Back to Basics # 48 NEC4 - Termination Procedures

Back to Basics #48 NEC4 - Termination Procedures

NEC4 sets out four procedures for termination. The procedure that is to be followed will depend on the reason for the termination, and the party terminating the contract. Clauses 90.2 identifies the procedures that are to be followed under each of the given circumstances.

The procedures on termination are:

• P1 - The Client may complete the works and may use any Plant and Materials to which it has title (Clause 92.1).

And one or more of the following:

• P2 - The Client may instruct the Contractor to leave the Site, remove any Equipment, Plant and Materials from the Site and assign the benefit of any subcontract or other contract related to performance of the contract to the Client.
• P3 - The Client may use any Equipment to which the Contractor has title to complete the works. The Contractor promptly removes the Equipment from Site when the Project. Manager informs the Contractor that the Client no longer requires it to complete the works.
• P4 - The Contractor leaves the Working Areas and removes the Equipment.

Procedure P1 applies to any reason for termination by either the Client or by the Contractor.

Procedure P2 only applies to the Client terminating for one of the reasons in R1 to R15 (bankruptcy/insolvency of the Contractor), R18 (a default by the Contractor) or R22 (a Corrupt Act by the Contractor).

Procedure P3 also applies to the Client terminating reasons above (R1 to R15, R18 and R22).  It also applies where the Client terminates for R17 (if the Parties have been released under law from further performance of the whole of the contract) or R20 (Termination under Clause 91.6; where the Project Manager instructed substantial works to stop or not start, and no instruction to re-start or start or removing work from the Scope was given within thirteen weeks – where the instruction was not due to a default by either the Contractor or the Client).

Procedure P4 applies to any termination by the Contractor for the reasons in the contract (R1-10, R16, R17, R19 and R20).

Procedure P4 also applies to termination by the Client under R21 (R21 is where an event occurs that:

• Stops the Contractor completing the whole of the works, or
• Completing the whole of the works by the date for planned Completion shown of the Accepted Programme.
• And is forecast to delay Completion of the whole of the works by more than thirteen weeks.
• And which neither Party could prevent.
• And an experienced contractor would have judged to have such a small chance of occurring that it would have been unreasonable to have allowed for it (Clause 91.7)).

It is crucial that the notification of termination is drafted and served correctly. An invalid notice could cause the terminating party to be in repudiatory breach of the contract and may impact on entitlement and on compensation.  It is prudent to check thoroughly, that the event giving rise to the termination is valid reason and has occurred.

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