Termination for convenience by employer in construction contract

Abstract

Termination for convenience clauses is now present in many construction contracts. This clause essentially allows an employer to terminate the contract for his own convenience without having to specify the default that the contractor has committed. Contrary to termination for default where the power to terminate the contract rests on the contractual determination or common law termination, the invocation of the termination for convenience clause is biased towards the employer where the unilateral power to exercise the such clause rests on the employer. This may subject to clear abuse of discretion by the employer if the clause is improperly exercised and may lead to disastrous consequences if such termination results in wrongful termination. Limitations on the rights to terminate for convenience are necessary to ensure that the termination process is lawful and valid. This research study is conducted for the purpose to identify potential issues that prohibits the employer to terminate for convenience. Analysis of eleven (11) cases from Commonwealth countries are done to meet the research objective. In general, termination for convenience clause shall comply with the existing contractual terms for the entitlement of absolute right of termination exercisable by the employer. Further to that, the contract provisions shall specify the limit of the damages claimable by the contractor in any event of termination for employer’s convenience. The employer shall also act in good faith when exercising his discretion to comply with the validity of termination for convenience. Lastly, termination for convenience clause should not be read together with variation clause to omit the balance of the works. Hence, condition precedents are important to be specified to further enhance the duties and obligations of the parties involved in the agreement prior to termination for employer’s convenience for the fairness of contract.