Commercial construction projects, regardless of scope, often experience delay or other problems. At times, these problems may cause the owner of a business to cancel a construction contract with his general contractor. Because commercial construction projects are usually governed by a written contract, the written contract forms the basis for determining whether a business owner can terminate that contract, and under what conditions. Most contracts also address the issue of what payments or damages a general contractor might be owed upon termination of the contract. Business owners should contact an attorney to help assess liability prior to terminating a contract with a general contractor.
Read your contract carefully to determine under what circumstances you can terminate the contract. Some contracts are terminable upon breach of contract by the general contractor, and others provide other situations in which the contract can be cancelled, such as convenience. Hire an attorney to review the contract for you and advise you whether you can terminate.
Send notification of breach of contract to the general contractor, if applicable. If the general contractor is not performing, most contracts require the owner to make a performance demand, which usually consists of a letter asking the contractor to complete the work. Your contract may specify the method in which you must send the demand; if so, use that method. If your contract does not specify the method of notice, send it certified mail, return receipt requested, or by another method that requires the general contractor to provide a signature. This prevents later claims by the contractor that he did not receive the notice.
Look for a termination for convenience clause in your contract. If you are not seeking to terminate the contract due to the general contractor’s breach, a convenience clause will allow you to terminate the contract for any reason, such as loss of financing. Consult an attorney to help you determine the proper amount for final payment, as most convenience clauses grant the general contractor payment for work completed, as well as lost profits on the remainder of the project.
Search for a new general contractor if you are planning to continue your project. Having an idea who you would like to use can help prevent project delays. However, do not sign any new agreement with another contractor until you have properly terminated the first contract. Failure to do so can lead to liability with the second contractor if the first contractor performs fully under the contract.
Send a notice of termination to the general contractor. Make sure that your notice complies with all termination requirements contained in the contract. If your contract does not specify the method of notice, send it certified mail, return receipt requested.
Submit final payment to the general contractor. Consult an attorney who can help you calculate damages if you are not sure how much you should pay.
Evaluate your payment liabilities to any subcontractors working on the job. Usually, the general contractor is responsible for paying a subcontractor, but some contracts specify that the owner pay subcontractors directly. Pay any subcontractors as necessary, determined by the terms of your contract, if they will no longer be working on the job site.
Obtain a release of liability from the general contractor if possible. This document states that all payments have been made and may prevent the general contractor from filing a lawsuit against you.