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What should you know about breaking a construction contract?

On Behalf of | Jan 5, 2024 | Construction Disputes

For contractors, understanding the intricacies of construction contracts is crucial, particularly when it comes to the possibility of breaking such agreements. While every effort should be made to fulfill contractual obligations, circumstances can arise where breaking a contract becomes a concern.

Construction contracts typically include clauses that specify the conditions under which a party can terminate the contract and the procedures and consequences of doing so. Familiarizing yourself with these terms is imperative before breaking a contract.

Legal grounds for termination

Legitimate reasons for breaking a contract may include material breach by the other party, impossibility of performance or significant changes in circumstances. However, termination without just cause can lead to legal problems.

Consequences of breach of contract

Terminating a contract without a valid reason can result in significant financial liabilities. These may include compensation for incomplete work, reimbursement of the other party’s costs or damages for breach of contract.

Documentation and communication

Maintain meticulous records of any factors contributing to a decision to break a contract. Document issues such as project delays, payment disputes or other contract breaches. Clear communication with the other party, ideally in writing, is also crucial to avoid misunderstandings.

Negotiating an exit

It might be possible to negotiate a mutual agreement to terminate a contract. This approach can minimize legal risks and potentially preserve professional relationships.

Alternative dispute resolution

Explore ADR methods like mediation or arbitration before opting for litigation. These can provide a less adversarial and more cost-effective way to resolve disputes and potentially salvage the spirit of a contract. Some construction contracts mandate these approaches in the event of a dispute.

Impact on ongoing projects

Consider how breaking one contract might affect your other ongoing projects. It could lead to resource reallocation challenges or affect your ability to take on new work.

Breaking a construction contract is a complex undertaking, but it’s also a chance to learn. Use this experience to reshape future contract negotiations. Consider including more flexible terms or clearer clauses that allow for termination under specific circumstances to more effectively protect your interests.