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
 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.