Termination, Final

Accounts
ENDING A CONTRACT
When does the Contract come
to an End?
❑ When can a contract come to an end?
❑ How can a contract come to an end?
 The End of the Contract
*Usually occurs when the contractor completes his obligations in
accordance with the contract.
Contract Administrator issues a certificate (Certificate of Final
Completion) to that affect
All monies are paid as agreed in the Final Account

*Usually – means it is not always the case – what are the other cases?
Termination/Suspension of
Contracts
Most forms of contract will include termination clauses, giving the
Employer and Contractor, or "Either Party" the right to terminate the
contract and setting out the circumstances under which a contract may
be terminated.
What happens when there is termination?
o When a contract is terminated, the parties to the contract are no longer
obliged to perform their obligations under the contract.

Terminating a contract can be complex, and it is very important that the

correct procedures are followed.
This may involve issuing notices setting out the grounds for termination,
allowing warning periods, and giving the opportunity to remedy
breaches.
Termination/Suspension of
Contracts
Under what circumstance can a contract be terminated?
There are circumstances when work is suspended or terminated prior to
completion:
◦ By agreement
◦ By frustration – when circumstances beyond the control of either party
mean the contract cannot be completed.
◦ By breach of contract by one party (A material breach).
Breach of contract
The remedy for breach of contract is damages
No party can suspend work for a breach unless the breach is serious enough to
justify it.
JCT contracts provide for suspension on grounds of non-payment.
Generally the contract will set out what those breaches are, but they might
include:
o Refusal to carry out work.
o Abandoning the site.
o Removing plant from the site.
o Failure to make payments.
o Employing others to carry out the work.
o Failure to allow access to the site.
o Failure to proceed regularly and diligently.
o Failure to remove or rectify defective works
 Housing Grants Construction
and Regeneration Act 1996
Provides that where the final date for payment is given and there has been no
notice to withhold made, if not paid the Contractor can suspend work until
paid after giving 7 days notice of his intention to suspend.
Contractor also gets Extension of Time for that period, but no Loss and
Expense under the act
◦ However many contracts provide for it.
Suspension
Only if there has been a written notice
◦ Stating reason
◦ Must allow the Employer 7 days to pay money due
◦ Should be sent special delivery
Suspension can continue until payment made
◦ Cannot be used as “not proceeding regularly and
diligently”
Contractor can still exercise other rights and
remedies
Termination / Determination
Both refer to the ending of the contract by one party
Modern contracts call it “termination” and older contracts call it
“determination”.
◦ But actually both terms mean the same thing

Termination occurs both at Common Law and under Contract

Termination
Termination for breach occurs when the actions of
one party are so serious that the law allows the
other party to terminate
Is usually without prejudice to other rights and
remedies.
◦ Termination at common law entitles that party to
damages – repudiatory breach
◦ The whole contract is ended
◦ Termination under the contract will only entitle them to
the remedies available under the contract, which may be
a lesser entitlement
◦ The contract is still in existence and provides for arrangements
after termination
Procedure for termination
What happens if the employer terminates the contract?
What happens if the contractor terminates the contract?
 Termination by Employer
Grounds for termination are If the contractor:
◦ suspends without reasonable cause
◦ Fails to proceed regularly and diligently with the works (difficult to prove)
◦ Refuses or neglects to remove defective work
◦ Sub-lets work without prior consent
◦ Fails to comply with CDM regulations
◦ Becomes insolvent
◦ Is guilty of corruption
How can a contract be terminated
For the first 5 grounds
◦ Notice must be served in writing by special, recorded or actual delivery
specifying the default (fax not accepted)
◦ Contractor has 14 days from receipt to remedy the default
◦ If no action taken the Employer serves notice of termination by special,
recorded or actual delivery
◦ Employer then has 10 days in which to act
A notice to terminate
Must not be given unreasonable or vexatiously

▪ Terminating pursuant to a contractual right often requires a notice or

notices to be served.
▪ It is of paramount importance to pay close attention to the notice
requirements of the contract.
▪ The form, content, timing and mode of service of the notices is
normally set out in the contract and, as far as possible, should be
followed to the letter.
Termination by Contractor
Employer’s failure to pay (although other remedies
include dispute resolution procedures)
Employer’s obstruction of the issue of a certificate
The Employer’s suspension of the works for the
period inserted in the contract particulars
If the employer becomes insolvent
Failure to give possession of the site
Hindrance of the contractor by the Employer
Notice
Must be given by the Contractor specifying the default
◦ By special, recorded or actual delivery

Different contracts impose different time periods (usually either 7 or 14

days)
Termination by either party
Suspension of the works for the period stated by
◦ force majeure,
◦ damage to the works by one or more of the specified
perils,
◦ instructions in regard to the correction of discrepancies,
variations or postponement of work, provided they result
from the negligence or default of a statutory undertaker;
◦ Civil commotion or terrorism
◦ Exercise of statutory power by the government that
directly affects the works
Consequences of Employer’s
termination
If the Employer terminates, he can:
◦ take possession of the site and the contractor must leave
◦ employ and pay others to complete
◦ Use any of the contractor’s equipment and materials to
complete the works
◦ Ask the contractor to remove its temporary buildings,
plant, equipment, goods and materials
◦ Take over the agreements with sub-contractors and
suppliers
◦ Make no further payments to the contractor
If Employer terminates
An account must be drawn up stating:
◦ The amount of loss and/or expense caused to the employer by the
termination
◦ Including having the works completed by others
◦ The amount already paid to the contractor
◦ The amount which would have been payable for the works in accordance
with the contract

It will probably result in a sum owing to the Employer

Consequences of Contractor’s
termination
If the Contractor terminates
◦ He must remove all temporary buildings, plant, equipment, goods and
materials as soon as possible after the termination
◦ Clauses requiring payment or release of retention cease to apply
If Contractor terminates
He must prepare an account which sets out the
amount as follows:
◦ The total value of the works at termination
◦ Any sum ascertained under the loss +/or expense clause
◦ Reasonable costs of removal from site
◦ The cost of materials properly ordered for the works for
which the contractor has paid or is legally bound to pay.
◦ Any direct loss +/or damage caused to the contractor by
the termination after taking into account amounts
already paid to the contractor under the contract
(includes loss of profit).
However
The innocent party is entitled to hold the guilty party to its obligations
rather than terminate the contract
But if termination is opted for then both parties are released from their
obligations.
Termination under NEC
Contracts
Core Clause 9
90.1 “If either Party wishes to terminate the Contractor’s obligation to
Provide the Works he notifies the PM and the other Party giving details
of his reason for terminating. The PM issues a termination certificate to
both parties promptly if the reason complies with this contract.
Termination Table
Whilst the Employer may terminate for any reason, the Contractor may
only terminate for a reason given in the termination table and the
procedures followed and amounts due depend on the reason for
termination
The procedures are implemented immediately after the PM issues the
termination certificate
Within 13 weeks of termination, PM certifies a final payment to or from
the Contractor based on the PM’s assessment.
Reasons for Termination
Bankruptcy – and associated actions (either party)
Failure by contractor to comply with obligations, provide a bond or
appoint a subcontractor before PM has accepted them (E)
if C has hindered E or broken a H&S regulation (E)
If E hasn’t paid an amount certified within 13 weeks of the date of the
certificate (C)
If PM has instructed C to stop work and an instruction to restart hasn’t
been given within 13 weeks (E or C depending on the default)
Procedures
E may complete the works and use any plant or materials to which he
has title.
E may instruct C to leave site, remove any plant or materials, assign
benefits of any subcontract to the employer.
E may use any equipment to which C has title. C to remove it when E no
longer requires it.
Payment
The amount due on termination includes
◦ Amount assessed as for normal payments
◦ Defined cost for Plant and Materials
◦ Other defined cost reasonably incurred
◦ Any amounts retained by employer
◦ Deduction of any un-repaid balance of an advance payment.

May also include

◦ Forecast defined cost of removing equipment
◦ Deduction of forecast cost for E to finish the project
◦ Any fee percentages applicable.
 FIDIC 1999
Cl 15 – Termination by the Employer
The Employer shall be entitled to terminate the contract (with 14 days notice) if
the Contractor:
(a) fails to comply with obtaining a Performance Security or with a notice to
Correct, abandons the Works or otherwise plainly demonstrates the intention not
to continue performance of his obligations under the Contract,
(b) without reasonable excuse fails:
◦ (i) to proceed with the Works or
◦ (ii) to comply with a notice regarding defective work, within 28 days after receiving it,
(c) subcontracts the whole of the Works or assigns the Contract without the
required agreement,
(d) becomes bankrupt or insolvent (and etc.) or
(e) gives or offers any bribe &etc.
However, lawful inducements and rewards to Contractor’s Personnel shall not
entitle termination.
FIDIC - 1999
Cl 16 – Termination by the Contractor
The Contractor shall be entitled to terminate the Contract if:
(a) the Contractor does not receive the reasonable evidence within 42 days after
giving notice under [ Contractor’s Entitlement to Suspend Work],
(b) the Engineer fails, within 56 days after receiving a Statement and supporting
documents, to issue the relevant Payment Certificate,
(c) the Contractor does not receive the amount due under an Interim Payment
Certificate within 42 days after the expiry of the time stated.
(d) the Employer substantially fails to perform his obligations under the Contract,
(e) the Employer fails to comply with the Contract Agreement
(f) a prolonged suspension affects the whole of the Works
(g) the Employer becomes bankrupt or insolvent,
In any of these events or circumstances, the Contractor may, upon giving 14 days’
notice to the Employer, terminate the Contract. However, in the case of sub-
paragraph (f) or (g), the Contractor may by notice terminate the Contract
immediately.
Final Payment Certificate

When is this issued?

What should this contain?