Secrets of Bonding 125: When to Call It Quits
Either party can terminate construction contracts in certain circumstances. Let’s take a look at it from the Contractor’s point of view.
Federal contracts make it easier for the government to complete a project. The “termination for convenience” clause explains how the project can be completed (through no fault of the contractor) and provides a method of payment for work performed. Other public and private contracts may also contain this clause.
Sometimes it is the contractor who is motivated to finish the project early. In these situations, it is important to know how and when to proceed.
The disputes clause
“The Contractor will proceed diligently with the execution of this contract, pending the final resolution of any request for repair, Section Bonds claim, appeal or action arising under the contract, and will comply with any decision of the Contracting Officer.”
This clause, found in federal contracts, means that he must continue to work when faced with a dispute. This ensures that the contractor does not hold the project hostage while the dispute is being reviewed.
Other public and private contracts may include language about unresolvable disagreements, so it’s important …
Read the contract
Contractors should only abandon a project when they have the legal right to do so. You should read the contract and, with the help of his attorney, choose a course of action.
An unsolvable disagreement clause may allow the contractor to stop work. An example could be engineering problems that make it impossible to continue.
Stop working for non-payment
In these cases, the contractor must send written notice of the overdue payment and allow a period of time to collect the funds. Some contracts require a second notice to be sent before work is suspended.
Because non-payment can be a material breach of the contract, it can justify the interruption of work. However, state laws vary on this issue. An attorney can help determine whether such action is advisable.
If a performance and payment bond covers the contract, it can play an important role.
General contractors should alert their surety to any disputes. Stopping work may result in a Performance Guarantee claim. This can hinder the availability of bonds for other projects. The surety will want to understand the dispute and can offer guidance to the contractor and attorney.
Subcontractors have these same problems if they have consolidated their subcontract. Also, contracts with the wording of “pay when paid” can justify non-payment of GCs, another reason to read the contract.