Termination

Clause 6.1 defines the meaning of insolvency.

Notices under section 6

Clause 6.2.1 requires that the notice shall not be given unreasonably or vexatiously. This requires the parties to act reasonably and parties are well advised to make proper enquiries.

Clause 6.2.2 and 6.2.3 are procedural and the contract needs to be observed as to the serving of notices.

Other rights, reinstatement

Clause 6.3.1 preserves the common law rights of the employer and clause 6.3.2 offers the parties for the contractor's employment to be reinstated on any other terms that the parties agree. The Contract allows a degree of flexibility here but care must be taken that the same legal entity is reinstated and that obligations are preserved.

Default by contractor

Clause 6.4 defines the 'default provisions that give rise to termination, these are:

• without reasonable cause wholly or substantially suspends the carrying out of the works;
• fails to proceed regularly and diligently with the works; or
• fails to comply with clause 3.9 (compliance with CDM).

Clause 6.4.2 provides for the notice to be issued. If the default continues for 7 days following the notice then the employer may on or within 10 days from the expiry of that 7-day notice terminate the contractor’s employment. Any contractor would need to be alive to such notices and the severity of the situation. Further, there may be genuine reasons why the works appear to be not proceeding regularly or diligently or are suspended for that matter and the contractor such seek to have the notice withdrawn or the situation clarified. The 2 stages of notices need to be observed so that an issue of wrongful termination of the contractor's employment does not arise. Equally it is the employer that needs to serve the second notice and not the architect/contract administrator. This is one of the most common mistakes made when dealing with termination of a contractor's employment.

Insolvency of contractor

Insolvency is defined in clause 6.1 and the key point in this clause 6.5 is that the notice is from the employer and its effect is immediate.

Corruption and regulation 73(1)(b) of The Public Contracts Regulations 2015

The provisions of clause 6.6 give an immediate entitlement to the employer to terminate the contractor's employment if the contractor or any person employed by him or her or acting on his or her behalf shall have committed an offence under the Bribery Act 2010. This provision applies to the contract in question and to any other contract with the employer. The clause is drafted to give employers significant and immediate recourse in the event of any offence under the Bribery Act 2010. Contractors must ensure that their staff and those acting on their behalf are fully aware of their company policies regarding bribery.

The second limb of clause 6.6 applies to where the employer is a Public Authority and cites the regulations applicable.

Consequences of termination under clauses 6.4 to 6.6

Clause 6.7.1 states that the employer may pay other persons to complete the works in the event of termination. This is subject to third party consents and states that those persons may use all temporary buildings, plant, tools, equipment and site materials for those purposes. In practice save for materials which would in the course of the works be valued the issue of hired in plant and tools can subject to hire agreements which should be transferred over or terminated. Further many suppliers retain title to goods and materials until paid for and any mployer needs to be aware of the  potential complexities of these issues.

Clause 6.7.2 confirms that the employer has no further obligation to make any payment or make payment of any sum that has become due.

Clause 6.7.3 states that upon completion of the works by others and the making good of defects an account shall be issued within three months by the architect/contract administrator or alternatively a statement prepared by the employer. This, in effect, is a full reconciliation of the amounts paid to the contractor less costs to the employer and any direct loss and/or damage for which the contractor is liable for whether arising as a result of the termination or otherwise. This provision needs to be properly followed and supported.

Default by employer

Clause 6.8 sets out the defaults that may arise from the employer, these are:

• fails to make proper payment due to the contractor which also extends to the VAT element;
• interferes with or obstructs the issue of any certificate under this contract; or
  
• fails to comply with clause 3.9 (CDM Regulations).

The contractor may give notice to the employer specifying the default or defaults, this notice needs to be served on the employer and not the architect/contract administrator and the contract needs to be followed regarding the serving of notices (clause 1.6).

On a practical level where the contractor suspects that the employer has interfered with or obstructed the issue of any certificate, care must be taken as this is subject to proof and dependent on facts and circumstances. For example, the employer may be making an observation or pointing out an omission which could be viewed as interference care must be exercised in reliance on the facts.

Clause 6.8.2 provides for the event where the works are suspended for a continuous period of 1 month due to:

• architect/contract administrators instructions under clause 3.6 (variations);
• any impediment, prevention or default, whether by act or omission by the employer, the architect/contract administrator or any employer's person.

These provisions give an entitlement to the contractor to give notice to the employer. In the event that the default continues for a period of 7 days from the date of the notice then the contractor may on or within 10 days from the expiry of that 7-day period give a further notice to the employer to terminate the contractor’s employment under the contract. The notice requirements must be observed and not confused with termination on notice. These provisions are 2-stage provisions and failure to follow the provisions would have disastrous consequences for the contractor. These provisions apply to a minority of contracts and are at the extreme, however, in difficult contracts parties do turn to terminate their employment under contracts. Another key point is that contractor’s and employer’s must be aware that they are terminating the employment under the contract and not as is so often the mistaken case that they are terminating the contract.

Insolvency of employer

Clause 6.9 covers the situation where the employer becomes insolvent. Upon this event and subject to the definitions of insolvency (clause 6.1) the contractor may by notice terminate his or her employment. This is simply by notice and has immediate effect from that point in time. The second part of this clause relieves the contractor from his or her obligations under Article 1 and of the conditions to carry out and complete the works shall be suspended.

The consequences of what happens following the employer's insolvency are covered separately under clause 6.11.

Termination by either party and regulations 73(1)(a) and 73(1)(c) of The Public Contracts Regulations 2015

This provision is available to both parties and covers the following situations:

• force majeure covers extraordinary events such as war, strikes, riots, flooding, earthquakes etc. Take care (particularly by those seeking to escape a contract) as there must be a degree of proximity to the contract;
• architect/contract administrator instruction under clause 3.6 issued as a result of the negligence or default of any statutory undertaker; again this must be exercised with care;
• loss or damage to the works occasioned by any risk covered by the works insurance policy or by an excepted risk;
• civil commotion or the use or threat of terrorism and/or the activities of the relevant authorities in dealing with such event or threat; this again is subjective and care must be taken in the use of this in the light of world events; and
  
• the exercise by the UK Government or any local or public authority of any statutory power that is not occasioned by a default of the contractor or any contractor's person but which directly affects the execution of the works.

The above events must cause the works to be suspended for a continuous period of 1 month. The notice requirement is 7 days following the 1 month's continuous suspension and there after the employment of the contractor may be terminated.

Clause 6.10.2 excludes situations where the loss or damage is caused by the contractors negligence or default.

Clause 6.10.3 covers The Public Contracts Regulations 2015, section 73(1).

Consequences of termination under clause 6.8 to 6.10

Clause 6.11 covers the consequences where the contractor's employment is terminated under 6.8 to 6.10 (or clause 5.7).

This clause puts in place a new regime for payment due to the contractor.

Clause 6.11.2 requires the contractor to submit an account as soon as reasonably practical; stating the value of work completed, cost of materials (including site materials) or materials properly ordered for the works that the contractor is legally bound to pay for; and any direct loss and/or damage caused to the contractor by the termination.

Cause 6.11.3 covers specific situations where clause 6.8 (default by the employer) or 6.9 (insolvency of the employer).

Clause 6.11.4 states that the employer shall pay such sums less amounts previously paid without retention within 28 days and subject to any goods becoming the property of the employer.