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Termination of Contract
We have already spoken a lot about a Contract and its various components including change in scope etc. and now let me throw some light on the Termination of a Contract and various aspects related to this critical matter.
A. Termination - is one of the most fearful words, be it in the context of any aspect of our life or any agreement. It is almost rare that Termination does not leave behind a scar. In Construction Law, particularly, the process of termination requires to be handled delicately and its consequences need to be understood clearly. It is a double edged sword, wherein Contractor also gets hurt to a large extent.
B. Process of termination - --------
C. Right to Payments on Termination - -----------------------------

D. Free Will to Enter into a Contract - ----------------------------

E. Ways of termination of Contract – There are four major ways in which a Contract gets terminated excluding Completion of Contract, and those are:
• Impossibility of Performance (Frustration)
• Breach of Condition of Contract
• Foreclosure
• Rescission

F. Interests in Contracts – All Contracts are entered into, to have three principle interests –

i) Interest of Expectation –-----
ii) Interest of Reliance – ---------
iii) Interest of Restitution – ------------

G. Types of Termination – The termination of Contract, unless frustrated is of two types: -

i) Termination for Convenience - Termination for convenience is also known as ‘no default termination’. It allows a party at any time for its convenience to terminate Contract by a notice with or without indication of a particular Clause in the Contract. The Contractor will have the right to receive the cost incurred up to termination and recover the damages resulting from such termination.

ii) Second type of Termination is - Termination for default –
H. Default for the Termination – Before the default is decided, it is important to consider following facts: - --------


I. Termination Notice – Wherever the Notice of Termination is required to be served as per Contract, it is mandatory to serve the notice to the authorized agency, providing a Cure Period to improve the performance, failing which there could be an automatic termination. The notice must include briefly narrated events of defaults which has prompted the issue of termination notice.

J. Duress - From purely whimsical act - to termination without any legal ground - to circumstances of duress, there are a number of grounds for termination and they could be many not limited to the following -

• Defaults in Contracts.
• Lack of Resources to cope up with agreed programme.
• Object of Contract is lost.
• No skill to perform work to required workmanship and specification.
• Lack of willingness to abide by instructions of Engineer-in-charge / Govt. Authority.
• Inability to make up loss of time.
• No will and Resource to amend Breach of terms of Contract.
• Breach of terms of Contract – Time at large.

K. Fundamental Breach –is, which destroys the possibility of further performance and it may frustrate commercial purpose and parties or party may see no sense in performing the Contract. In Techno-legal parlance, the modern test of Fundamental Breach or Frustration is -

“Does the occurrence of event deprive the party of Substantial benefit which was intended as consideration for performances?”

In construction law, the phrase “Material Breach” is same as Fundamental Breach making further performance against interest of the party. Right to Terminate is usually provided for “Repudiatory Breach” whereby a party wants to only demonstrate his decision not to discharge his Contractual obligations.

L. Consequences of illegal Termination – As and when a party illegally terminates a Contract, the aggrieved party is entitled to compensation under section 73 of Indian Contract Act. In construction, damage naturally arising out of Breach (illegal Termination) are as below -

Damages For Contractor –

a) Profit on balance work, due to harm to “Interest of expectation”.
b) Untimely demobilization of Resources.
c) Partial utilization of Infrastructure created.
d) Consequences of failure of vendors Contract.
e) Loss due to distress sale of balance of material at Site.
f) Compensatory Retrenchment cost for Resources hired and employed to complete the works.
It is important to note here that - A party illegally terminating a Contract has no right to have counter Claims.

Conclusion: -
‘Termination’ should be the last option for Govt. Authority and Contractor. Experience has shown that the party which has terminated the Contract as a soft solution to Contract administration, has not favored a repeat experiment of Termination. Admittedly even at a high price, termination is the last and only resort.
construction project management civil engineering time lapse fnf contract law