Construction projects like many things in life are rarely perfect and for all types of reasons can go horribly wrong.

Termination, unless circumstances are such that it “naturally” arises through insolvency or similar, is a bold move, but if it presents itself as the only practical commercial option, if taken, it needs to be carefully managed.

Contractual termination broadly falls into two categories, default and non-default. Non-default provisions (often referred to as termination at will) may permit a party to a contract to terminate the employment of another party or its own engagement following a specified period of notice or upon the occurrence of a particular event. These kinds of provisions are attractive as, notwithstanding any performance issues or potential claims, they allow a party to end contractual relations without having to prove breach of contract.

Termination for default, as the name suggests, requires the terminating party to demonstrate breach. The threshold for proof of breach of contract is high and brings with it the risk that, if challenged and if it cannot be proved to the satisfaction of an adjudicator or the courts, the terminating party could itself be found to have repudiated or wrongfully ended the contract and be liable for damages.

An additional difficulty with termination for default is that proving a breach takes time and incurs costs. A party may be dissatisfied with the other’s performance, but will usually need sufficient time to collate evidence of the breach to be able to substantiate it. There is also the risk that it may have waived its rights in respect of the breach and affirmed the contract if it takes too long considering its position. As a result, provided the terms of the contract are followed to the letter, non-default termination or termination at will, if a contract option, would be a lower-risk option than termination for breach/default.

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