Thursday, July 27, 2006

Terminating the Contract - The Contractor

When can a contractor terminate the contract? That question should be answered first and foremost within the contractor's contract itself. The contractor should have clear grounds listed for termination, how damages will be determined, and how disputes will be resolved. Hopefully you will notice that there has been a theme running throughout this topic. The contract should be comprehensive and contractors should have their contracts reviewed on a regular basis to make sure that they are availing themselves of all possible protection under the law.

What if the contract does not spell out when a contractor can terminate the contract? Then the contractor must have a clearcut basis for ending the work so he will not be found to have defaulted or abandoned the job.

The most obvious reason to stop working is when a contractor is no longer getting paid. Hopefully the contractor has a detailed schedule of progress payments in the contract, so he will find out quickly enough if the homeowner is not willing to pay him. One does not want to do too much work, or invest in custom materials, if a homeowner's checks start to bounce or are not forthcoming. If the contractor is not paid within a reasonable amount of time, then she should document that she will not be providing any further services until the funds are received.

Document, document, document...

The contractor needs to show that he or she is acting in an honorable fashion. He should make sure that the homeowner is not unhappy with the work, or not paying for some other reason.

What if the homeowner is making it impossible for the contractor to do the work? If other subs need to complete stages of the job before the contractor can do his piece, or if the homeowner hires outside personnel (an alarm company for example) who interfere in his progress? Again, the contractor must document why the project is not progressing, and what the homeowner must do in order to get the work back on track. Then he can state that the contract will be terminated if the homeowner does not cooperate.

Finally, there is the difficult micromanaging client (certainly worthy of another post). The contract should address the conditions under which a contractor is willing to work, but if it does not, then the contractor should again document the unacceptable behavior and explain that the contract will be terminated if the homeowner makes if impossible for him to finish the job.

Terminating the contract is a sticky issue. The contractor does not want to be accused of abandoning the work or being in default of the contract. At the same time, conditions can reach a point where it is impossible for the contractor to continue. For this reason, it is important to establish a paper trail to document the problems and the consequences if the homeowner does not comply with the contractor's requirements.

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