Whether you own a construction company that has been contracted to perform a job, or you are a property owner who has hired a contractor, there may come a time where you need to terminate your relationship with the other.
Construction projects can go bad for a number of reasons. There may be financial difficulties, there could be disagreements over the nature, quality, and timing of the work, or you simply may not get along with the other party.
However, there are numerous risks involved in terminating a construction contract, and it should only be used as a last resort when all other remedial measures have failed. When a termination becomes necessary, you also need to follow the termination provisions set forth in your contract to the letter.
A termination will end the contractual rights and obligations of one or both parties prior to the completion of the project, and any construction contract should include detailed provisions that describe the circumstances under which either party can terminate the contractual relationship.
There are two different kinds of construction contract terminations that can be executed by either party: “for cause” and “for convenience.”
A termination for cause can only occur when one party fails to adequately fulfill their contractual duties with regard to the project. For example, the property owner could conceivably terminate a construction contract for cause if the contractor was failing to perform the work in accordance with an agreed upon timeline. Alternately, the contractor could terminate a contract for cause if the owner failed to pay on time. Potential material breaches could be explicitly defined in the contract, or one could also terminate for cause based on general contract law.
If an owner terminates a contract for cause, he or she generally has a right to seize the building materials for use to complete the work, and the contractor could be held liable for any costs that it takes to complete the project above the original contract costs. The party that is responsible for the default will almost always have some sort of financial penalty or liability if the termination for cause is found to be valid.
Alternately, a termination for convenience is when a contract is terminated when there is no default or breach of obligations by the other party. A termination for convenience can be lawful only when defined explicitly in the contract. They are usually included in contracts as a way to allow each party to end their obligations in a manner which does not significantly harm either of them. In a termination for convenience, the contractor will usually be able to collect payment for work already completed as well as any demobilizing costs, while the owner will be able to avoid paying damages or anticipatory costs for cancelling the work.
However, if a party terminates for cause, but the cause is not found to be valid, then the termination will likely be considered one of convenience. If the factors that led to the termination for convenience are not allowable by the contract, then whoever instigated the termination would likely be liable for considerable damages to the other party.
Terminating a construction contract is an incredibly complex and risky proposition. It is vital that you utilize the services of an attorney who is well versed in construction law to guide you and ensure you are complying with all terms of your contract and your legal obligations. If you are considering terminating a construction contract, whether you are the owner or the contractor, please contact the Florida Construction Law Group today.
