Strategies for Contractors to Mitigate Risk of Being Terminated for Default

Construction projects come with significant risk, as there are so many elements involved. One of those risks is a party failing to fulfill its obligations, whether that’s falling behind schedule, failing to pay, or not meeting quality or performance standards. When that happens, termination of the contract often becomes an option. But termination isn’t simple: there are legal rules and practical steps you must follow to do it correctly.

And also, before you terminate a contract, you should try to reduce the chance of default in the first place. This means:

• Understanding the contract inside-out. Make sure you’re clear on payment terms, performance expectations, timelines, default clauses, and termination procedures before work begins.
• Keep track of progress carefully. Use regular reports, site visits, and updated schedules to watch for performance slippage early.
• Stay ahead of scheduling issues. Use realistic schedules and update them frequently. There are various forms of construction software and scheduling tools that can track critical path activities and help identify delays early. Showing diligence in schedule management can strengthen your defense if disputes occur.
• Prioritize quality control and safety. Many defaults arise from defective work or safety violations. Establish quality control programs, conduct regular site inspections, and ensure crews follow safety protocols. This reduces the risk of claims.
• Address issues immediately. When problems arise, communicate them quickly. Use cure notices or reminders based on the contract to push for correction before things spiral.
• Preserve good records. Document financials, versioned contracts, change orders, and correspondence. Clear records are often your best defense later on.

How to Terminate for Default Properly

Despite your best efforts, you may need to terminate the contract. If this is the case, make sure you understand the critical steps and considerations:

• Follow what the contract requires. Most contracts include a “notice of default” or “cure notice” clause. You typically must deliver a written notice specifying the default and giving the other party a reasonable time to fix the issue. If they don’t cure, you then send a termination notice.
• Be precise in your notices. The notice should clearly state what the default is, reference the contractual clause allowing for termination, and spell out the deadline for cure.
• Document everything. Collect proof for every missed deadline, quality failure, or payment default. Photos, reports, and communications all matter.
• Understand and anticipate wrongful termination risks. If you terminate improperly, you may be liable for the defaulting party’s lost profits, costs, business opportunity, reputation damage, attorney’s fees, and other costs. Contracts might limit some of these damages, so know what limitations your contract includes.

Contact Us Today

Construction projects do not always run smoothly. Defaults can happen for various reasons, but terminating a contract is a huge step that is not taken lightly.

A Florida default & convenience terminations lawyer from Linkhorst Law Firm can assess your situation and guide you through the process to ensure it is done properly. We understand all aspects of construction contracts, including termination clauses. Schedule a consultation today by filling out the online form or calling 561-626-8880.

Source:

cfma.org/articles/navigating-default-and-termination-a-contractor-s-guide