How to Terminate the Contract by the Contractor under the 1999 FIDIC Red Book

“Legal and practical consequences of termination should be considered in-depth before the Notice is given.” 

Termination of a Contract is a serious step to take for the Contractor.

Various circumstances, such as;

➤ A prolonged suspension,

➤ Employer’s insolvency or compounding with creditors,

may lead to termination.

Execution of the termination procedure properly has a significant importance.

If the Contractor understands and executes the termination procedure properly, the potential losses and the damages will be minimized.

Additionally, the unnecessary results just like claims, disputes and litigation will be avoided.

However, the Contractors are mostly unaware of their rights, responsibilities and the risks they are exposed to regarding termination.

Frequently, they do not clearly know which circumstances will entitle them to terminate the Contract.

As a consequence of those, they fail to submit the required Notice in the required timescale.

They encounter problems while determining the “date of termination”.

Furthermore, they ignore the tasks which they have to fulfill after termination.

In this document; you will find the key issues and the procedure to be followed by the Contractor while terminating the contract.

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1   The Grounds of Termination 

Clause 16.2 [Termination by Contractor] defines and describes the termination related events and circumstances.

The Contractor  is to  be entitled  to  terminate the contract if [1];

(a) The Contractor does not receive the reasonable evidence within 42 days after giving Notice under Sub-Clause 16.1 [Contractor’s Entitlement to Suspend Work] in respect of a failure to comply with Sub-Clause 2.4 [Employer’s Financial Arrangements].

(b) The Engineer fails, within 56 days after receiving a Statement and supporting documents, to issue the relevant Payment Certificate,

(c)  The Contractor does not receive the amount due under an Interim Payment Certificate within 42 days after the expiry of the time stated in Sub-Clause 14.7 [Payment] within which payment is to be made (except for deductions in accordance with Sub-Clause 2.5 [Employer’s Claims]).

(d)  The Employer substantially fails to perform his obligations under the Contract.

(e) The Employer fails to comply with Sub-Clause 1.6 [Contract Agreement] or Sub-Clause 1.7 [Assignment].

(f) A prolonged suspension affects the whole of the Works as described in Sub-Clause 8.11 [Prolonged Suspension], or

(g) The Employer becomes bankrupt or insolvent, goes into liquidation, has a receiving or administration order made against him, compounds with his creditors, or carries on business under a receiver, trustee or manager for the benefit of his creditors, or if any act is done or event occurs which (under applicable Laws) has a similar effect to any of these acts or events.

2   Notice of Termination

If any of the events or circumstances defined under Sub-Clause 16.2 [Termination by Contractor] apply;

➤ The Contractor may give 14 days’ notice to the Employer to terminate the Contract.

Despite that, where sub-paragraphs (f) and (g) apply, the Contractor may by notice terminate the Contract immediately.

3   After Termination

When the Notice of Termination under Sub-Clause 16.2 [Termination by Contractor] comes into force, the Contractor is to;

(a)  Continue the work only which is instructed  by the Engineer for the protection of life or property or safety.

(b)  Hand over plant, materials and other work that the Contractor has received payment for,

(c)   Leave the Site.

4   Payment Procedure

Sub-Clause 16.4 defines and describes the “Payment Procedure”. After the Notice of Termination comes into force, the Employer is to;

➤ Return the Performance Security.

➤ Pay in accordance with Sub-Clause 19.6 [Optional Termination, Payment and Release].

➤ Pay the amount of any loss of profit or other loss or damage that is related with the Termination.

FOOTNOTES

1. The same Sub-Paragraph letters are used as in Sub-Clause 16.2 [Termination by Contractor] of the 1999 Red Book.

This information is provided for your convenience and does not constitute any “Legal Advice”. This document is prepared for the general information of the interested persons. This should not be acted upon in any specific situation without appropriate legal advice.

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