In our last post, we began looking at a dispute between the State of North Carolina and a contractor who agreed to head up the construction of a psychiatric hospital in Morganton. As we noted, the contractor is bracing for the possibility that the Department of Health and Human Services will cancel the contract, and has said that it will plan to sue for wrongful termination if the contract is terminated.
Termination of a construction contract, which means to stop the full performance or completion of the terms of the contract, is not something a party can always do without fear of penalty. Well-drafted construction contracts always specify the conditions under which the contract may be terminated and the consequences of termination in each case.
Termination of a construction contract can occur for various reasons. In some cases, construction contracts are cancelled without good cause. Cancellation in such cases could be for any reason, including mere convenience. A party should only terminate a contract if they have a valid reason for doing so. Otherwise, the person terminating the contract can potentially be held responsible for paying damages.
Before terminating a contract, always review the contract before taking any action. When does the contract allow a termination? Does the contract first require a party to provide notice of intent to terminate and/or to give the other party a right to cure any alleged default of the contract?
In any construction contract dispute, it is critical to have a sound understanding not only of the terms of the contract, but also of the default rules of construction and their proper application. Working with an experienced attorney helps ensure not only that it is possible to cancel a contract when there is entitlement to do so, but also that a party negatively impacted by a contract cancelation is properly compensated under the terms of the contract.
Source: American Bar Association, Model Jury Instructions: Construction Litigation, 2nd Edition, Ann Graff & Ryan Stewart, Accessed online.
