TERMINATION OF CONTRACT

There are many reasons for terminating a construction contract. Some of the most common
are nonpayment by the owner or contractor, nonperformance by the contractor or
subcontractors, timeliness of performance, lack of communication or simply an inability to
get along. These issues should be addressed in a construction contract.
Because termination ends one or both parties’ rights or contractual obligations prior to the
completion of the project, careful consideration should be given to the consequences. The
timeliness of project completion and potential added costs, not to mention exposure to
damages, require that termination be approached by both parties with extreme caution and
after thorough analysis by legal counsel, construction experts, accountants, architects and
other pertinent industry experts.
Most construction contract issues can be resolved and every effort should be made to do so
through negotiations and, if necessary, compromise before termination. Finding a resolution
can help parties avoid the risks of additional delays and costs in the aftermath of termination,
exposure to damages, and the uncertainty of legal outcomes when facts are judged and
conclusions reached by third-party judges or arbitrators.
“For cause” termination may result when an owner, contractor or subcontractor does not
fulfill obligations within the contract. Examples include:
 owner failing to pay the contractor or the contractor to pay its subcontractors or suppliers;
 owner failing to properly coordinate a work schedule where separate contracts exist for
discrete parts of the construction project;
 work stoppage by court order through no fault of the contractor (e.g., work stopped by a
court or government order due to failure of an architect to issue a certificate of payment that
is proper and due, or reasons other than acts of God or force majeure);
 contractor failing to perform in a timely manner or properly coordinating its subcontractors or
suppliers;
 contractor failing to perform in terms of the quality or quantity of the work and materials
furnished in accordance with the construction contract, the plans and/or the specifications.

Labour Contract:
A labour contract is one which involves only the labour that is required for construction. In
this type of contract, the sourcing of construction materials is undertaken by the owners.
The responsibility of material procurement lies with the home owner in such type of
contract. The contractor gives materials requirement on timely basis to the home owner
for procurement. Payment in such contracts have to be done on weekly basis.
In this type of contract, High involvement is required from home owners. You will be
involved in every step of the construction process and can decide on the cost and quality
of the materials used.
The labour contract is a high involvement contract, as you will be required to closely
monitor and provide materials for the construction process. You also need to
understanding of best practices in construction so as to take care of the building’s quality.

Advantages:

 Saves money on material purchases

 Easy to compare quotations
 Changes in contract documents can be made easily by the owner
 Lower risk for contractor

Disadvantages:

 Contractor has no incentive to utilize the materials efficiently (Wastage of materials can
be more)
 In some cases, Contractor will not assume responsibility of the damages or defects and
can claim them on faulty materials provided
 Hard to determine the total cost of construction
 High Involvement from customers end to procure the materials and monitor its utilization

Unit Price Contract:

In Unit price contract, an estimated quantities of bill of quantities is prepared. Estimated
quantities are surveyed or verified by an Architect/Engineer. The estimated quantities are
then shared with contractors for quotation.
Contractors enter unit prices against the estimated quantities of work. The contract is
based on estimated quantities of work items and unit price for each of these work items.
Payment is made on the basis of units of work actually done and measured in the field
multiplied by their unit prices.

Advantages:

 Easy to compare quotations from multiple contractor since detailed quantities are
mentioned
 Changes in contract documents can be made easily by the owner
 Lower risk for contractors as any changes in BOQ is paid for

Disadvantages:

 The total price of the project is hard to determine unless the detailed estimate is accurate
 High involvement from home owner is required to calculate the total quantities

Packaged contract
The conditions of the package contract will vary depending on the
main contract arrangements.

Under a traditional contract the main contractor will split tender

documents into subcontractorpackages that are geared to the most competitive returns,
which are then included in the main contractor’s tender offer to the client.
Under a management contract the client’s cost consultant and the management contractor,
in co-operation with designers, decide how to package the works and direct the team as a
whole to produce package designs suitable for obtaining subcontracts under the terms of
the management contract. This method of procurement allows parallel working on design
and construction. For example, work on the foundations and superstructure can commence
before the design for the whole building is complete.

A construction management contract follows the procedure of a management

contract except the package contractor enters into a direct contract with the client,
administered by the construction manager.

The adoption of Building Information Modelling (BIM) is likely to lead to an increase in the
early appointment of specialist package contractors by design teams to avoid having their
model unravelled by appointments that might otherwise have been made at a later stage.
This suggests that in traditional tendering, main contractors will be forced to adopt
the specialistwithout any freedom of choice. This may lead to some interesting legal
wrangles in respect of non-performance or delays caused by the imposed specialist
subcontractor.