Termination of the Construction Contract

The parties should also consider the conditions that allow for, and the ramifications of, terminating the contract. The termination can be for “convenience” which contemplates ending the agreement by one of the parties due to no fault by the other. Alternatively, the termination provision could address ending the arrangement if there is a breach or default by one of the parties. In any instance, most construction contracts establish various notice provisions before termination.

The question of whether or not to terminate a contract should be made carefully. If the contract is terminated without proper grounds the terminating party could be liable for damages. In Zippy Mart of Alabama v. A & B Coffee Service, 380 So.2d 833, 834-35 (Ala. 1980) the court found that a contractor that prematurely terminated a contract is liable to damages of the profit lost on the uncompleted portion of the contract. On the other hand if the contractor does not terminate quickly enough they could expose themselves to greater potential losses from the breaching parties conduct.

The contractor should first closely review the contract to make sure that they are following the terms of the contract. See Ex parte Woodward Construction & Design, 627 So.2d 393 (Ala. 1993) (court found that general contractor breached contract by failing to follow termination procedure); McFadden Brothers v. Henderson, 128 Ala. 221, 29 So. 640 (1901) (if there is no time of the essence clause then contractor must give reasonable notice of its intent to terminate contract); Bank of Brewton, Inc. v. International Fidelity Ins. Co., 827 So. 2d 747 (Ala. 2002) (Bank never terminated the contractor’s right to finish the project, thereby triggering the bonding company, IFIC’s responsibility as surety to act to complete the project).

Next, in seeking to terminate every effort should be made to fully document the reasons for events surrounding, and the reasons for, termination. Examples are as follows:

• Letters;
• Superintendent’s job notes or diaries;
• Daily progress reports;
• Safety meeting minutes or reports
• Architect/engineer reports of inspection;
• NOAA weather date reports;
• Pictures and videotapes; and
• Documents of Subcontractors or other third-parties