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Contract Termination Procedures

Document Type: Procedure
Version: 1.0
Last Updated: February 2026
Distribute To: Project Managers, Executives

Purpose​

Establish procedures for handling contract terminations, whether initiated by owner or contractor.

⚠️ IMPORTANT​

Contract termination has serious legal and financial consequences. Always consult legal counsel before terminating or responding to termination.

Types of Termination​

Termination for Cause​

  • One party breaches contract
  • Other party terminates due to breach
  • Specific grounds required
  • Notice and cure period typically required

Termination for Convenience​

  • Owner terminates without cause
  • Contractor entitled to costs incurred
  • Plus reasonable profit on work performed
  • Common in public contracts

Mutual Termination​

  • Both parties agree to end contract
  • Terms negotiated
  • Settlement agreement executed

Grounds for Termination (Typical)​

Owner May Terminate Contractor For:​

  • Failure to prosecute work
  • Failure to pay subcontractors/suppliers
  • Persistent safety violations
  • Abandonment of work
  • Failure to maintain schedule
  • Insolvency/bankruptcy
  • Material breach of contract

Contractor May Terminate For:​

  • Non-payment (after notice and cure)
  • Extended suspension of work
  • Owner's material breach
  • Failure to provide access
  • Unsafe conditions (owner-caused)

Termination for Cause Process​

If Receiving Notice of Default:​

Step 1: Review Notice Carefully

  • What breach is alleged?
  • Is it accurate?
  • What cure period?
  • What contract provision?

Step 2: Respond Immediately

  • Acknowledge receipt
  • Dispute inaccuracies
  • Outline corrective action
  • Request meeting

Step 3: Cure if Possible

  • Address legitimate issues
  • Document corrective actions
  • Provide evidence of cure
  • Request withdrawal of notice

Step 4: If Termination Occurs

  • Protect your rights
  • Document everything
  • Preserve records
  • Engage legal counsel
  • Consider counterclaims

If Issuing Notice of Default:​

Step 1: Verify Grounds

  • Document breach thoroughly
  • Confirm contract allows termination
  • Consult legal counsel
  • Consider alternatives

Step 2: Issue Notice

  • Written notice per contract
  • Specific about breach
  • Cite contract provision
  • State cure period
  • State consequences

Step 3: Monitor Cure Period

  • Document any response
  • Track cure efforts
  • Maintain records

Step 4: If No Cure

  • Issue termination notice
  • Per contract requirements
  • Document basis
  • Prepare for transition

Termination for Convenience​

Owner Terminates - Contractor Rights:​

Typically Entitled To:

  • Payment for work completed
  • Cost of materials ordered
  • Demobilization costs
  • Reasonable profit on work performed
  • Overhead on uncompleted work (varies)

Typically NOT Entitled To:

  • Anticipated profit on unperformed work
  • Consequential damages

Process:​

  1. Receive termination notice
  2. Stop work as directed
  3. Protect work in place
  4. Inventory materials
  5. Document costs
  6. Submit termination claim
  7. Negotiate settlement

Termination Checklist​

Immediately Upon Termination:​

Secure the Site:

  • Remove company equipment
  • Secure materials
  • Protect work in place
  • Document conditions (photos)
  • Secure records

Notify:

  • Subcontractors
  • Suppliers
  • Bonding company
  • Insurance company
  • Legal counsel

Document:

  • Work completed
  • Materials on site
  • Materials ordered
  • Work in progress
  • Percentage complete
  • Cost to date
  • Remaining costs

Financial:

  • Final pay application
  • Retain cost records
  • Track additional costs
  • Preserve lien rights

Termination Claim Components​

For Convenience Termination:​

1. Contract Price                     $__________
2. Less: Previous Payments            $__________
3. Cost of Work Performed             $__________
4. Cost of Materials (on-site)        $__________
5. Cost of Materials (in transit)     $__________
6. Cost of Materials (ordered)        $__________
7. Demobilization Costs               $__________
8. Profit on Work Performed           $__________
9. Overhead Allocation                $__________
10. Settlement Costs                  $__________
    ─────────────────────────────────
    TOTAL TERMINATION CLAIM           $__________

Subcontractor Termination​

When Terminating a Subcontractor:​

Before Terminating:

  • Review subcontract terms
  • Document deficiencies
  • Issue written notice
  • Allow cure period
  • Consult with counsel

Process:

  1. Issue default notice
  2. Document lack of cure
  3. Issue termination notice
  4. Notify bonding company (if bonded)
  5. Backcharge as appropriate
  6. Engage replacement
  7. Document all costs

Dispute Resolution​

If Termination is Disputed:​

Options:

  • Negotiation
  • Mediation
  • Arbitration
  • Litigation

Preserve Rights:

  • Continue documenting
  • Preserve all records
  • Meet all deadlines
  • Reserve all claims
  • Contract Review Checklist
  • Claims Procedures
  • Notice Requirements
  • Subcontractor Management

Template provided by support.construction. Always consult legal counsel for termination matters.