How to terminate a construction contract – FIDIC vs JCT vs NEC4

Table of Content

Each of these contracts provides specific reasons for termination, including:

  • Insolvency/liquidation/bankruptcy;
  • Default by the other party; and
  • Corruption.

Termination Notice:

Once you have made out your ground for termination you must provide notice to the other party.

Generally, a notice under these contracts must:

1. Make it clear that it is sent to terminate the contract;

2. Be in writing;

3. Be separate from other communications (NEC);

4. Be served in hard copy (by hand or by post);

5. Be served at the address provided in the Contract;

6. Be addressed to the person/individual named in the Contract; and

7.Be addressed to the other party named in the Contract.

JCT does not allow service of the notice by email, whereas NEC allows service via a ‘communication system’ as defined in the contract. FIDIC does allow notices to be served electronically, but this must be specified in the Particular Conditions.

NEC notices must also be sent to the Project Manager.

Date Termination Takes Effect:

FIDIC 14 calendar days after notice given or immediately if termination for corruption or 28 days after notice has been received
NEC4 After the Project Manager issues the termination certificate
  • If the reason for termination is default by either party then an initial notice must be given.
  • If the default continues for 14 days after the notice, then the party has 21 days to terminate.
  • Termination is immediate if the reason is insolvency or bribery.

Drafting Advice – Recommendations:

  • Specify that notices are to be given electronically – especially if one of the parties is not based in the country where the Works are taking place.
  • Amend to oblige the other party to notify you of any change in address within a set timeframe (e.g., within 7 days of moving).
  • Amend clause 1.3 to specify when a notice has been received (e.g., if by hand, then immediately, if by post then two business days after postage).
  • The Contractor may amend clause 90.1 to say that the Project Manager will provide his reasoning for not allowing the termination.
  • Amend clause 90.1 to give a timescale for the Project Manager to provide his decision (e.g., within 14 days).
  • Amend the contract as necessary to include the name, address and designated email address of the Project Manager.
  • Include a communication system (such as email) in the Scope of the contract. In addition, define what form of electronic transmission and when it will be deemed served.
  • Amend the contract to oblige the other party to notify you of any change in address within a set timeframe (e.g., within 7 days of moving).
JCT DB 2016
  • Amend to allow notices to be given electronically, especially if one of the parties is not based in the country where the works are taking place.
  • Consider amending the contract to remove the 21day period after the 14 days’ notice, or to shorten it, as it may be deemed unfair to  allow the Employer (e.g.) to terminate the contract on day 21, even if the Contractor has made efforts to rectify the default that has been notified to them.
  • Alternatively, limit the Employer’s and Contractor’s ability to terminate the contract after a certain time within the 21day period (e.g. after 14 days) if it can be shown that the other party has made genuine efforts to rectify their default.
  • Amend the contract to oblige the other party to notify you of any change in address within a set timeframe (e.g., within 7 days of moving).

After Termination:

Termination of the contract is not the final step – it brings the contractual relationship to an end going forward, but not up to that date. The contract continues to exist and disputes remain to be decided under the contract.

The contract details must set out what occurs after termination:

  • All contracts provide for an account to be provided which will determine whether the Contractor or Employer are owed any monies;
  • The Employer will have the option of completing the works; and
  • The Contractor may be required to remove its equipment and plant from site.

Contractual Provisions:

  • JCT sets out in clauses 8.7 and 8.8 what must occur when the Employer terminates the contract, and in clause 8.12 when the Contractor terminates the contract.
  • NEC provides for a different combination of procedures that can be followed after termination has occurred. All include the option for Employer/Client to finish works of its own accord.
  • FIDIC sets out that if the Employer terminates the contract there must be the creation of an account setting out how much is owed to the Contractor or Employer. If the Contractor terminates, they must stop any further work.

Important Considerations:

  • You should read the clauses carefully and look out for words such as ‘may’ (which implies an option but not an obligation) or ‘shall’ (which is an obligation) to determine what you can and cannot do when the contract is terminated.
  • If you get it wrong, you could be in ‘repudiatory breach’ of the contract.

Termination of Construction Contracts was discussed in our webinar on 23 October 2020 with Bill Barton and Karen Gough, 39 Essex Chambers.  Click here to view the webinar and detailed notes.

How can Barton Legal help?

At Barton Legal we have extensive experience in all the standard contract forms, including JCT as well as NEC, IChemE, and FIDIC.

We believe that an increased understanding of contractual terms and the roles and responsibilities of all parties ensures a successful conclusion to a project, which is why we always use plain English and ensure you understand and can apply the terms of your contract.

Our aim is to reduce legal gobbledegook and increase collaboration between parties to increase the prospects of completing your project on time and on budget

We place great emphasis in the early stages of the contract on understanding and preparing thoroughly, in order to avoid costly disputes later.

If you have any queries regarding any of these contracts or any form of construction dispute, please do not hesitate to get in touch by email  or call our office on 0113 202 9550.