If you terminate a complete activity from a contract and decide to do the work yourself, what would the subcontractor be entitled to.? Would it basically only be eligible for HOOH (overhead and any pro=rates if any)?
1 reply
Oct 24, 2019
First, it's worth mentioning that termination for convenience will really only be an option when that right is established in the contract. If the contract does not reserve the right to terminate the contract for convenience, then unilaterally terminating the agreement could result in a breach of contract.
Termination for convenience must be made in good faith
If the contract does allow termination for convenience, it's still important to approach the termination delicately. Even when a termination for convenience is allowed, that termination must be done in good faith. So, strategically terminating a contractor or sub in order to pay them less than what they're due could be a problem. But, terminating that same party and making sure they're fairly paid for the work they've already done might be less of a problem.
Termination should follow whatever process is set out in the contract
If the contract does allow for termination for convenience, and if the contract sets out a process for that termination, then it's important to follow that process as tightly as possible. Generally, some written notice of termination must be provided and there will likely be some timeframe in place during which the termination can or should be undertaken. If there's no process for termination set out in the agreement, it's still wise to provide written notice of termination.
Knowing what to pay when a contract is terminated for convenience
What's more, if the contract sets out how exactly the agreement should be wound-down, then that process must be followed. It's relatively common for certain costs, fees, or calculations of what's owed to be included in a termination clause. But, if the contract is silent, it's important to be fair and pay whatever is due, pursuant to the contract, up to and until the termination is effective. And, the calculation of what's owed should typically be related to how the price of the contract was established in the first place.
So, if the contract price was determined on a cost-plus basis, then that same cost-plus formula should be used as a jumping-off point for winding down the agreement; if the contract as a lump sum, then that might be calculated as a percentage of work performed; etc.
Termination resources
Finally, here are some additional resources on termination that should be valuable:
- Termination for Convenience | Can Your Customer Terminate You Without Good Reason?- How a Termination Clause Works in a Construction Contract- Wrongful Termination | When is Termination Considered Wrongful?- Termination for Cause | When Can Construction Contracts Be Terminated for Cause?