Contract documents

January 30, 2023

The last thing that an owner wants to do on a project is having to terminate a contractor. Termination can lead to a delay in completion of the project along with the potential for litigation. Understanding when termination is warranted and the process is crucial to minimize the headaches that accompany termination.

Under A201- 2017, there are four circumstances in which a contractor may be terminated for cause by the owner:

• The contractor repeatedly refuses or fails to supply enough properly skilled workers or proper materials.
• The contractor fails to make payment to subcontractors or suppliers in accordance with the respective agreements between the contractor and subcontractors or suppliers.
• The contractor repeatedly disregards applicable laws, statutes, ordinances, codes, rules and regulations, or lawful order s of a public authority
• The contractor otherwise is guilty of substantial breach of the contract documents

It’s important to note that under the first and third circumstances, termination is only proper where the condition has occurred repeatedly. The contractor is not subject to termination for merely one violation. On the other hand, the second circumstance does not contain any similar requirement.

Once of the circumstances above are present, the owner must 1) get certification from the architect that sufficient cause exists to justify the termination. The owner must then 2) provide seven days’ notice to the contractor and the contractor’s surety prior to terminating the contractor. Following the seven-day notice period, the owner may:

• Exclude the contractor from the site and take possession of all materials, equipment, tools, and construction equipment and machinery thereon owned by the contractor
• Accept assignment of subcontracts
• Finish the work by whatever reasonable method the owner may deem expedient. Upon written request of the contractor, the owner shall furnish to the contractor a detailed accounting of the costs incurred by the owner in finishing the work.

Ideally, an owner won’t be faced with terminating a contractor. However, should the circumstances arise, the A201- 2017  details the process for termination while also protecting the owner’s rights and remedies under the contract.

AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.