Termination of a Contract - Essay Example

Dismissing a Contractor/ Supplier Introduction Termination of a contract is highly regarded as a contentious issue that should always be avoided inevery engineering project. According to Nec Contracts and Institution of Civil Engineers (2005), premature ending of a contract impacts negatively on the progress of the project due to time wastage, additional costs and arising disputes. However, in some cases, termination of a contract is inevitable. In particular, termination of a contract may involve the dismissal of a contractor under the advisory of an employer or a client. As a project manager, one is expected to advise the employer accordingly with regards to the legal implications of the dismissal procedure. This essay is aimed at discussing comprehensively the stipulated procedures for undertaking dismissal of a contractor or a supplier under the following conditions, in the event that the contractor’s work is defective, where the contractors work is causing delay and in incidences where the contractor is working in a dangerous manner. Guidelines presented in this discussions will be based on the New Engineering Contract (NEC) provisions of the United Kingdom. Dismissal due to contractor’s defective work The termination table under the NEC contract provisions details the procedure for the termination of a contract by the employer. The table provides that the employer may dismiss a contract given that the contractor has substantially failed to comply with the written obligations of the contract. Thus, defective working by the contractor could be categorized under this clause. However, NEC provides a framework for prior correction of defective processes and activities as a measure of mitigation to prevent termination of the contract. Under the clause for tests and inspections, it is expected that upon provisions of materials and samples by both the employer and the contractor for inspection, that the supervisor and the contractor notify each other of the inspection result. The contractor should correct any occurrence of defective work and the inspection should be repeated after correction of the defects. The test and inspection clause stipulates that the contractor should correct the identified defects within the defect correction period. Subsequently, the supervisor should issue a defect certificate latest on the defects date and towards the end of defect correction period. These provisions should prevent the onset of contract termination process due to substandard work by the contractor. If the contractor’s work is still defective, the employer may dismiss the contractor. However, the employer is mandated to follow a systematic and legal procedure outlined inside the NEC contract form. The employer should first notify the project manager on his or her intention to terminate the contract. The project manager will critically evaluate the details pertaining to the breach of contract agreement and make a resolution. The project manager only issues certificate of termination if the reasons and details of the termination request comply with the contract in question. According to NEC guidelines, after termination of the contract, the employer may complete the work by himself/herself or employ other parties. The employer may further use the materials and plants of which he/she has title over to complete the project. Under the payment of termination clause, the contractor will be obligated to pay for the actual cost of material and plant, the forecasted cost of removing the equipments, additional cost that may be incurred by the hired party, and additional cost that may rise in the completion of the project. In addition, the contractor is also expected to bear all risks associated with completion of the project. Termination of the contract due to delay by the contractor The contractor may warrant the employer to dismiss him/her contract before the completion of the project in situations where there are evident indications of deliberate delay of the project. The NEC provides that the contractor apply to the engineer in writing for appropriate extension of the completion date in case of occurrences of events that may hinder the progress of contractor’s work. These phenomena may include both natural and manmade events such as adverse weather conditions, flooding, demonstrations or shortage of raw material supply. NEC stipulates that contractor should apply for extension of the completion period within duration of seven days from the date of commencement of the stated phenomena delaying the normal routine of activities. However, the engineer may approve or disapprove the application based on his or her judgement of the reasons provided by contractor. Clause no. 8.3 of the Liquidated Damages will be applied from the expiry date of the extended completion period if the work will further exceed the extended time. The NEC strictly states that the contractor will be liable to pay as compensation, liquidated damages amounting to 0.5 % of the total value of work as documented in the letter of contract acceptance for every week while completing the task. In addition, the compensation amount should not be greater than 10 % of the total work value. Consequently, it is at the discretion of the employer to forfeit the compensation of delay by the contractor and terminate the contract entirely. In such a scenario, the employer should give the contractor a minimum of three days through a legal notice in writing form to vacate the project site. This form of contract termination could be based on work delay related issues such as abandoning of the project by contractor, prediction of substandard work by project manager due to frequent lapses by the contractor and suspension of the work for 15 days despite receiving project manager’s notice. The employer will notify the project manager and present details arguing for the termination of the contract. Upon assessment of the claims with reference to the contract, the project manager issues the contractor with letter of termination of work. The contractor will be expected to hand over all the materials and plants to the employer within a period of seven days from the reception of the letter. Consequently, upon termination of contractor’s work, NEC stipulates that the employer is permitted to seek services from any other agency in order to complete the project at the expenses and risks of the dismissed contractor. However, payment of 90% for the value of prior work that conforms to the standards of the contract will be made to the contractor. Termination of a contract based on health safety of the working environment In accordance with the provisions of Nec Contracts and Institution of Civil Engineers (2005), the employer may also terminate a contract based on working conditions provided by the contractor to his/her employees. According to Nec Contracts and Institution of Civil Engineers (2005), it is the mandate of contractor to identify hazards associated with the specified workplace, assessment of the related risks and further formulation of a framework to safeguard workers from hazardous factors or environment. Referring to the reasons stipulated for termination of a contract in the NEC form, working dangerously leads to violation of health and safety regulations. The employer will be obliged to terminate the contract if the contractor fails to mitigate violation of health and safety regulation within four weeks from the date of issuance of notice by the project manager. The process of termination will be similar to the process of terminating defective work by a contractor. First, the project manager will be notified of the termination process. However, the employer will be required to exhibit violation of health safety by the contractor. If the project manager approves the termination, he/she issues the contractor with a termination certificate. Because of the termination, the employer may undertake the completion of the project or employ an agency. The contractor will be required to leave the project site after handing over all materials and plants entitled to the employer. Similarly, premature termination of contracts results to payments. The contractor may incur the following costs, forecasted cost of completing the project, deduction of unpaid advancement by employer, actual cost of removing equipments from the site and fee percentage of any excess of the prices at the contract date divided by the price of the work done to date. Conclusion Although contract termination impacts negatively on the project, it is highly warranted in isolated incidences. Consequently, both the employer and the contractor are negatively impacted by the termination of a contract. New Engineering Contract form provides guidelines to be adopted in the implementation of new engineering projects to safeguard the interests of the employer and the contractor. The provisions provides for dismissal of a contractor in the event that the contractor performs substandard job, in the event of deliberate delay of project by contractor or when the contractor violates the health safety regulations and hence creating a dangerous working environment. The employer is at his/her own discretion to terminate a contract or employ the specific clauses of the NEC clauses to mitigate substandard services and breach of contract by the contractor. References Nec Contracts, & Institution Of Civil Engineers (Great Britain). (2005). Nec3 Framework Contract, An Nec Document. London, Thomas Telford. Read More