Termination and Default

• Author: Steven M. Siegfried
• Pages: 493-512

Termin atio n and  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).

18

Termination and Default

STE VEN M. SIEGF RIED

C H A P T E R

493

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.