By Bruce Jervis
The right to terminate a contract for convenience, without any fault on the part of the contractor, is a right reserved to the project owner under the terms of many construction contracts. Advance written notice triggers the termination. The contractor is paid the cost of work performed prior to termination, profit on that cost and the expenses of the termination itself.
What happens when the relationship between owner and contractor simply breaks down; becomes so toxic that the parties stop dealing with each other altogether? Can this be treated as a “de facto” termination for convenience? A Connecticut court recently ruled it cannot. A project owner must formally terminate the contract in accordance with the express terms of the contract. An after-the-fact finding of a de facto termination for convenience cannot be used to limit a contractor’s recovery.
A termination for convenience compensates the contractor for work performed, but absolves the owner of liability for breach or wrongful termination. When both parties contribute to the breakdown in the relationship, do you think a finding of de facto termination for convenience should be used to allocate responsibility? Or, should the owner be required to take the formal, affirmative acts required under the terms of the contract? Your comments are welcomed.