Default Termination in Private Construction Contracts

The termination of a private construction contract can occur when either party defaults under the contract. Generally, the contract will contain a default provision stating that the violation of an express condition in the contract will constitute a default. Construction contracts usually outline the specific contractual conditions that, if violated, will authorize the non-defaulting party to terminate the contract. Of considerable importance in the termination context is that the terminating party must act in good faith; bad faith or feigned dissatisfaction cannot motivate the termination.

Prior to termination, the defaulting party must normally be given the opportunity to cure. Thus, if a subcontractor has violated one of the enumerated default-worthy conditions, the contractor must provide the subcontractor with notice of the default as well as the opportunity to cure. If no cure is forthcoming within a stated period, the contractor will send a second notice advising of the contract termination. Thereafter, arrangements would be made for the completion of the project without the defaulting subcontractor. The parties to a construction contract must take care to follow any default termination procedures outlined in their contract. Failure to strictly comply with the procedural requirements will result in a termination that is ineffectual.

As one procedural requirement for termination, many construction contracts will call for the architect to first issue a certificate outlining the architect's judgment with respect to the contractor's default. Generally, the architect must expressly state that the contractor has defaulted and that termination based on the default is warranted. An implication of default in the architect's certificate is insufficient.

Copyright 2014 LexisNexis, a division of Reed Elsevier Inc.

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