Review of Termination for Default Provisions in Standard Contract Forms and Drafting, Administrative, and Operational Considerations for Contractors and Owners

A contract termination for default (T-for-D) is a drastic remedy that an owner maintains against a contractor under standard construction contract forms. An owner can default-terminate a contractor based on significant breaches of contractual obligations that remain either uncured or lack a proper plan for a cure after the issuance of a notice of default letter. The cure period is a preestablished period of time during which the contractor has one last opportunity to fix or plan to fix a material default. The propriety of a T-for-D is often challenged by the terminated party in litigation or arbitration. This paper begins by identifying nontermination remedies that owners should consider prior to issuance of a T-for-D. Next, it includes an in-depth comparison and review of T-for-D provisions for three standard owner-contractor contract forms, which establishes that the terminable events are largely consistent between the forms, but the cure procedures and cure durations vary from form to form which establishes that the terminable events are largely consistent between the forms, but the cure procedures and cure durations vary from form to form. Also, it provides an analysis of T-for-D requirements in performance bond forms associated with the noted owner-contractor contract forms; thus, on bonded projects, owners must understand and follow the prescriptive T-for-D requirements of both documents. Based on the results of these three analyses the authors offer drafting recommendations for owners and contractors on termination sections of standard contract forms and provide other administrative and operational considerations for owners and contractors that are navigating a potential, current, or past T-for-D.