Termination and Default

Termin atio nand De faul t 493
18.01  in tro duC tio n
Termination of a construction contract is generally an unpleasant and some-
times unavoidable prospect for all parties involved and poses a unique set of
problems. Primarily, it is not always clear whether there is a suf cient legal
basis for terminating the contract. Disputes may also arise when a particular
act or omission by one party constitutes a breach of a construction contract or
when the terminating party is free from fault. When a party terminates a con-
struction contract, the burden of proving that the termination was justi ed will
lie with the terminating party.1 Upon proof that the termination was warranted,
1. CJP Contractors, Inc. v. U.S., 45 Fed. Cl. 343 (1999).
Termination and Default
The author thanks Nicholas D. Siegfried, an associate in the  rm of Siegfried, Rivera, Lerner, De
La Torre & Sobel, PA, in Miami, for his valuable assistance in the preparation of this chapter.
494 CO N S T RU C T I O N L A W
the burden then shifts to the terminated party to show that its default was
excused.2 The ramications of wrongful termination also present another large
concern for the parties to a construction contract. The potential liability for
damages resulting from a wrongful termination is often great, as a wrongful
termination will amount to a material breach of contract.
In the simplest terms, termination becomes an option after one party’s per-
formance, or lack thereof, renders performance by the other party an impos-
sibility. In some instances, actions caused by a subcontractor or a lower-tier
subcontractor may render the performance of the contractor impossible. Often-
times, the conditions leading up to the termination are bargained-for aspects of
the construction contract. By the same token, construction contracts outline the
duties of the parties, the breach of which would provide grounds for termina-
tion. Construction contracts generally provide not only the grounds for which
termination can be effectuated but also the requirements for the termination
procedure. It is important for the terminating party to follow the requirements
set forth in the construction contract or run the risk of wrongfully terminating
the other party and being liable for the consequent damages.
18.02  Con traC tua l te rmi nation  P rov isio ns
Given the potential parade of “horribles” that may result from an improper
termination, as well as the unfortunate possibility of necessitating termina-
tion, it behooves all parties to a construction contract to address the prospect
of termination as clearly and specically as possible during the contractual
negotiation phase. Well-drafted termination provisions go a long way in terms
of limiting the potential problems associated with termination. Oftentimes, the
construction contract contains separate termination provisions, each specic
to the contractor and the owner.
Article 14 of the often-used AIA Document A201–2007 contains termina-
tion provisions addressing the suspension and termination of the contract by
either the owner or the contractor.
A. Termination by th e Contrac tor for Cause
One very common type of termination provision is the “for cause” provision.
As its name implies, this type of provision allows a party to terminate only
when there is proper cause. What constitutes proper cause is usually dened in
the provision. For example, Article 14 of AIA Document A201–2007 provides:
2. Id.

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