Volume 8 - Number 9 | March 1, 2010

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Recent Issues

  EDITOR'S NOTES | Issue 8-9
Project owners usually reserve the right, under the terms of a construction contract, to terminate the contract without cause. This termination for convenience provides needed flexibility, allowing the owner to respond to contingencies such as diminished financing or changing market conditions. The contractor that is not in default is compensated for all work performed prior to termination, plus reasonable "settlement costs" incurred in closing out the contract.

Project owners are sometimes tempted to use a termination for convenience to gain tactical advantage in claim situations. An example is found in a recent case in which a contractor sought payment at the contract price for a quantity overrun. The government agency responded with a termination for convenience and tried to pay the contractor for the overrun at cost plus a reasonable profit, an amount considerably less than called for under the contract. The owner was not allowed, however, to subvert the contract price in this manner.

Other cases reported this week involve the scope of partial lien waivers and a contractor's default for failing to assure timely completion. The lien waivers, submitted in support of applications for progress payments, were interpreted to waive claims for extra work and delay damages, not just payment for the contractual scope of work. And, the default termination was upheld despite the contractor's numerous revisions to its progress schedule.
  TERMINATION FOR CONVENIENCE DID NOT AFFECT CONTRACT PRICE ADJUSTMENT

Under the terms of a contract, a contractor was entitled to a price adjustment based on actual quantities of work performed. The government could not use a termination for convenience to disregard the contract unit prices and compensate the contractor only for costs plus profit.
  PARTIAL LIEN WAIVERS APPLIED TO EXTRA WORK AND DELAY DAMAGES

Waiver and release forms signed in conjunction with applications for progress payments were not limited to the contractual scope of work. The release applied to claims for extra work and delay damages.
  CONTRACTOR SCHEDULE REVISIONS DID NOT AVOID DEFAULT

A contractor failed to assure the government it had a reasonable likelihood of achieving timely completion. The contractor’s delay was not excused by the cumulative impact of numerous change orders.