Suspension or Termination: Taking the Steps in the Right Order

Suspending or ending a construction contract is a sequence of contractual steps, and taking them out of order converts a strong position into a breach. The order they belong in.

Suspension and termination are remedies of last resort and both are procedurally strict. The party exercising them has to be right on the facts, right on the clause and right on the sequence, because a defective termination is itself a repudiation. The roadmap below is the order in which the steps belong, and the first stage is deciding whether you want this remedy at all.

Before stage one

Before anything else, be clear what outcome you want: performance, a replacement contractor, or an exit. Then establish the factual position with evidence, identify the clause you would rely on and take legal advice. This is the one area of contract administration where acting before advice is consistently more expensive than the delay in getting it, and the governing rules and remedies are revised from time to time so they must be confirmed at the time of acting.

• State in writing what outcome you are seeking and whether a remedy short of termination would achieve it.
• Assemble the evidence of the alleged default with dates, records and correspondence.
• Identify the specific clause and read its preconditions, notice periods and consequences.
• Instruct a licensed Saudi legal adviser before issuing any notice.
• Estimate the cost and time of completing the works with another contractor, as the realistic alternative.

Stage 1: Diagnose the problem before choosing a remedy

Separate the symptoms from the cause. Slow progress caused by a cash shortage calls for a different response from slow progress caused by an absent site team or by defective work. A contractor that cannot pay its subcontractors may be recoverable with a shorter payment cycle; one whose key staff have left needs a replacement team; one producing defective work needs the quality regime enforced. Termination addresses none of these quickly, because the replacement process itself takes months.

• Deliverable: A written diagnosis naming the cause, the evidence for it and the remedies that would address it.
• Owner: The project lead with the commercial manager.
• Approval gate: The diagnosis identifies a cause, not just a list of complaints.

Stage 2: Exhaust the contractual remedies short of termination

Most contracts provide intermediate steps: instructions to remedy defective work, notices to increase resources, acceleration provisions, the right to employ others for a specific item, and the deduction mechanisms. These are quicker, cheaper and they build the record that would support a later termination. A termination preceded by a documented series of properly issued notices is far stronger than one that arrives without warning.

• Deliverable: A record of each intermediate remedy used, with the notice, the period allowed and the response.
• Owner: The contract administrator.
• Approval gate: Every intermediate remedy available has been used or consciously discarded with a reason.

Stage 3: Confirm the ground and the preconditions precisely

Termination clauses list grounds and attach conditions: a specified default, a notice specifying it, a period to remedy, and only then a right to terminate. The ground relied on must match the facts you can prove, not the facts you believe. A notice citing the wrong ground, or issued without the preceding warning notice, can fail entirely and leave you in breach. Also check whether the clause requires the notice to be given by a particular person or in a particular manner.

• Deliverable: A legal opinion confirming the ground, the preconditions and the form of each notice.
• Owner: Legal counsel.
• Approval gate: The ground, the evidence and the notice wording have been confirmed before anything is issued.

Stage 4: Consider suspension as the intermediate step

Some contracts allow the works to be suspended, by either party, in defined circumstances. A contractor may have a right to suspend for non payment after notice; an owner may have a right to suspend for other reasons. Suspension preserves the contract while stopping the bleeding, and it can be the correct answer where the problem is temporary. It also has costs: standing time, security, insurance and the deterioration of unprotected work, all of which someone pays for.

• Deliverable: A suspension decision note with the clause, the notice, the duration expectation and the care of the works arrangements.
• Owner: The project lead with legal counsel.
• Approval gate: The cost of suspension and the care of the works during it are both addressed before the notice is issued.

Stage 5: Issue the notices exactly as the clause requires

Issue the warning notice specifying the default and the period to remedy, in the required form, to the required recipient, by the required method, and keep proof of delivery. Then wait out the period without instructing anything that could be read as a waiver. If the default is remedied, the right falls away and you return to the previous stage. If it is not, issue the termination notice in the same disciplined manner, citing the clause and the failure to remedy.

• Deliverable: Dated notices with proof of service and a note of the period allowed.
• Owner: The person named in the contract, advised by counsel.
• Approval gate: Each notice matches the clause requirements element by element.

Stage 6: Secure the site, the records and the materials immediately

On termination, take practical control: secure the site and the plant and materials the contract entitles you to, record the state of the works by survey and photography, take possession of the documents and the quality records, and establish the position on insurance and on the care of the works. This evidence is the basis of the account that follows, and it is available for a few days only.

• Deliverable: A dated record of the state of the works, an inventory of plant and materials, and the document set.
• Owner: The project lead with the supervising engineer.
• Approval gate: The condition of the works is recorded independently before any further work occurs.

Stage 7: Appoint a completion contractor on a realistic basis

A completion contractor is taking over somebody else unfinished work, with unknown defects behind finished surfaces and no continuity of supervision. Expect a reimbursable or remeasured basis rather than a lump sum, invest in a condition survey first, and accept that the price will exceed the remaining value under the original contract. Trying to let the completion works on a fixed price without a survey either produces no bidders or produces a claim.

• Deliverable: A condition survey, a scope for the completion works and an appointment on an appropriate basis.
• Owner: The commercial manager.
• Approval gate: The completion contractor has been given a surveyed scope rather than the original documents.

Stage 8: Prepare the account and pursue the security

The contract will provide how the account is settled after termination, typically comparing what the works ultimately cost with what they would have cost under the original contract, and bringing in the cost of the delay. Prepare it carefully, because it is the document that will be tested if the matter proceeds. At the same time consider the performance security and any parent guarantee, following the instrument terms exactly, with advice before any demand is made.

• Deliverable: A termination account built from evidence, and a decision on the security supported by advice.
• Owner: The commercial manager with legal counsel.
• Approval gate: The account is evidenced line by line before any demand or claim is advanced.

Handovers between stages

The handover from the original contractor to the completion contractor is the point where the project usually loses most money. Nobody owns the partly built work, the warranties are fragmented between two contractors and the defects liability position becomes ambiguous. Resolve it explicitly: a surveyed condition record at the transfer date, a clear statement of what the completion contractor is accepting responsibility for, and separate defects arrangements for the original and the completion work. The second handover is from the project team to whoever runs the dispute, and they need the complete contemporaneous file rather than a summary.

How you know it is finished

The process is complete when the works are finished by somebody, the account is settled or formally in dispute, the securities have been resolved and the record of every step is on file. The honest test of whether termination was the right decision is whether the project finished sooner and cheaper than the alternatives you considered at the diagnosis stage. Often it does not, which is why that stage deserves more time than the rest of the sequence.

Domira builds and supervises projects across Saudi Arabia, and the commercial discipline above is how its projects stay inside their budget and their programme. Send the drawings, the contract or the site and Domira will tell you where the risk actually sits.