UK: To Terminate Or Not To Terminate? The Dos And Don’ts Of Terminating Construction Contracts

Last Updated: 4 February 2013
Article by Lisa Kingston

You may be thinking about terminating a contract for various reasons. Your commercial needs might have changed; the contract may no longer suit those needs; the contract may no longer be profitable or may have become too expensive; the other party may be preventing you from performing your obligations under the contract; you might have lost staff which may make your contractual obligations difficult to fulfil; the other party may be suffering from cash flow problems (in which case you may be paid late or not at all); or the other party may not be performing quite as well as you had hoped (possibly due to cash flow problems).

Whatever your reason(s), the consequences of getting it wrong can be costly. This nineteenth issue of Insight provides advice on (i) how to terminate, (ii) tactical considerations and (iii) practical tips, with a view to ensuring that any termination is well thought out, and ultimately successful.

How to terminate

First, you should think about whether it would be best for you to terminate at common law or under the provisions of the contract.

Your contract will usually entitle you to terminate under the common law but common law termination is much riskier than contractual termination and should be avoided if at all possible. To terminate at common law, you would have to identify a breach of contract (or cumulative breaches of contract) that is sufficiently serious to entitle you to treat the contract as being terminated with immediate effect. This will be very fact specific. If, for example, the other party walks away from the contract then this would constitute a sufficiently serious breach. Annoying, but less significant, cumulative breaches (such as occasional late payments, occasional defective workmanship and missing one or two non-critical deadlines) would not qualify.

The safer route is to terminate under the contract. The majority of standard forms contain express provisions which regulate the circumstances under which either or both parties can terminate the contract. Standard forms usually, for example, contain a clause the effect of which is that walking away without good reason will constitute a ground for termination. Provided you can establish one of the grounds for termination in the contract (and have supporting evidence), then you ought to be able to terminate under the contract. Contractual termination is easier to make out than common law termination as it is fact specific and there is no requirement to prove the breach is serious. For safety's sake, therefore, it is usually best to terminate under the provisions of the contract.

Tactical considerations

Reputation

Think long and hard before making any decision to terminate. You may have public relations issues to consider which might require careful pre-planning.

Strategy

You might be considering termination as part of a strategy whereby you are escalating matters with a view to improving your commercial and/ or negotiating position. If this is the case, you should still ensure that any termination is technically sound to avoid coming unstuck.

Logistics

Prior to terminating, you need to have alternative contractors lined up to complete the work. If you are unable to find alternative contractors who are available at reasonable cost, the better option might be for you to try and re-negotiate your existing contract. Whatever the outcome following termination, you need to be well prepared.

Timing

You should think very carefully about when to terminate the contract. If you terminate before the contractual completion date you will lose your entitlement to claim liquidated damages. The completion date would not have been met and liquidated damages would not have accrued.

Costs consequences

Consider the costs consequences of termination and make sure the costs do not outweigh the benefits. If the other party argues that the termination was wrongful and takes legal action against you, then you might find yourself incurring significant costs to defend your position.

Alternatively, the other party may become insolvent or have financial difficulties in which case it may not be possible for them to pay any direct or consequential costs of termination to which you might otherwise be entitled.

Practical tips

Things to do

  • Check the wording of your contract to ensure that you can prove one of the grounds for termination set out in the contract.
  • Make sure you have your facts and evidence in order. One of the most common grounds for termination is a "failure to proceed regularly and diligently". To prove this ground, you will need to have carried out a detailed assessment of the progress of the works and have identified the moment(s) in time at which there was a failure to proceed regularly and diligently. You may also have had to serve a notice requiring that progress improve.
  • Be sure to comply with any termination procedures set out in the contract to the letter: usually this will involve serving the correct notices with the correct content at the correct time. If you ignore the contractual procedure, you risk (i) being in breach of contract yourself and (ii) paying the other party damages arising out of your breach.
  • Serve any notice on the address, and in the manner specified, in the contract.
  • Be consistent. Don't leave the other party in any doubt that the contract has come to an end. Give clear instructions to site staff that the contract has finished and be sure to include a reservation of rights when engaging in any correspondence relating to the contract post-termination (for example, in relation to demobilization).
  • Try and reduce or restrict your losses following any termination as much as possible: you will not be able to recover damages from the other party which you could reasonably have avoided in the usual course of business.

Things not to do

  • Do not delay. If you delay following any termination, you risk affirming the contract by conduct which might remove your right to terminate, in which case the contract will continue in full effect.
  • Be very careful to make sure you do not inadvertently let the contract continue by allowing the other party to carry on working. If you do, you risk affirming the contract. This would mean the contract would not come to an end and the level of damages you might otherwise have been able to claim may be reduced.

Conclusion

Due to the inherent risks involved, the termination of a contract should always be regarded as a measure of last resort. Before deciding to terminate, you should try and exhaust all other avenues by meeting with the other party to discuss the issues that are causing problems and, if necessary, put them in writing as this may improve or even resolve matters. Even if your discussions/correspondence are unsuccessful, they should reduce the likelihood of a dispute as any eventual termination should not come as a surprise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Lisa Kingston
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions