Premature Contract Termination: Causes, Effects, and Mitigation

This report provides a comprehensive analysis of premature contract termination within the construction industry. It begins by defining contract termination and differentiating between termination for cause and termination for convenience. The report then explores various causes of premature termination, including lack of capacity, inability to perform, mutual mistake, misrepresentation, breach of contract, force majeure, and lack of consideration. It also discusses disputes as a major cause of contract termination, covering relations, economic issues, and time-related disputes. The consequences of premature termination are examined from organizational, professional, and economic perspectives. Finally, the report suggests mitigation strategies such as proper documentation, amicable dispute resolution, adherence to contract provisions, minimizing external influences, and awareness of financial capacity to prevent future premature terminations. This report aims to provide a detailed overview of the complexities of contract termination and how to effectively manage and mitigate them.

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Premature Contract Termination
Student’s Name
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Premature Contract Termination
Introduction
Termination of construction contract happens when a valid and enforceable legally
binding agreement is brought to an end either by becoming unmanageable as a result of
unpredictable conditions at the time the contract was made or through one's action or both the
parties' actions (Stannard & Capper, 2014). The termination at common law carried out by
repudiating in a narrow sense where the repudiating party refuses to carry out the formal
agreement or through a defective performance where the performance of a party utterly defective
as to go to the commencements of the contract.
Types of Contract Termination
There are two broad categories of contract cancelation: project cancellation for cause and
project cancellation for convenience. A termination of a cause can merely occur if one of the
parties fails completely to live up to their contractual obligations (Sergeant & Wieliczko, 2014).
For instance, a contractor can terminate their contract for the cause since the employer failed to
honor valuation order within the duration agreed during the contracting. Similarly, the client can
as well terminate a contract for cause if the contractor diligently and precisely fails to carry out
the work in keeping with the timeline stated in the appendix of contract. The following are some
of the commonly stated reasons for contract termination for cause: contractors failing to pay
labors, vendors, suppliers, and sub-contractors; contractors failing to meet the project or
diligently perform the duty. Besides, contract termination for cause may be due to poor
workmanship resulting in defective or ineffective performance, both parties failing to abide by
the laws and regulation, and failure to consistently follow risk management techniques
(Greenhalgh, 2016).

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However, a termination for convenience is a scenario where a contract is terminated
when there is no contract breach made by the other party. This kind of termination is only legal
when it is expressly written in the contract (Sergeant & Wieliczko, 2014). A termination for
convenience clause tends to be fixed in contracts since it enables both parties to end their duties
in a way that does not lead to litigation or harm of either party. According to Chappell & Joint
Contracts Tribunal (2014), termination for convenience allows the contractor to collect any
payments for completed work, as well as the employer having the ability to avoid paying
damages for terminating a project. Therefore, under the cancelation for convenience, the
employer can cancel the progress of a project for any reasons like political issues.
General Causes of Premature Contract Termination
A contracted project is a legally binding arrangement between 2 or more people.
Therefore, on the occasion of terminating a contract, its legality must be determined first
(Sergeant & Wieliczko, 2014). A court of law cannot recognize an agreement unless there are
mutual acceptance and consideration. The parties who are contracting can prematurely end a
progressing project when it does not fulfil specific legal proceedings.
Lack of Capacity and Inability to Perform
A law court will only look at the legally binding duties of a person that does not
capability. For instance, people with 18 years and above or those who are mentally incompetent
will be considered to the capacity of contracting. Such kind of contractual responsibilities of a
minor and court does not recognize it as a contract; however, contractual arrangements
implemented by a grown up to a kid are enforceable in the court of law (Seeley, 1993).
Noticeably, one is insane if he or she does not have the capability of understanding the contract.
For example, in the construction industry, the capacity of both the contractor and the employer

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are determined at the tender stage, known as prequalification (Seeley, 1993). A contract can be
prematurely terminated when it comes to the knowledge of one of the parties that the other party
lacks the capacity to perform the task. The implementation of a legally binding agreement can be
exempted under the concept of impossibility. Forms of concepts that are not possible witness by
the court comprises of natural phenomena, and death..
Mutual Mistake and Misrepresentation
If both the parties contracting are misguided about the evidences linking to a contracted
project, the bidding agreement can be avoidable. This comes into effect if the fault is about a
fundamental part of the agreement, and the blunder has substantial impacts on the agreement
conditions (Marson, 2013). A falsification is a untrue statement of the circumstance that
convinces somebody to approve the the tender. It requires lacks of wrongdoing intentions.
Therefore, even though the falsification is not a sham, the agreement is voidable when an
guiltless person entirely depended on the evidence that came to be to be untrue (Marson, 2013).
Breach of the Contract
A breach normally comes up when an individual does not execute any provision of the
legal agreement without a legal justification. Noticeably, an agreement cannot be cancelled just
due to the fact that one has breached the convention. This is subject to whether the breaking of
the agreement was substantial or inconsequential, where the courts will observe various aspects
such as the performance of the contract or the negligent conduct of the party who breached the
contract (Ashworth & Perera, 2018). If there are considerable undertakings, then the breach fails
to be factual. A factual contract breaching allows the affected person to cancel undertakings of
the contract. There are several circumstances for breach of contract: irregular payments to the
contractor, unnecessary delay in construction, the poor performance of the contractor, not

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maintaining performance bond, and sub-contract part or whole of work without inspections of
engineer (Seeley, 1993).
Termination due to Force majeure and Lack of Consideration
Whenever there is impinging action that the project teams have not rationally foresaw
and the objective of the agreement has been entirely ruined, the persons in contract will be a
discharge of their duties (McKendrick, 2014). This phenomenon causes damage so much to the
extent that the legal agreement is either not possible to execute or does not provide its viable
objective. Besides, a consideration denotes to an object or a service of price offered by both the
persons to the agreement that convinces them to get into an agreement. It should have a
quantitatively estimated price (McKendrick, 2012).
Disputes causing Contract Termination
Nowadays dispute is one of the major causes of construction contract termination. The
most common categories of disputes in the contractual relationship are relations and individuals’
fight, economic issues (claims and payments) , standards of workmanship, and time-related
disputes (Levin & Levin, 1998).
Legal restriction and Injunctions
Any construction structure must be designed and constructed in accordance with the
existing policies and regulations formulated by recognized institutions such as parliament which
enacts laws ("Termination Clauses," n.d.). The intervention of laws such as local authority’s
regulations sometimes results in the impossibility of project performance. A construction
contract can also be terminated as a result of professional negligence, for instance, neglecting
survey of land at the pre-design stage.

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Consequences of Premature of Contract Termination
Most construction projects are very big regarding the capital outlay, employment
opportunities and social welfare that they impact. Consequently, any premature termination of a
construction project adversely affects the parties involved, citizens and even the government.
This paper identifies three broad categories of effects of contract termination: impacts on the
organization, impacts on the professionals, and impacts on the economic growth.
Impacts on the Organization
When a contract has been terminated, the organization adversely suffers concerning her
reputation and image. The project team members will equally suffer reputation and image
damage when a contract is terminated. Therefore, the termination of a project has a negative
impact on the labor productivity, the firm's reputation, and the stock value of the company.
Impacts on Professional
The perception of professionals about a project within the organization is very important.
As a result of the corporate resources being limited, construction contracts are viewed to be
draining scarce capitals tend to weakened self-confidence ("Termination," n.d.). A large
percentage of project teams do like applying their expertise and resources to unproductive or
failing projects. Similarly, canceled contracts lead the entire workforce to question the
management skills of the senior managers which in turn lowers the productivity and level of
obligations to the body. Furthermore, contract termination leads to the poor relations among the
professionals, entire workforce and organizations.
Impacts on Economic Growth

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The construction industry is a key economic driver in every country. For instance, in
Australia, the construction industry is contributing to approximately eleven percent (11%) to the
Gross Domestic Product (GDP) of the nation ("Gross domestic product (GDP)," 2014). As a
result of this fact, the construction industry is a key player of the economic development hence
any form of interference with the industry such as project cancellation will ultimately affect the
country's economy (Hampson, 2014). It is very important to improve the capacity and ability of
construction industry in most developing nations. Nevertheless, premature contract termination
has a negative impact on the economic growth of the country through the reduction of
construction capacity and capability. Besides. project cancellation causes financial loss to the
organization.
Mitigation of Contracts Termination
This paper recommends various approaches towards mitigating premature contracts
terminations in the construction industry which causes the critical financial situation to both the
contractor and client. The following are some of the suggested mitigation techniques to avert
future premature contract termination in the industry. All the records of the project should be
regularly and properly maintained and clear contract documentation to be established (Todt,
Weiss, & Hoegl, 2017). Through proper and constant maintenance of the documents, some
unnecessary disputes and claims that may result in cancellation of a project may be avoided.
Besides, disputes should be solved amicably or through mediation instead of going through
litigation.
Moreover, the provisions of the contract should be keenly followed, and prevent
elementary contract breaches. Through strict adherence to the requirements of the contract,
unnecessary conflicts and misunderstanding of each other can be circumvented (Todt, Weiss, &

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Hoegl, 2017). Similarly, the project teams should get best effort to minimize influences of
external parties. Consequently, new distractive ideas, that can possibly change the contracting
party’s views, will not come up in the construction process.
Finally, both contractors and the clients should be aware of their financial capacity. This
will sidestep bankruptcy in the course of construction process which is currently is frequent
scenario contractors and employers face forcing premature termination. Besides, the employer
should conduct a detailed preliminary market survey before investing in the construction project
mainly to minimize risk.
Conclusion
Premature contract termination is primarily done in three distinct ways as contractor’s
default, client’s default and for the client’s convenience. Construction projects are unique and
complex hence they have an inherent risk. The key players in the construction industry such as
contractors and clients should embrace appropriate techniques in dealing with contract
termination which recently is becoming frequent. Therefore, before adopting the recommended
mitigation approaches, the causes of project cancellation must first be appreciated.

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