How to Terminate the Contract by the Employer for Contractor’s Default under 2017 FIDIC Contracts

“The FIDIC Contracts set out certain rights to terminate the Contracts. But, it is important to remember that termination is a serious step.”

Clause 15 in 2017 Editions of the Red, Yellow and Silver Books states the Contractor’s Defaults that entitle the Employer to terminate the Contract, the procedures of termination, completion of works, valuation and payment.

1   The Grounds for Termination 

Clause 15.2.1 [Notice] entitles the Employer to give a notice of his intention to terminate the Contract or, in the case of sub-paragraphs (f), (g) or (h), a notice of termination, if the Contractor [1]:

(a) fails to comply with: ___(i) a Notice to Correct; ___(ii) a binding agreement, or final and binding determination, Sub-Clause 3.7 [Agreement or Determination]; or ___(iii) a decision of the DAAB under 21.4 [Obtaining DAAB’s Decision] (whether binding or final and binding), and such failure constitutes a material breach of the Contractor’s obligations under the Contract.

(b) abandons the Works or otherwise plainly demonstrates an intention not to continue performance of the Contractor’s obligations under the Contract;

(c) without reasonable excuse fails to proceed with the Works in  accordance with Clause 8 [Commencement, Delays and Suspension] or, if there is a maximum amount of Delay Damages stated in the Contract Data, his failure to comply with Sub-Clause 8.2 [Time for Completion] is such that the Employer would be entitled to Delay Damages that exceed this maximum amount.

(d) without reasonable excuse fails to comply with a Notice of Rejection given by the Engineer under Sub-Clause 7.5 [Defects and Rejection] or an Engineer’s instruction under Sub-Clause 7.6 [Remedial Work], within 28 days after receiving it;

(e) fails to comply with Sub-Clause 4.2 [Performance Security];

(f) subcontracts the whole, or any part of, the Works in breach of Sub-Clause 5.1 [Subcontractors], or assign the Contract without the required agreement under Sub-Clause 1.7 [Assignment];

(g) becomes bankrupt or insolvent; goes into liquidation, administration, reorganisation, winding-up or dissolution; becomes subject to the appointment of a liquidator, receiver, administrator, manager or trustee; enters into a composition or arrangement with the Contractor’s creditors; or any act is done or any event occurs which is analogous to or has a similar effect to any of these acts or events under applicable Laws; or if the Contractor is JV: ___(i) any of these matters apply to a member of the JV, and ___(ii) the other member(s) do not promptly confirm to the Employer that, in accordance with Sub-Clause 1.14 (a) [Joint and Several Liability], such member’s obligations under the Contract shall be fulfilled in accordance with the Contract; or

(h) is found, based on reasonable evidence, to have engaged in corrupt, fraudulent, collusive or coercive practice at any time in relation to the  Works or to the Contract.

Notice to Correct

Includes the Contractor’s Failure, states related Provisions of the Contract and specifies the time regarding the remedy of the failure.

2   The Termination Procedure

Sub-Clause 15.2.2 defines and describes the “The Termination Procedure”.

If the Contractor fails to remedy the matter described in the notice within 14 days of receiving the Notice, the Employer gives a second notice after that period that immediately terminates the Contract.

For the Sub-Paragraphs (f), (g) or (h), the Notice given by the Employer immediately terminates the Contract.

3   After the Termination Procedure

Sub-Clause 15.2.3 defines and describes “After the Termination Procedure”. After the termination, the Contractor is to:

(a)  comply with the reasonable instructions stated in the Notice.

(b)  deliver Goods and other related documents to the Engineer.

(c)  leave the Site.

4   Completion of the Works Procedure 

Sub-Clause 15.2.4 defines and describes the “Completion of the Works Procedure”.

The Works may be completed by the Employer and/or any other entity.

The Employer is to give Notice to the Contractor regarding the releasement of the Contractor’s Equipment and Temporary Works after the completion of the Works.

The above mentioned items may be sold if the Contractor has failed to make a payment to the Employer.

5   Valuation Procedure 

Sub-Clause 15.3 in 2017 Editions defines and describes the “Valuation Procedure”. This valuation shall [2];

Include any additions and/or deductions, and the balance due (if any), by reference to the matters described in sub-paragraphs (a) and (b) of Sub-Clause 14.13 [Issue of FPC].

Not include the value of any Contractor’s Documents, Materials, Plant and Permanent Works to the extent that they do not comply with the Contract.

6   Payment Procedure 

Sub-Clause 15.4 in 2017 Editions defines and describes the “Payment Procedure”.

The Employer is to be entitled to payment by the Contractor regarding the Sub-Clause 20.2 [Claims For Payment and/or EOT] for:

(a) The additional costs of execution of the Works and all other costs reasonably incurred by the Employer, after allowing for any sum due to the Contractor.

(b) Any losses and damages suffered by the Employer in completing the Works.

(c) The delay damages.

FOOTNOTES

1. The same Sub-Paragraph letters are used as in Sub-Clause 15.2.1 of the 2017 Editions.

2. The same Sub-Paragraph letters are used as in Sub-Clause 15.3 of the 2017 Editions.

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