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Termination vs. Default (subcontractor)

North CarolinaConstruction Contract Notice of Termination

I am a general contractor contemplating termination of a utility subcontractor with whom I have three existing and ongoing projects. The work has been substandard in many instances and the projects are not being finished on time, per our written agreement. Our contract contains both a default and a termination clause. The termination clause states that I may, without cause, suspend, delay, or interrupt the Work in whole or in part. The Default clause requires me to provide notice of default and an opportunity to cure the default. Is it ok to proceed under the termination clause? I shoudl note that many of the insufficiencies have been discussed orally, to no avail? Thanks

2 replies

May 12, 2020

If there's a termination clause in the contract allowing you to terminate the agreement, and if you aren't confident the subcontractor can or will remedy the issue, then electing to terminate the agreement would be perfectly reasonable. Though, it's crucial to evaluate the provision to be sure it allows you the right to actually terminate the agreement and not just the right to impede the work as necessary. Certainly, suspension, delay, and interruption are different than outright termination. As for default - that can be a good option, too. Sending the subcontractor a formal notice of default and allowing them one more chance to solve the issue could help keep the project budget and schedule relatively intact. Replacement subcontractors will generally be more expensive and it might take a little time to get them up to speed. Plus, there'd be the looming potential that the terminated sub might start a dispute. And, on most contracts, the failure to remedy an issue after receiving a Notice of Default will enable the contractor to take action - like terminating the sub. In either case, it's crucial to understand your contractual rights and to follow any steps that are specifically outlined in the agreement. And, for help understanding your contract, consulting with a North Carolina construction attorney could provide a lot of clarity.

Additional resources

In addition to the above, these resources should be useful: - Termination for Cause | When Can Construction Contracts Be Terminated for Cause? - Termination for Convenience | Can Your Customer Terminate You Without Good Reason? - Wrongful Termination | When is Termination Considered Wrongful? - The Right to Cure | Resolving Disputes Without Claims or Legal Action

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