The contractor should try to ensure that the termination
for convenience provision includes language that
ensures that the contractor is paid for work performed
prior to termination, including for materials purchased,
overhead, profit and general conditions.
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damages claims by an owner, a contractor should make every effort
to include a mutual consequential damages waiver in the contract.
While the contractor would also be giving up its own ability to
potentially recover consequential damages due to a breach by the
owner, such as such as additional financing charges, lost profit on
other projects, home office overhead, etc., those types of damages
will generally be less than the typical consequential damages an
owner is likely to suffer. Therefore, a contractor is usually better
off obtaining a mutual waiver of consequential damages than being
exposed to unknown and potentially very large owner consequential
damages. If an owner is unwilling to waive consequential damages,
the contractor should at least try to negotiate some type of cap
or limit on the amount of consequential damages either party may
recover in case of a breach.
Termination for convenience
Termination for convenience provisions allow an owner or contractor
to terminate the construction contract or subcontract for
any reason, at any time and even without cause. A termination for
convenience can obviously have a significant negative effect on a
contractor’s or subcontractor’s finances. The contractor should try
to ensure that the termination for convenience provision includes
language that ensures that the contractor is paid for work performed
prior to termination, including for materials purchased,
overhead, profit and general conditions. The contractor should also
try to obtain language in the provision that fairly compensates the
contractor for profit and overhead on work not performed due to
the owner’s termination for convenience. Subcontractors should try
to limit the contractor’s right to terminate for convenience to only
those situations where the owner has terminated the contractor
for convenience. Subcontractors should also try to obtain language
providing that they must be compensated for work performed prior
to termination, including overhead and profit, and if possible, profit
and overhead on work not performed due to the termination.
Continued on page 99
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