry Out Variation Instructions:
In some construction contracts, the parties agree that the contractor must proceed with the work even if the unit price for new items has not yet been settled. In such cases, the valuation is to be based on the owner’s estimated unit price. These clauses are intended to avoid delays caused by price negotiation disputes, and courts generally uphold their validity.
For instance, in Taiwan High Court 1998-Chong-Shang-Zi-384 Civil Judgment, the contract contained a clause stating: “The contractor shall not stop work due to unsettled unit prices for new items,” and further stipulated that 80 percent of the valuation would be based on provisional prices. The court held that the contractor was not entitled to refuse to carry out the work and was required to proceed first, with any disputes to be resolved afterward. The court further emphasized that, although the contractor challenged the reasonableness of the variation method, the contract already set out comprehensive procedures for handling variations, including progress payment and compensation. Therefore, the contractor could not unilaterally assert a right to refuse to carry out the variation work.
In sum, whether variation instructions are binding, and whether the contractor may lawfully refuse to carry out the variation work, remains unsettled in judicial practice. The outcome largely depends on the specific contractual provisions and the scope and nature of each variation. Therefore, preventing disputes through careful contract drafting and effective performance management is a practical concern that both parties should address. The following section offers comprehensive recommendations.
IV. Comprehensive Recommendations for Contractual Performance
In light of practical views, court decisions focus primarily on whether the variation falls within the scope of the contract, whether it fundamentally changes the nature of the original contract or was reasonably foreseeable, whether the contract includes mechanisms for addressing such variations, and how the parties conduct themselves and arrange compensation during the variation process. To avoid disputes during contract performance, planning and process control should be strengthened at both the contract design and execution stages.
The contract should clearly define cardinal changes and their handling mechanisms and establish appropriate pricing procedures and interim valuation mechanisms. A common arrangement is for the contractor to continue performance based on a proportion of the owner's estimated price while negotiations are ongoing, excluding any defense based on unsettled pricing. Such provisions help balance project progress and compensation negotiations and are widely applied in practice.
When issuing variation instructions, the owner should specify in writing the content of the variation, the basis for execution, and its relationship with the original contract. Vague language or informal communication should be avoided to ensure that the contractor clearly understands the scope of performance and legal position.
Upon receiving a variation instruction, the contractor should respond promptly. If the variation constitutes a cardinal change, the contractor should explicitly indicate the need for a separate agreement and maintain records such as cost estimates, construction logs, and correspondence. These records help establish a factual basis for any future compensation claims. Such practices not only protect the contractor’s rights but also demonstrate good faith in contract performance.
If the contractor is prohibited from suspension of work under the contract, it should carefully evaluate the costs and risks of continuing performance. To alleviate financial pressure and maintain balance, it is advisable to include interim progress payment clauses specifying that, before reaching an agreement on variation pricing, the owner shall pay the progress payment based on a reasonably estimated unit price. This approach supports cash flow and project progress, preventing the unfair situation where the contractor must advance funds for variation work with unconfirmed compensation.
Finally, the parties should establish a flexible mechanism, effective throughout the contract period, to address cardinal changes, such as simplified negotiation procedures or dispute prevention systems. This mechanism helps manage the timing and sequence between performance and compensation. With clear contractual provisions and proper documentation, the owner can effectively oversee project progress, while the contractor can safeguard its interests. This approach helps balance stable performance with risk control in managing cardinal changes.
[1] See, for reference, the reasoning in Supreme Court 2022-Tai-Shang-Zi-332 Civil Judgment and Taiwan High Court 2013-Shang-Yi-Zi-792 Civil Judgment
[2] The case was subsequently appealed to the Taiwan High Court 2012-Jian-Shang-Zi-127 Civil Judgment and a settlement was ultimately reached through mediation.
[3] The case was subsequently appealed to the Supreme Court 2022-Tai-Shang-Zi-2793 Civil Judgment and a settlement was ultimately reached through mediation.
