Default termination is a serious sanction for construction contractors – tales abound of lost bonding capacity, the inability to borrow operating capital, disqualification from bidding, etc. But, default termination is also a serious – and deleterious – step for a project owner.

The removal of a contractor from a project, which is almost guaranteed to prompt a dispute, is only the first step. The owner then must reprocure the remaining work on the project. The owner may or may not be working with the performance surety of the defaulted contractor. Delay is inevitable. Increased cost of completion is not unusual.

In a recent federal contract case, a defaulted contractor argued that it had been willing to complete the project, albeit late, and pay liquidated damages. The contractor contended this would have been less costly to the project owner than the default and reprocurement. The owner was obligated, said the contractor, to perform a comparative cost evaluation prior to terminating the contract for default. The contractor lost this argument, but it does raise an interesting point.

Other cases this week involved the ability of a licensed individual to do business under a fictitious name and a state regulation limiting a bidder’s aggregate amount of uncompleted work. The individual was allowed to use the fictitious name and, as a licensed contractor, could recover payment under the contract. And, the state regulation applied not only to bidders on the prime contract, but to their listed subcontractors as well.