Terminating Construction Contracts

If a party wishes to terminate a construction contract (often in fact more accurately described as terminating a party’s employment) and thereby end it before it would otherwise end by the discharge of the parties’ obligations under it, that party will need a justification for doing so. Grounds for which termination is permitted are often set out in the contract. Likewise, a procedure for terminating. Naturally these to be carefully followed by a party relying on them.

Termination is usually permitted for example where a party is insolvent, abandons carrying out the works, does not pay for the works or commits some other serious breach of contract. It is common to need to serve a notice of intention to terminate first, followed by a notice of termination.

There is also a right at common law to terminate a contract that can be considered instead of or in addition to any contractual right. That common law right can give rise to circumstances where a party may claim that such is the seriousness of the contractual breach by the guilty party, it is a repudiatory breach, meaning that the innocent party can accept it and treat the contract as terminated immediately.

Attempting to terminate a contract carries the inherent risk that the grounds for doing so are later held (e.g. by a Court) not to have in fact existed or that the procedure was carried out defectively. That thereby exposes the party terminating the contract to allegations that it itself was in breach of contract by seeking to terminate.

The usual remedy sought by an innocent party is in damages.

Termination of a contract must be distinguished from other situations where contractual performance is stopped, e.g. suspension and delay, because in those situations, performance is only temporary, whereas termination is final.

Termination is a powerful tool but one that must be exercised with caution.