6 BuildHoustonOnline.com February / March 2020
W
hat happens when an owner fails to pay or a
contractor continually fails to properly perform
its work? Termination provisions exist to prevent
uncertainty when unexpected and undesired events occur
and should be carefully drafted in every construction contract.
Generally, there are two types of termination provisions
in a construction contract: 1) termination for cause and 2)
termination for convenience.
TERMINATION FOR CAUSE
A termination for cause provision provides rights and
remedies in the face of a breach by the other party. Owners,
general contractors and subcontractors should consider their
risks under a construction contract and allocate those risks
through a termination provision. A well-written termination
for cause provision will protect contracting parties by
providing a clear mechanism to terminate, as well as, the
resulting remedies. Each party to a construction contract will
have dierent goals for a termination for cause provision.
For example, a general contractor may want to consider a
provision allowing it to terminate if:
• The work has stopped for a period of days due to no fault
of the contractor;
• The Owner has not issued a Certicate of Payment or the
Owner has not made payment in a timely manner; or
• The Owner les bankruptcy
If one of these events are triggered, a termination provision
needs to provide the contractor’s post termination remedies,
such as recovering payment for the work executed,
reasonable overhead and prot, and costs incurred as a
result of termination.
An owner may want to consider a provision if the general
contractor, for example:
• Fails to pay its subcontractors; Repeatedly fails to supply
enough workers or materials; or
• Delays completion of a project.
Examples of Owner’s post termination remedies might
include getting an assignment of the general contractor’s
subcontracts, limiting payment to the general contractor for
work actually performed, or excluding the general contractor
from the site.
While termination for cause provisions provide clarity, they
can also limit a party’s ability to terminate the contract. To
avoid this, a catch-all provision that allows termination for a
party’s “material breach of any provision of the contract” is
suggested. The party on the other side of a termination for
cause provision should attempt to add a notice period and
opportunity to cure to the provision to prevent an automatic
termination in the event it defaults.
DETERMINING FOR CAUSE
In case of disagreement between parties, a termination
Terminating
Terminating
a Construction Contract
a Construction Contract
BY JP VOGEL AND JULIA EDWARDS
LEGAL
February / March 2020 BuildHoustonOnline.com 7
LEGAL
for cause provision should include a
“conversion clause”, which authorizes
a third party, such as an architect,
mediator, arbitrator or judge to
determine whether the termination for
cause was appropriate and convert it to
“for convenience,” if not.
TERMINATION FOR CONVENIENCE
A termination for convenience clause
typically allows one party to terminate
the contract with or without cause
and bars a subsequent claim against
the terminating party for wrongful
termination. These clauses can be
mutual, or one-sided. Depending on the
party doing the drafting, these clauses
typically provide more remedies for the
party who is being terminated without
cause. For example, a contractor may
want to put in the termination for
convenience provision that they are
entitled to lost prots on the entire
project and direct cancellation costs
if terminated for convenience. When
these termination clauses exist, it
is vital that a general contractor, or
www.meritnow.com
PROUDLY SERVING
HOUSTON!
Commercial Painting
Wallcovering
Waterproofing
Traffic Coatings
Textured Coatings
Epoxy Flooring
Merit Professional Coatings was founded
in 1994 and built on the commitment that
we will do whatever it takes to exceed our
clients’ expectations.
281.464.9430
Continued on page 8
Specializing in RentalS and SaleS of
H
eavy timbeR and laminated matS
Serving the gulf CoaSt for over 30 yearS
1(800) 671 - 0694
www.ame ric anmatandti mbe r.co m
8 BuildHoustonOnline.com February / March 2020
sub-contractor, include similar such provisions in their
downstream contracts.
THE IMPACT OF TERMINATION
While a contract termination clearly aects the parties to
the contract, it will also impact down-stream subcontractors.
Beware of lien and bond deadlines that may arise after the
termination.
In summary, consult with a construction attorney to get the
most favorable termination provision in your contracts. u
ABOUT THE AUTHORS
LEGAL
FIND AND DO BUSINESS
WITH OTHER ABC MEMBERS.
FindContractors.com lets you search for members
by name, chapter, location, sales volume or type of
construction, plus it’s easy to find members that participate
in STEP, have federal designations and have signed the
Drug- and Alcohol-Free Workplace Pledge. You can also
update your membership information—and win more work!
Check out FindContractors.com today.
Continued from page 7
Julia Edwards, Associate – Litigation
An active member of ABC Houston, Julia Edwards
joined Gray Reed’s litigation section in 2018 after
participating in the rm’s summer associate
program. She is often called upon by the rm’s
litigators who are going to trial to oer her
expertise on voir dire and jury selection. While
attending The University of Texas School of Law,
Julia received the Dean’s Achievement Award for
“Outstanding Student in Construction Litigation” and served as
articles editor for The Review of Litigation. She can be reached at
jedwards@grayreed.com.
JP Vogel, Partner – Construction Law
Clients throughout Texas, the U.S. and abroad
rely on JP to guide them through every phase
of sophisticated, time-sensitive commercial
construction projects and resolve disputes
when they don’t go as planned. JP focuses on
brainstorming new ways for clients to seize
opportunities and overcome challenges –
whether he’s helping an international company
manage the chaotic construction of a Gulf Coast industrial facility,
negotiating the high-leverage construction contracts for an oce
building project or defending clients stuck in the midst of complex
construction defect litigation. His clients are major players across
the industry, including owners, general contractors, specialty
subcontractors, suppliers and manufacturers. JP can be reached
at jpvogel@grayreed.com.
