Construction Law/termination


QUESTION: a construction contract has been awarded to a joint venture of two companies wherein both parties are jointly and severally liable for executing teh contract. The contract provides TERMINATION by Employer if contractor becomes Bankrupt. teh question is if one party becomes bankrupt and teh other party continues teh performance including items in scope of bankrupt party, can teh Emplyer still terminate the contract?

ANSWER: Dear hemant,

You do not mention the form of contract, nor the applicable law so the following comments are generic.  Yes the Employer can terminate the Contract, but you need to think very carefully before you decide on your future actions.  Terminating the Contract and retendering it could cause delays and extra costs.

Has the remaining partner got the resources to complete the Contract?  If he has, then there could be a case for letting him complete the project.  However, it is unlikely as it was possible that the joint venture was formed to comply with the selection criteria.  

---------- FOLLOW-UP ----------

QUESTION: thanks for your reply and let it be generic. both the partners are qualified and the second partner can continue with the contract and have resources available. since both partners are jointly and severaly responsible and obe partner goes bankrupt, cant teh surviving partner insist to continue with teh contract.
teh employer has teh right to terminate the contract if the contractor becomes bankrupt. teh joint venture of the contractors is by way of an agreement and no separate JV company has been formed. so if one partner becomes bankrupt, does it mean that the Contractor has become Bankrupt to fall within the ambit of Termination clause giving right to emplyer to terminate?

Dear hemant,

It appears to me that you want a specific answer from me that I am unwilling to give.  The Employer must do a risk assessment.  If the remaining partner has the resources and the capacity to complete the Contract, then I see no justification for the Employer to terminate the Contract.  I can see the reasons why the remaining partner wishes to complete the Contract.  Any early termination could cause the remaining partner to become bankrupt, due to the loss of his performance bonds and subsequent loss of credit rating.  

Construction Law

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Peter M. Elliott


First response to queries regarding extensions of time, variations orders, site instructions and payment using FIDIC and other forms of Conditions of Contract, based on English Law, and derivatives only. Anyone who needs advice about EoT should download and study the SCL Delay & Disruption Protocol before submitting a question.


Value . . .
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Institution of Civil Engineers, Association of Chartered and Certified Accountants, Society of Construction Law, Dispute Resolution Board Foundation

B Sc(Hons) in Civil Engineering

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