Suspension of performance in construction contracts

Construction contracts will generally require that the contractorprogresses the works regularly and diligently. There is no common law right that allows suspension of performance of the works, however, there are contractual and statutory provisions under which the contractor may suspend performance.

The Housing Grants, Construction and Regeneration Act 1996 is intended to ensure (amongst other things) that payments are made promptly throughout the supply chain. Its provisions include:

  • The right to be paid in interim, periodic or stage payments.
  • The right to be informed of the amount due, or any amounts to be withheld.
  • The right to suspend performance for non-payment.

The Act applies to all contracts for ‘construction operations‘, including construction contracts and consultants’ appointments.

Following the 2011 amendments to the Act, parties have the right to suspend performance of any or all contractual obligationswhen a required payment of a notified sum has not been made. This includes, suspension of part or all of the works, but also other contractual obligations such as the provision of insurance. They will also be entitled to payment for reasonable costsincurred in exercising their right to suspend performance, and to have the period of suspension (and any consequential periods) disregarded when calculating the competition date.

The right to suspend only in relates to the contract for which payment has not been made and the party must not suspend statutory duties. Seven days notice must be given of the intention to suspend performance and the right ceases if the payment is made.

In some forms of construction contract, such as JCT contracts, there are also express terms allowing suspension for failure to make a payment by the due date. There may also be other circumstances in which the contract allow suspension of the worksClauses dealing with suspension tend to be similar in nature to those dealing with termination. In addition, there may be a right to terminate at end of the period of suspension or if the suspension becomes prolonged, with no prospect of re-commencing.

Suspension may be permitted due to a breach of contract by the employer, the employer becoming insolvent, as a result of force majeure, or by agreement between the parties, for example if circumstances make proceeding with the works temporarily impossible, if there are difficulties in determining how to proceed with a project or if the client has difficulty in raising funds to pay for the work to proceed at the speed anticipated by the contract.

The provisions of extension of time clauses also allow the construction period to be extended where there are delays that are not the contractor’s fault. For more information, see extension of time.

It is important to be certain that the circumstances do allow the works to be suspended, and that the correct procedures are being followed. If the employer has exercised some right under the contract to withhold or reduce payment, then wrongfully suspending the works could possibly amount to a repudiatory breach, where one party behaves in such a way that it indicates it no longer intends to accept its obligations under the contract, allowing the innocent party to terminate the contract and to sue for damages. However, in Mayhaven Healthcare Ltd vs Bothma it was found that this is not automatically the case.

The complexity of the situation means it may be necessary to obtain legal advice before suspending performance.

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