FIS Consultant Len Bunton talks termination and of contracts. This is another minefield, and another good reason you should read contracts.
Here, Len discusses what can you do to reduce exposure to a threat of termination.
What a crazy two months! I was looking forward a bit to easing inro the Summer, getting the golf clubs out, putting the BBQ on and doing my usual of watching my wife work in our garden – NO CHANCE.
I was recently invited to participate in a podcast – Construction Cash Flow Podcast with David McDonald the Programme Director of the Hubs, Scottish Futures Trust. I urge you to listen to these weekly podcasts, run by the excellent Stu Davidson, as they are full of excellent practical advice.
I have been inundated with clients seeking assistance on a number of issues. I have experienced some really complex payment issues recently – it is a daily battle to get paid, and there is some really questionable conduct around as well.
Thankfully, clients are actually wanting some help to review contracts at tender stage, so that penny has finally dropped. There is no point in putting a tender in without looking at the risks you are taking on.
We saw in April the demise of an established Scottish contractor, and time will tell how the supply chain has been impacted. It just reinforces my message to keep on top of your payments and cash flow.
I want to mention an issue that has come up recently to do with termination of contracts. This is another minefield, and another good reason you should read contracts. One of the most common causes is contained in the JCT/SBCC Contracts under termination provisions where Clause 8.4.1 the Contractor “fails to proceed regularly and diligently with the Works” – this is referred to as a specified default.
You would expect prior to the first termination notice, that the employers side would be sending letters to the contractor complaining about lack of resourcing/progress etc as a build-up to giving the notice. However, I have recently seen a number of instances of the above coming right out of the blue with no advance warning. Are you entitled to ask the employer – please indicate where we are allegedly not proceeding “regularly and diligently”? I asked that question recently and did not even get a response.
What can you do to reduce exposure to a threat of termination like this? Well, I keep coming back to my advice to contractors of keeping records, records, records. So, you want to be recording, as a matter of course – labour returns, material deliveries, plant returns, daily diaries, photographs, videos, RFI’s, CVI’s, variations instructed, and you need to capture matters like you not getting access, disruption by other trades and anything else that can demonstrate your progress. In my experience it is highly unlikely that a first termination notice will be withdrawn and tactically, it will be left there.
The next issue is the issue of a further notice which you will get if the contractor continues a specified default for 14 days from the receipt of the first notice under Clause 8.4.1. So, this is where your records are so important in that you can show that you have remedied the complaint, assuming you are actually told what the complaint is. The contract says that if the contractor continues the specified default the Employer may terminate the contractors employment under the contract, within 21 days from the expiry of the of the above 14-day period. So, you just need to keep the record keeping process on the go.
Now there is another sting in the tail here – the contract also states that if the employer does not give the further notice, but the contractor repeats the specified default, then after a reasonable time the employer by notice to the contractor may terminate that employment.
The implications of termination are pretty dire. The employer can employ others to complete the Works; no further sums are due to the contractor until the Works are completed, and the making good of defects has incurred and the employer can recover all of his additional costs as well – frankly, it is a nightmare scenario.
What about your subcontractors? Well, they are entitled to be paid for what they have done, and this is the real problem is. It is therefore important to consider having similar termination provisions in your subcontract.
Final message from me – keep good – Records, Records, Records!!
Final, Final message from me – read the Best Practice Guide on the CICV website.
FIS publishes short blogs by its Consultant Len Bunton on contractual and commercial issues he experiences when supporting FIS members and the wider community – it is designed to help FIS Members avoid common traps and build on the FIS focus on collective experience. The blogs are published fortnightly as FIS member only content and released to SpecFinish two weeks after publication.
Len provides an initial free one hour consultation to FIS members to discuss and review specific issues and to help develop a strategy to address. Should further advice and support be necessary, thereafter then Len will agree the necessary fee levels with each FIS member.
You can find out more about FIS membership here.