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What happens if, in the middle of an ongoing project, the owner decides to terminate their contract with their GC?

CaliforniaConstruction Contract
Anonymous Contractor

The owner of a project decides to terminate their contract with their general contractor because the general contractor was not capable of meeting the expectations under the contract. The project building is about 25% completed. What are the steps the owner needs to take in order to move forward and transition to an owners-build project?

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Peter Ryan
Construction Lawyer
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Partner at Flores Ryan, LLP
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Jun 15, 2020
First keep in mind that it is risky to terminate a contractor part way through a contract. It can result in work that does not have warranties, payment disputes, and delay. The job will almost always end up you costing more money by doing so. And if any work was done improperly, it will be very difficult for you to prove later that the former contractor performed the defective work. But if you are going to terminate, you need to look carefully at the contract itself. You must identify the material breaches of the contract that have occurred. The contract also may have specific procedures you must follow to legally terminate the contractor for cause. Often the contractor is entitled under the contract to a specific period after notice of default to cure the perceived breaches (in this case its apparent inability to meet contractual requirements for the performance of the work). Even without such provisions, the contractor should be given clear reasons in writing for the "for cause" termination along with documentation demonstrating how the contractor has failed to meet the contractual requirements. Unless there is clear documentation, you risk facing liability for impermissibly terminating the contract. You also need to ensure that all subcontractors and material suppliers have been paid for the 25% of work actually performed. You should have unconditional releases from them for all work that you have paid for. Don't pay anything more without first obtaining conditional waivers and if the money is going to material suppliers or subs, insist on joint checks. If you are asserting damages based on the contractor's breach of contract you can withhold that amount from the contractor, but the rest of the 25% complete should be paid. You will also need to go to the city and either get new owner-builder permits or change the current permits (the process can vary by city). If you need legal assistance, send me an email to schedule a free telephone consultation at ryan@huntortmann.com.
Do not act on the information contained herein without seeking the advice of licensed counsel. The information presented here is general in nature and is not
intended nor should be construed as legal advice for any particular case or client. The law is complex and the specific facts of your situation can cSee More...See More...
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Anonymous Contractor
Question Author
Jun 16, 2020
Hi Peter, your response to my question was very helpful. If any assistance is required in the future, I will definitely try to schedule a consultation with you. Thank you.
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