How to terminate a contract

by Michelle Nelson
One of the issues coming across our desks more and more is that of termination of a construction contract/ The questions asked are usually: can we terminate this contractor/subcontractor for non-performance? What about termination because we can get a better price elsewhere? Or on the other side of the fence: we were terminated without reason or warning. Can we make a claim?
There are many difficult questions to be answered when teminating a contract.One of the issues coming across our desks more and more is that of termination of a construction contract.

The questions asked are usually: can we terminate this contractor/subcontractor for non-performance? What about termination because we can get a better price elsewhere? Or on the other side of the fence: we were terminated without reason or warning. Can we make a claim?

There are many difficult questions to answer in this area and many different answers and issues to be aware of. The most important thing to consider, however, is that any attempt to terminate a construction contract must be done with the utmost of care and must be done in accordance with the procedural requirements of the contract and/or the prevailing law. Failure to do so can result in extremely serious consequences and a potentially large claim for damages.


The lessons on this issue can (and should) be learned by everybody – employers, contractors, engineers and even lawyers advising on such issues. Indeed, I was involved in an arbitration a few years ago which centred upon the question of whether a main contractor had followed the contractual machinery in terminating the sub-contractor.

The arbitral tribunal in that case decided that there were fundamental flaws in the drafting of the termination notice with the consequence that the termination was wrongful – and that termination notice was actually drafted by a well-respected law firm. Not mine, I hasten to add.

Most construction contracts include provisions setting out both the grounds and the procedure for termination of contract – generally for default by one or other of the parties, but sometimes also for convenience – generally on the part of the employer.

For example, the FIDIC contracts contain detailed provisions on termination, including both the allowable grounds for termination and also the process which must be followed. In almost all cases there is also a requirement for giving notice to the defaulting party.

Here in the UAE, the civil code also contains certain provisions in relation to termination of contracts. It is a subject of debate whether a contract can be terminated without an order of the court in the absence of contractual provisions setting out the circumstances in which a contract may be terminated and setting out the mechanism to do so.  This is, however, outside the scope of this article, so I will not consider this further.

What is clear, however, is that the UAE law is particularly concerned that any such termination is done properly and fairly. The key requirement is that anybody seeking to terminate an agreement must give proper notice. Articles 271 and 272 of the UAE civil code provide that parties to a contract may agree that the contract can be terminated in certain circumstances upon giving notice.


Furthermore, article 877 of the code, which specifically deals with construction contracts, also provides the employer with the ability to terminate a construction contract in circumstances where the contractor’s work is defective, or the work has been carried out in breach of contract.

However, the key point to note in relation to this provision is that the contractor must be given the opportunity to make good his work/breach if it is possible to do so, before the employer is free to get somebody else to undertake the work and claim the cost of so doing from the contractor.

This is of course fair and reasonable. If an employer is contemplating removing works from a contractor which he would otherwise be able to carry out, the contractor must be absolutely clear that this is potentially going to happen.

This will then give the contractor the opportunity to remedy its own failings or, if it is unable to do so, or chooses not to do so, he cannot complain about having inadequate warning, or about not having the opportunity to do something about it.

Indeed, not giving the contractor this opportunity is also contrary to the requirement that parties to a contract must perform their obligations in accordance with good faith under article 246 of the code.

One might question why the law is so particular to make sure that a party seeking to terminate a contract does so properly and with good grounds. There are generally no compromises in satisfying the requirements. The answer to this is relatively simple.

Take, for example a situation where a contractor has signed up to a four-year contract to build 20 tower blocks. In signing up to that agreement he has first allocated his resources to that project and secondly made an allowance in his head office figures for a contribution from the project in question. Indeed, he may also have turned down other projects because he has allocated all of his resources to this one.

It would certainly be unfair for an employer to suddenly decide to remove the works from the contractor without good cause and without reference to any procedures agreed in the contract. The moral of the story, therefore, is to ensure that any steps taken to terminate a contract are taken with good grounds and executed in the proper manner. Otherwise, they are likely to be steps which the party in question wishes it had not taken.

Construction Week

  1. Harrassed Employer

    Dear All,

    Premise points
    1. FIDIC contract where the contractor is designated to do civil works
    2. Unit rates contract where design is by employer
    3. new / modified items introduced to contract, however, unit prices not mentioned. Near similar work price also not included in unit prices.
    4. The contractor raised BOQS with lumpsum for approval by Employer with no break up of quantities, prices, etc.
    5. Upon repeated requested – loss of time for employer – contract finally provided break ups of few items which clearly show multiple times market rates.
    6. Employer got quotation for same material and works from very highly reputed parties and shared the prices prevalling in the market.
    7. Contractor then claims that municipality has been given indeminity etc by contractor and hence works need to be done by Contractor at the exhorbitant rates given by it.

    Can Employer terminate the contract citing the above as the prices for new works was never agreed and contractor is charging very unreasonable rates and insiting that wrks need to be done at these rates by Contractor only?

    1. Harrassed Employer

      Edit in point 5 above

      5. Upon repeated written request – loss of time for employer – CONTRACTOR finally provide break ups of few items which clearly show multiple times market price (not agreed or written in original contract)

  2. Pls also assist …I did a supply and build contract …the employer moved to site and started using the works and. Supplied material but refused to acknowledge partial handover,nor even to pay as per agreed terms of contract…he went ahead to terminate contact siting or claiming that defects and snags have not been repaired on the works…which also is not true…and now they claim to want to recall our perfomance bond…do they have a right to terminate or call the pb…?

  3. Kindly advise….1what happens when a cot react is terminated by an employer under the guise the work was delayed by the contractor when the cause of the delay is purely caused by the employers refusal or delay to pay contractor as per the stipulated terms of the contract,
    2. Is employer entitled to liquidated damages beyond what is stipulated in the contract terms

  4. Dear Skaik,
    I am a main contractor in Dubai.
    I want to terminate the contract with my subcontractor.
    I sent the notice to terminate to his office which was designated as an official communcation place between I and my subcontractor.
    However I heard that the subcontractor was missing and his office was closed and nobody was in his office. The notice which I sent before was not returned to me yet.
    TO send the notice to terminate to his office is enough to terminate the contract? or I have to post public notice to terminate the contract in the newspaper becasue he was missing?
    The contract was silent about this matter.
    Please help me!

    1. Hello Iara

      You need to have a court order in order for you to terminate the contract. You can’t terminate it without it.

      1. Dear Sir,
        Thank you for your answer.
        I am wondering if I have to get a court oder when the subcontractor breaches the contract and according to the contract with the subcontractor, I have a right to terminate a contract.
        when the contract provides that the contractor can terminate the contract with the sub contractor under some circumstances, I think I do not have to get the court order.
        Please clarify me.
        Thank you

        1. I agree with you that this is very debatable and since the UAE uses civil code not common law, there is no guarantee that you can terminate without having a court order.

          My advice to you: Be in the safe side and get it if you are really serious with termination.

          You may refer to some articles in CMguide about the same issue.

    1. You need to exmine the termination clause in your contract. Under FIDIC 1987, Employer terminate the contract due to unforeseen economic conditions pursuant to clause 69.1 (d). However, you will be entitled to claim loss of profit and other losses or damages pursuant to clause 69.3.

  5. what do you mean by proper notice of termination? what if the notice of termination is sent and other party refuses to accept it?what does law of Qatar have to say on this?

  6. Dear Sir,
    Correct me if I am wrong. My experience under PAM condition of contract is – when employer defaults in payment, the main contractor has no other alternative except to terminate the contract. At times, the main contractor wishes to continue with the intention is to slow down, however, the main contractor should not STOP WORK, with the slow down action, the main contractor received instruction from the SO that work progress is slow and may not give extension of time. On such situation, what is the better action to take since the Employer is still at the upper hand of not paying yet not allow to slow down not to mention stop work ?

  7. my question is it easier to get a visa from qatar to the united states? what is the process of transferring your contract to work in the U.S?

  8. Dear Elyssa:

    We at Construction Management Guide may not be able to intelligently answer your query unless you profound some facts more.

    Kindly answer these questions:
    a. What contract are your referring in your question?
    b. What “job” being referred to in your second query?

    Civil Codes (both Qatar & UAE) prescribe the prevailing law in case of dispute between parties. Insofar as the Civil Code of Qatar, Article 27 thereof states that “substantive rights and obligations under a contract are governed by the law of the domicile when such domicile is common ‎to the contracting parties and, in the absence of a common domicile, by law of the place where the contract was concluded. ‎These provisions are applicable unless the parties agree, or the circumstances indicate that it is intended to apply another ‎law x x x”.

    Based on this aforequoted of the Code, the right to terminate a contract, being a “substantive right”, is to be governed by the laws of Qatar if both are residents of Qatar, otherwise it will be governed by the law of the place where the contract was concluded. If the contract was concluded in Qatar, then Qatar Laws will apply. Conversely, if it was executed in the US, then US laws will apply. (Note that a “renvoi” situation may exists if neither laws take jurisdiction over the dispute)

    Insofar as Qatari laws are concerned, termination of contract will be governed by the provisions of the New Civil Code (Law No. 22 of 2004), and provisions under this new law suggest that termination of contract is essentially a “judicial prerogative” save in “urgent” situations where one party to a contract may “extra-judicially” terminate the same after service of written notice to the other party.

    The problem here in most Gulf Countries lies when contract provisions empower one party to terminate the contract by mere service of written notice, thereby foreclosing recourse to judicial action. This writer believes that while “extra-judicial” termination is ordinarily permissible under common law the same is definitely not, with few exceptions, under Civil Law. This is made particularly absurd when the parties limit thier recourse for relief under the contract by Arbitration or Arbitral action which, this writer submits, is not contemplated at all by law when it speaks of “judicial” action, arbitration being non-judicial in nature.

    Expediency of contract termination, to my view, is better for both parties, if pursued under the auspicies of a competent court because the rights of both parties are adequately safeguarded in accordance with governing law, irrespective of whether the action is done in Qatar or in the US.

  9. is it easier to terminate contract and apply in the U.S? will it be valid if from Qatar to the U.S. get a job that is legal?

  10. Termination of contract is indeed one thorny issue besetting the construction industry, and this process is made particularly interesting with the interplay of causations under common-law drafted contracts and enforceability of the same under Civil Law.

    FIDIC types of contracts, this writer opines, fall within what Civil Law consider as “contracts of adhesion”, where onerous, ambiguous and arbitrary provisions are generally construed against the party who drafted or prepared the contract, in this case the Employer. Otherwise stated, clauses on termination, implied or constructive termination, implied abandonment by employer, waiver of notices, disclaimers, etc. will be viewed by Courts more in favor of contractors.

    Termination of contract pursuant to a clause that affords the exercise of such right ipso facto (without prior recourse to court order) is sustainable under the Civil Code. However, the requirement on prior service of notice to the other party cannot under any circumstance be dispensed with.

    In most Civil Law jurisdictions, UAE included, rights under the contract are considered “property rights” within the meaning of Constitutional injunction that “no person shall be deprived of rights, liberty and property without due process of law, and service of written notice is considered minimum compliance to due process.

    Insofar as implied or constructive termination of contract under Clause 40.3 of the Dubai General Conditions of Contract (equivalent to clause 40 of Qatar’s Gen. Conditions of Contract), where notice is obviously suppressed to skirt the employer’s motive to terminate, employer’s will be ill-advised to resort to such scheme in the absence of legally sustainable grounds.

    (Nota Bene: Extensive analysis on termination and other contract issues form part of this writer’s Book entitled: Contracting Guide under Law No. 22 of 2004-The Civil Code of Qatar)

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