Termination under JCT Design and Build

Termination by the employer

Default (clause 8.4)

If 1 of 5 specified circumstances of contractor default occur, the employer may issue a written notice to the contractor specifying the default. An event of default arises where the contractor:

  • without reasonable cause wholly or substantially suspends the carrying out of the works;
  • fails to proceed regularly and diligently with the performance of his or her obligations;
  • refuses or fails to remove defective work;
  • fails to comply with the assignment and subcontracting clauses; or

If the contractor continues with the default for 14 days from receipt of the first written notice, the employer may on or within 10 days from the expiry of that 14 day period terminate the contractor's obligations under the contract by way of a second written notice.

Insolvency (clause 8.5)

If the employer intends to terminate the contractor's obligations because of the contractor's insolvency, the employer must issue a written notice identifying 1 of the insolvency events in clause 8.1.

If the employer intends to rely on the contractor's insolvency as a ground for termination of the contractor's obligations, the employer should notify the contractor as soon as possible of the employer's intended reliance. Failure to notify of this intention may otherwise be construed as a waiver of the right to terminate.

While termination does not arise automatically on the occurrence of an insolvency event, certain other consequences do. These are as follows:

  • the provisions requiring payment and release of the retention are suspended. Following practical completion of the works and making good of defects, the employer must produce an account (clause 8.5.3.1 and 8.7.4) within 3 months. This should setting out the losses incurred by the employer as a result of the insolvency which may be set-off against sums due to the contractor. The employer is to pay the balance of that account or the contractor is to pay any shortfall (clause 8.7.5);
  • the contractor's obligation to carry out and complete with the works is suspended (clause 8.5.3.2); and
  • the employer may take adequate steps to ensure that the site, the works; and the site materials are adequately protected and that the site materials remain on site. The contractor must not to interfere with this right (clause 8.5.3.3).

Corruption (clause 8.6)

The employer can terminate the contractor's obligations, at his discretion, where under the contract (or any other contract) if the contractor or any person employed or acting for him have committed an offence under the Bribery Act 2010.

Consequences of termination by the employer (clause 8.7)

The employer may, if the contractor's obligations are terminated by reason of the contractor's default, insolvency or corruption, employ an alternative contractor to carry out and complete the works under clause 8.7.1.

The employer can require the contractor to assign the benefit of any agreement for the supply of goods and materials within 14 days of termination (clause 8.7.2.3). Provided the employer agrees to secure payment to the subcontractors or suppliers of what is due to them it is unlikely that they will object to any such assignment.

If it has not already occurred as a consequence of insolvency, the provisions requiring payment and release of the retention are suspended and the employer must produce an account (clause 8.7.3 and 8.7.4) and the contractor is to pay the balance of that account (clause 8.7.3 and 8.7.5).

Furthermore, if within 6 months of the date of termination of the contractor's obligations the employer decides not to have the works carried out and completed, the employer must notify the contractor of this decision (clause 8.8) and provide a statement setting out whether there is a sum owing to either party.