How to Terminate the Contract by the Employer under the 1999 FIDIC Silver Book

“Not having a valid ground while terminating a Construction Contract will significantly affect your legal position.”

The majority of standard form of construction contracts contain provisions to regulate the rights of parties to terminate the Contract in defined circumstances.

Termination is a serious step.

Termination brings the risk of additional delay and costs in the aftermath of the termination, exposure to damages and the uncertainty of the legal outcomes.

Clause 15 in the 1999 Edition of the Silver Book states the grounds that entitle the Employer to terminate the Contract, the procedures of termination, completion of works, valuation and payment.

In this document, you will find the key issues and the procedure to be followed regarging termination by the Employer under the 1999 FIDIC Red Book.

1   The Grounds for Termination

When the Contractor fails to carry out any obligation under the Contract, Clause 15.1 [Notice to Correct] entitles the Employer to give a Notice  to the Contractor to remedy the failure within a specified time. 

The Employer shall be entitled to terminate the Contract if the Contractor [1]:

(a) fails to comply with Sub-Clause 4.2 [Performance Security] or with a notice under Sub-Clause 15.1 [Notice to Correct],

(b) abandons the Works or otherwise plainly demonstrates the intention not to continue performance of his obligations under the Contract,

(c) without reasonable excuse fails to proceed with the Works in  accordance with Clause 8 [Commencement, Delays and Suspension],

(d) subcontracts the whole of the Works or assigns the Contract without the required agreement,

(e) 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, or

(f) gives or offers to give (directly or indirectly) to any person any bribe, gift, gratuity, commission or other thing of value, as an inducement or reward: (i)    for doing or forbearing to do any action in relation to the Contract, or, (ii)   for  showing  or forbearing  to show favour or disfavour to any person in relation to the Contract, or if any of the Contractor’s Personnel, agents or Subcontractors gives or offers to give (directly or indirectly) to any person any such inducement or reward as is described in this sub-paragraph (f). However, lawful inducements and rewards to Contractor’s Personnel shall not entitle termination.

2   The Termination Procedure

In the case of any of the events defined in Section 1, the Employer may, upon giving 14 days’ notice to the Contractor, terminate the Contract.

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

3   After the Termination

Comply with the reasonable instructions stated in the Notice for assignment of any subcontract and protection of life or property.

Deliver Goods  and  other related documents to the Employer.

Leave the Site.

4   Completion of the Works

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.

Removal of the equipment will be arranged by the Employer at the risk and cost of the Contractor.

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 [Valuation at Date of Termination] in the 1999 FIDIC Silver Book defines and describes the “Valuation Procedure”.

The Notice of Termination under Sub-Clause 15.2 [Termination by Employer] comes into effect.

The Employer proceeds in accordance with Sub-Clause 3.5 [Determinations] for the value of the Works, Goods and Contractor’s Documents for the Work executed.

6   Payment Procedure

Sub-Clause 15.4 [Payment after Termination] in the 1999 FIDIC Silver Book defines and describes the “Payment Procedure”.

After a notice of termination under Sub-Clause 15.2 [Termination by Employer] has taken effect, the Employer may [2];

(a)  proceed  in  accordance  with Sub Clause 2.5 [Employer’s Claims].

(b) with-hold further payments to the Contractor until the cost of design, execution, completion and remedying of any defects, damages for delay in completion (if any), and all other costs incurred by the Employer, have been established, and/or,

(c)  recover from the Contractor any losses and damages incurred by the Employer and any extra costs of completing the Works, after allowing for any sum due to the Contractor under Sub-Clause 15.3 [Valuation at Date of Termination]. After recovering any such losses, damages and extra costs, the Employer shall pay any balance to the Contractor.

FOOTNOTES

1. The same Sub-Paragraph letters are used as in Sub-Clause 15.2 [Termination by Employer] of the 1999 FIDIC Silver Book.

2. The same Sub-Paragraph letters are used as in Sub-Clause 15.4 [Payment After Termination] of the 1999 FIDIC Silver 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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