Assessing Costs When Considering Terminations | FTI Consulting

Assessing Project Costs & Schedule Issues When Considering Terminations

Supplemental Information in Response to the July 16, 2020 NACA Roundtable

Forensic & Litigation Consulting | Construction

August 28, 2020

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This article will discuss the various considerations that should be made by a terminating party and the importance of properly reporting the financial and schedule status of a project at the time of termination. This article will also address some special considerations for COVID-19 that could affect a decision to terminate.

The potential need to terminate a contractor or subcontractor is a crucial decision that should not be taken lightly. In the current economic climate, many contractors and subcontractors will likely experience cash flow and performance issues when completing the contract and may in fact be unable to complete the project at all. When considering the termination of a contractor, owners must be aware of contractor/surety relationships, whether to terminate for convenience or cause, and if a termination for cause, are there sufficient grounds for the action?

Contractors terminating a subcontractor should consider if a replacement subcontractor would have the means to complete the project, and if the decision to terminate the subcontractor may ultimately subject the contractor itself to default or delay damages under its prime contract. Further, terminating a party that has initiated bankruptcy proceedings may be more difficult than anticipated for numerous reasons, presenting additional challenges that both owners and contractors must consider.

Once an owner or contractor has decided to proceed with a termination, whether it be for cause or convenience, it is important that the terminating party be able to quickly and accurately assess the status of a project for both costs and schedule status at the time of the termination.

This assessment is crucial as the project status at the time of termination is the basis for determining money owed to the terminated party and money that the terminated party or their surety will ultimately owe to the owner/contractor in a termination for cause.

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