Generally, both contractors and owners allow some leeway in their negotiated construction contracts for unexpected delays or less than perfect work. However, there comes a point in every job where repeated delays or nonconforming work forces one to consider termination of the contract and consultation with a construction lawyer.
You will quickly learn that you must first review your contract terms and determine the available methods of termination, the specific grounds allowed for termination, and the procedures you need to follow to effect a valid termination. Sounds simple, but a lot of folks forget to do this and then suffer unexpected consequences.
Let’s say as a general contractor, you have one subcontractor who is consistently behind schedule. You review the contract and find “delay” outlined as one of the grounds for termination. A termination for default or termination for cause is the most severe form of termination as it follows the subcontractor on future jobs the same way a bad credit score follows a consumer on future purchases. If one exercises this form of termination, he or she must be sure to do so in accordance with the applicable construction contract.
If a contract includes a termination provision, it almost invariably includes the procedure for termination. In our same example, let’s say the contract requires a notice to the subcontractor and an opportunity to remedy the breach in seven days before the termination takes effect. But because tensions are high between you and the subcontractor, you decide to terminate the subcontractor immediately, not wait the seven days, and hire another subcontractor to complete the job. Florida courts have held this to be a wrongful termination exposing the general contractor to damages including but not limited to overhead costs and profit.
On the other hand, some courts have held that where it is impossible for the subcontractor to remedy weeks of delay in the time called for under the contract termination procedure, the notice requirement is not necessary even though the contract may require it. This tends to be the exception, however, rather than the rule as courts typically hold parties to a contract’s specific terms.
Construction contracts may also include a termination for convenience. Recently, a Florida court upheld a general contractor’s right to exercise the termination for convenience clause just to obtain a better price from another subcontractor, something generally reserved for the federal government.
While it may be neither easy nor pleasant, there is a right way to terminate a construction contract to minimize your risks of increased costs and possibly a bad result. That most always starts with you, and your review of your existing contract.