Termination (Section 8)

Question 1

What are the main reasons for the termination of a contract?

Answer 1

1. ) Default
2. ) Insolvency
3. ) Bribery

Question 2

What constitutes default by a contractor?

Answer 2

1. ) Suspending works for an illegitimate reason,
2. ) Not proceeding regularly and diligently,
3. ) Not complying with notices and instructions,
4. ) Subcontracting without employers consent

Question 3

What constitutes default by an employer?

Answer 3

1. ) Non payment,
2. ) Deferment of possession of the site,
3. ) Delayed instructions,
4. ) Delay due to clients subcontractors

Question 4

What is the process is there is default by either party?

Answer 4

The party who has defaulted will be issued a notice stating they have a 14 day grace period, if they continue the specified default over that period, then the contract can be terminated within 21 days.

Question 5

What is insolvency?

Answer 5

The inability to pay debts.

A company or party is deemed to be insolvent when it does not have sufficient assets to cover its debts or is unable to pay its debts when they are due.

Question 6

What are the signs that a contractor is in financial difficulty?

Answer 6

Overclaiming on valuations, reduced number of workers on site, word of mouth, slow progress.

Question 7

What are the different types of insolvency?

Answer 7

Two main types are Administration and Liquidation for companies. If an individual is insolvent they are said to be Bankrupt.

1. ) Company voluntary arrangements (before administration)
2. ) Administration
3. ) Winding up of the party/company or compulsory liquidation
4. ) Administrative receivership
5. ) Voluntary liquidation

Question 8

What is administration?

Answer 8

Administrator is appointed by directors, they will seek to refinance company, sell company or arrange repayments with creditors. Attempt to get the company out of trouble & trading again.

Question 9

What is liquidation?

Answer 9

Winding up of a company because it can’t pay debts, trading ceases, assets collected, can be voluntary or compulsory.

Question 10

Where does the client fall in relation to receiving monies after liquidation?

Answer 10

Very low as they are an unsecured creditor (suppliers, customers, contractors).

1. ) Secured creditors i.e. creditors with a fixed charge on an asset of the business or those with a floating charge (banks, plant lending companies etc.) are paid first.
2. ) Next, preferential creditors e.g. employees of the company are entitled to arrears of wages.
3. ) Then unsecured creditors (such as the client, suppliers, HMRC) are entitled payments - as they’re far down the list they often received little/no money.

Question 11

What would you do if you found out that the contractor had gone insolvent?

Answer 11

1. ) Ensure the site and materials are secure (as subby’s may seek to recover debts by removing assets from site).
2. ) Stop any payments from processing / don’t make any further payments.
3. ) Prepare a detailed valuation of the works complete to date.
4. ) Check whether there is a Parent Company Guarantee or performance bond.
5. ) Consider which insurances are in place if the works are abandoned.
6. ) Ensure that all Collateral Warranties have been received.
7. ) Keep a log of additional expense incurred by the client.
8. ) Determine whether it is in the clients best interest to terminate the contract (with immediate effect) or to negotiate a novation of the works to another contractor.

Question 12

Can the employer terminate if the contractor goes insolvent?

Answer 12

Yes, written notice effective immediately.

Question 13

Can the contractor terminate if the employer goes insolvent?

Answer 13

Yes, written notice effective immediately.

Contractor can terminate, they can remove temporary buildings, plant and materials, provide 2 copies of CDP documents and provide final account.

Question 14

What happens if the employer decides not to complete the works after the termination of the contract with the contractor?

Answer 14

If after 6 months the Employer does not continue the works, the contractor can issue a notice to the employer, then within 2 months of the expiry of the 6 months. The employer must send contractor:

1. ) total value of works executed at termination,
2. ) expenses due as loss and expense to the Employer,

This total amount is compared to the payments previously paid to the contractor under the contract and if the difference (if positive) is owed to the contractor or owed to the client if negative.

Question 15

If you do decide to continue the works how do you complete the works?

Answer 15

Continue with original contractor (if near completion or PCG), novation / assignment, appoint new contractor.

Question 16

What must a contractor prepare following termination by the employer?

Answer 16

Without cost to employer remove all temp buildings, materials and plant from site and provide 2 copies of the contractors design to the employer.

Question 17

What are the remedies for breach of contract?

Answer 17

Damages, Set-off*, Termination

*Set-off = the withholding or extinguishing of an agreed payment. Set off can be used to recover the costs of rectifying defects and any delay. Set off requires a pay less notice to be issued.

Question 18

What is the difference between repudiation and termination?

Answer 18

An act of repudiation occurs when a party commits a breach of contract that is sufficiently serious such that it entitles the receiving party to consider the contract as terminated with immediate effect, and to sue for damages (for loss and/or expense) for breach of contract.

Examples:

• Refusal to carry out work.
• Abandoning the site.
• Removing plant from the site.
• Failure to make payments.
• Employing others to carry out the work.
• Failure to allow access to the site.
• Failure to proceed regularly and diligently.
• Failure to remove or rectify defective works.

Question 19

What is set off/abatement?

Answer 19

Essentiallyabatementis a defense to a claim for payment by a contractor or sub-contractor. It applies in circumstances where a defendant (Client) argues that they are not liable to pay the amount claimed because there are defects in the work for which the payment is sought.

Question 20

What is rescission?

Answer 20

Where the contract is set aside and the parties are put back into the position in which they were before the contract was made.

Question 21

What is frustration?

Answer 21

Termination by mutual consent, incapable of being performed due to unforeseen circumstances such as:

1. ) War, rioting and civil unrest
2. ) Acts of God
3. ) Change of laws etc.

Question 22

7 reasons to terminate the contractors contract?

Answer 22

1. ) Insolvency,
2. ) Suspend work without reasonable cause,
3. ) Contractor fails to proceed regularly and diligently,
4. ) Contractor fails to comply with written instructions to remove materials / goods,
5. ) Contractor subcontracting without consent,
6. ) Contractor fails to comply with cdm regulations
7. ) Corruption