Termination / Insolvency

Question 1

What is repudiation?

Answer 1

Not a contractual termination. Complete abandonment of the contract.
If other party has repudiated, must ensure not to continue with contract else may mitigate right to terminate under repudiation

Serious breach that allows the receiving party to consider the contract as terminated with immediate effect and sue for damages e.g. refusal of the party to carry out works

Question 2

What are step-in rights?

Answer 2

Enable a party to ““step in”” to the place of another party in relation to the rights and obligations of a contract. Named beneficiaries in a CW can step in

E.g. funder can step in to complete the works should the Employer become insolvent.

Right - not an obligation to step in

Question 3

When might an Employer terminate a contract?

Answer 3

If the contractor
- Without reasonable cause suspends carrying out the works
- Fails to comply with their obligations
- Refuses to comply with a notice or instruction to remove any work, materials or goods not in accordance with the contract
- Fails to comply with CDM regulations

Question 4

What is the process for an Employer terminating a contract?

Answer 4

• Must given notice specifying each default / reason
• If contractor continues with specified default for 14 days after receipt of notice, Employer has 21 days to terminate employment
• Employer to terminate, not the EA

The process is the same if a contractor terminates, with the contractor giving notice

Question 5

What happens after termination of a contract?

Answer 5

Following termination
- Not further sums due to the contractor except what is due in the termination provisions
- Where the contractor terminates the works, employer shall pay the amount properly due without reduction for retention
- Contractor obliged to clear site of temporary buildings, plant tools etc
- Contractor provides design documents to employer
- Contractor to prepare and submit final account

Question 6

When might a Contractor terminate a contract?

Answer 6

Contractor gives notice if Employer:
- Does not pay by final date of payment
- Fails to comply with the requirement to get the consent of the contractor to assign the contract
- Fails to comply with CDM

Question 7

What terms might either party terminate a contract under?

Answer 7

• Force majeure
• Employers instructions issued as a result of negligent work by a statutory undertaker
• Loss or damage to works by specified perils
• Civil commotion / threat of terrorism
• Use of statutory powers by UK Government that affects the execution of works
• Delay in receipt of any permission of approval for development control requirements where contractor has taken all practicable steps to avoid

Question 8

What is corporate recovery?

Answer 8

Process / actions to bring an ailing company back to full health, including financial provisions, restructuring, accounts & legal advice

Question 9

What types of termination of a construction contract are there?

Answer 9

• Voluntary - where parties mutually agree
• Involuntary - may be a result of insolvency, where party is unable to pay debts

Contracts set out the process to be followed

Question 10

What is the checklist for termination of a contract?

Answer 10

• Discuss situation with the other party
• Make a note of the relevant contract clauses for termination
• Seek legal advice to ensure correct procedures
• Seek assistance from an expert if required
• Write and service notice detailing the breach
• If breach continues after 14 days, dispatch further notice for the termination of the contract within 21 days
• Prepare documents / final account / site security information

Question 11

What guidance would you follow in cases of insolvency?

Answer 11

• RICS - Termination of contract, corporate recovery & insolvency GN - 2013
• RICS has additional regulation information sheet published on their website
• Government Insolvency Service including information on Insolvency Acts, Enterprise Act etc

Question 12

What types of insolvency are there?

Answer 12

• Company Voluntary Arrangement
• Administration - allows continued trading for a period, assets protected allowing to receive best price for assets
• Liquidation
• Receivership
• Voluntary liquidation

Question 13

What signs of insolvency should you be aware of?

Answer 13

• work lacking progression on site
• applications for payment over valued
• unexpected claims for additional payment
• materials / plant not ordered / delivered to site as expected
• regular changes in work force suggesting non-payment

Question 14

What can a surveyor do when insolvency is suspected?

Answer 14

• review of Companies House to identify any financial issue. Credit check on Experian
• keep detailed records of transactions & events
• if in breach of contract, consider termination

Question 15

What is a contra charge?

Answer 15

Where there has been a breach of contract and damages have been incurred
E.G Contractor may off sets costs against sub contractor that caused damage to finished work adjacent to the working area of the subcontractor

Question 16

As a surveyor, what do you do when a party becomes insolvent?

Answer 16

• Ensure protection of other party’s interests
• Appoint an insolvency expert to co-ordinate actions
• Seek legal advice
• Secure site
• Record the progress on site accurately including schedule of materials on and off site
• Service an Urgent work notice as necessary
• Ensure adequate interim insurance - contractors would likely have ceased as contract ceases
• Consider claims on any bonds or consequential claims against 3rd parties
• Ensure auditable financial reconciliation
• Prepare notional FA

Question 17

Why is following the termination procedure important?

Answer 17

Incorrect following of the termination procedure could put the “terminating” party at risk of being in breach of contract, in which the other party could make claim for loss & expense

Question 18

What reasons would be a termination of contract?

Answer 18

Set out in contract but could include

• Non- payment
• Employer finds the project will carry too much ris and is unviable
• Alternative land use is considered
• Finance cannot be secured due to lack of pre-lets

Question 19

What is a breach of contract?

Answer 19

Failure by party to the contract to comply with an obligation imposed on it under the terms of the contract

Material - party not causing the breach can terminate
Non-material - contract remains open and issue can be rectified under the terms of the contract

Question 20

What is frustration?

Answer 20

Neither party has defauted on the contract, but unforeseen circumastances have prevented the contract from being performed as originally intended. Further performance of the contract is not possilble, is not legal or inherently different from what was contemplated by parties when considering the contract that it is void

Question 21

What happens if the employer becomes insolvent?

Answer 21

”- Contractor acts in accordance with the contract
-Inform sub contractors to remove materials that have not been invoiced & paid
- Surveyor issues valuation statement, FA and any claims including L&E