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ConstructionPro Week, Volume: 4 - Issue: 18 - 05/08/2015

Does Termination for Convenience Extinguish Liquidated Damages?

By Bruce Jervis

 

When a project owner elects to terminate a contract for its own convenience, the owner chooses a “no fault” termination. Rather than terminating the contract for cause – a default termination – the owner exercises its contractual right to end the relationship, pay for work performed to date and compensate the contractor for the administrative and settlement costs of the termination.

 

Given the “no fault” nature of a convenience termination, isn’t it inconsistent to allow the project owner to recover damages from the contractor? Not necessarily, according to the Connecticut Supreme Court. An owner was allowed to assess liquidated damages for late project completion after terminating the contract for the owner’s convenience. The contract clause reserved “any other right or remedy” of the owner.

 

The court said there is no broad principle of contract law that extinguishes the owner’s right to liquidated damages in these circumstances. The language of the specific Termination for Convenience clause is determinative. Yet, common sense indicates that owner recovery of any damages is contrary to the concept of a “no fault” termination. Additionally, this contract clause, like most, detailed the pricing of a convenience termination. There was no mention of an owner set-off for liquidated damages. What is your opinion?

 

COMMENTS

If the owner opts to choose a "no fault" clause in a contract as the purpose for the termination then I agree that they are saying the contractor has done nothing to damage the owner they are just 'choosing to go in another direction'. If the owner feels there is significant damages to them there are other clauses available in the contract to use a cause for termination and also insurance and bonding to assist in making the owner whole. Typically the contractor is the one significantly hurt by a "no fault" termination and I generally agree with the ruling.
Posted by: Lewis Howard - Friday, May 08, 2015 4:08 PM










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