Construction Basics for Owners: Termination

{"version":"0.3.0","atoms":[],"cards":[],"markups":[["b"],["i"]],"sections":[[1,"p",[[0,[],0,"May 4, 2022"]]],[1,"p",[[0,[],0,"When you are\nexcited about starting your project, naturally you don\u2019t want to think about a\ntopic like termination. Nobody likes to talk about termination, and we all hope\nit won\u2019t happen on a project, but it is essential to address it in an agreement\nso that, if it does happen, both parties are protected and receive whatever\nthey are due. "]]],[1,"p",[[0,[0],1,"Right of\nRescission"]]],[1,"p",[[0,[],0,"Depending on\nthe type of project, you may have a right, by state or federal law, to rescind\nthe contract before the work has started. These laws provide a period of time,\nafter signing the contract, in which the owner may decide to cancel the\ncontract. It essentially gives you some time to reconsider whether you want to go\nforward. These laws typically require the contractor to provide you with notice\nof this right and may require use of a specific form for the notice. However,\nyou should also research whether you have such a right. "]]],[1,"p",[[0,[0],1,"Termination\nfor Convenience"]]],[1,"p",[[0,[],0,"A\ntermination for convenience provision in the owner\/contractor agreement gives the\nowner the right to terminate the contract, after the work has started, without\nhaving to supply a specific reason. It does not require that the contractor has\nbreached the contract. Maybe the\nrelationship between the owner and the contractor just turned out to be a bad\nfit, which no one wants to happen, but occasionally it does. Or, maybe the\nowner has experienced an unexpected life event that changes their financial\nsituation. "]]],[1,"p",[[0,[],0,"You contract should specify what is due to the contractor as\ncompensation if you decide to terminate for convenience. Typically, this would\ninclude payment for work already performed by the contractor, costs incurred by\nthe contractor due to the termination, and possibly a termination fee that may\nhave been negotiated in advance. The contractor may have turned down other jobs\nto perform yours and may not have another project in its schedule to replace the\nterminated project. A termination fee, negotiated in advance, helps to provide\nsome equity for the contractor in this situation. "]]],[1,"p",[[0,[],0,"Keep in mind that a termination for convenience is not something\nthat should be done without careful consideration. You will need to get another\ncontractor to complete the work. If your contractor also provided the design\nand construction documents, there will likely be issues related to your\ncontinuing use of those documents. "]]],[1,"p",[[0,[0],1,"Termination\nfor Cause by the Owner"]]],[1,"p",[[0,[],0,"Most\ncontracts will allow an owner may terminate for cause if there is a material\nbreach of the contract documents by the\ncontractor. A material breach is something that goes to the essence of the\ncontract, such as the contractor failing to provide properly skilled workers or\nproper materials, failing to make payments to subcontractors, or disregarding\nlaws or other requirements of jurisdictional authorities. A material breach is\nsubstantial; not something that is a minor issue. "]]],[1,"p",[[0,[],0,"Your\nagreement should contain provisions that address the process that is required\nto terminate the employment of the contractor for cause. This should include a\nnotice provision, which may allow the contractor to correct whatever reason\nexists for the termination. After the notice period has elapsed, the owner will\ntypically be permitted to make alternate arrangements to complete the work. If\nthere is a termination for cause, the owner is entitled to finish the work and the\nbalance due to the contractor, if any, is not determined until after the work\nis complete and the costs of completion have been established. "]]],[1,"p",[[0,[0],1,"Termination\nfor Cause by the Contractor"]]],[1,"p",[[0,[],0,"The contractor can terminate the contract for non-payment by the\nowner. Your agreement should specify how many days after receipt of an invoice\nthat you have to make the payment. If you do not pay within the allotted time,\nthe contractor may give you notice and then terminate the Contract. The\ncontractor can typically recover payment for work performed, including\nreasonable overhead and profit, costs incurred by reason of the termination,\nand possibly other damages."]]],[1,"p",[[0,[],0,"The agreement may also specify other reasons by which the\ncontractor may terminate the agreement, such as a work stoppage or scheduling\ndelay that is not within the contractor\u2019s control. "]]],[1,"p",[[0,[0],1,"Conclusion"]]],[1,"p",[[0,[],0,"Everyone\nwants a project to be completed successfully. Termination during the course of\nthe project is not in anyone\u2019s best interest. But, it is important for your\nagreement to anticipate reasons for termination and the compensation due, if\nany, in these situations. Clarity in this area will at least help to make a\ndifficult situation go more smoothly and may help you to avoid having to go into\na formal dispute resolution proceeding. "]]],[1,"p",[[0,[],0,"Our next\narticle will look at dispute resolution: what methods are available, the pros\nand cons of each method, and what may be more cost effective for you depending\non the size of your project and the nature of the dispute. "]]],[1,"p",[[0,[1],1,"Susan Van Bell, Esq. was Senior Director of Content for AIA\nContract Documents for over ten years. She is currently a consultant."]]],[1,"p",[[0,[0,1],2,"AIA Contract Documents has provided this article for general\ninformational purposes only. The information provided is not legal opinion or\nlegal advice and does not create an attorney-client relationship of any kind.\nThis article is also not intended to provide guidance as to how project parties\nshould interpret their specific contracts or resolve contract disputes, as\nthose decisions will need to be made in consultation with legal counsel,\ninsurance counsel, and other professionals, and based upon a multitude of\nfactors. "]]]]}