Contractor Termination
Firing a contractor is the highest risk decision an owner makes on a project. Done correctly it limits the loss. Done wrongly it converts the owner into the party in breach.
By the time termination is being considered, the relationship has usually broken down completely. The work is behind, the quality is disputed, the payment requests have become adversarial, and the owner wants the contractor off the site. That instinct is understandable and acting on it without following the contract is expensive.
The same is true in reverse. A contractor who walks off a job because they are not being paid may have that right, and may not. Abandoning a site without a contractual basis is itself a breach and it hands the other side the stronger position.
For cause and for convenience
| For cause | For convenience | |
|---|---|---|
| Basis | A material default by the contractor, usually after written notice and a period to cure | The owner's choice, where the contract permits it, without any default |
| Procedure | Strict. Notice, the stated cure period, and often a second notice before termination takes effect | Notice as the clause requires, generally simpler |
| Owner pays | For work properly performed, less the cost of completing and correcting | For work performed, plus typically demobilization and sometimes lost profit on the remainder |
| Risk to owner | High. A wrongful for cause termination is treated as a breach by the owner | Lower, but only where the contract actually contains the right |
If the stated grounds do not hold, or the notice and cure procedure was not followed, the owner becomes the breaching party and can owe the contractor for the work performed plus lost profit on what remained. Many owners discover this after the locks are changed.
What has to be in place
- A default that is genuinely material under the contract, not an accumulation of frustration
- Written notice specifying the default, in the manner the contract requires
- The full cure period allowed to run, even where you are confident it will not be used
- The site and the work documented thoroughly as of the termination date
- An accounting of what has been paid against what has actually been completed
- Confirmation of what lien rights exist and what sworn statements and waivers were obtained
- A plan for completing the work, including a completing contractor and the cost of the transition
- Consideration of any bonds or guarantees available on the project
What follows termination
The contractor almost always records a lien for what it says it is owed, and frequently claims wrongful termination. The owner claims the cost of completion above the remaining contract balance, plus any delay damages the contract allows. Those claims are then resolved together.
This is why the documentation done in the days around termination carries so much weight. The percentage of completion at the moment of termination, established by photographs and an independent assessment, is usually the single most contested fact in the case.
How these matters run
- The contract before the decisionWhat grounds exist, what notice is required, and whether a convenience right is available as a lower risk alternative.
- Notice and cure run properlyThe default stated specifically and the cure period honored, so the termination itself cannot be attacked.
- Condition documentedPhotographs, an independent assessment of completion, and a full accounting as of the termination date.
- Completion and claimsThe work completed, costs tracked separately, and the competing claims resolved together with lien deadlines protected.
Questions about ending a contract
My contractor has stopped showing up. Can I hire someone else?
Not without following the contract first. Bringing in another contractor before terminating properly can itself breach the agreement and can complicate your claim. Abandonment is often a valid ground, but it still requires the notice and cure the contract specifies. This is worth a call before anyone else starts work.
Can I stop paying while the work is defective?
You can generally withhold an amount reasonably related to the cost of correcting the specific defect. Withholding the entire balance over a limited issue is a common mistake and can put you in breach. The withheld amount should be documented and tied to a real estimate.
I am the contractor and the owner has terminated me. What now?
Preserve everything immediately: photographs of the work as left, your daily records, the payment history and all correspondence. Then check the lien deadline, which runs from your last day of actual work and does not pause because you were terminated. Call rather than using the form if that date is close.
The contractor is refusing to leave the site.
Handle it through the contract and, if necessary, the court rather than through confrontation. Removing tools or property, or preventing access in a way the contract does not permit, creates a separate claim against you and distracts from the merits of your position.
Call before you change the locks.
[PHONE]Matters with a lien deadline, a filing deadline or a hearing already on the calendar are handled by phone.