Validly terminating a building contract can release a contractor from future performance, but the money recoverable afterwards depends on the reason for termination, and the contract’s terms. There is no automatic entitlement to the whole of the unpaid balance of the contract price.
The same distinction matters for engineers, architects and other consultants whose appointments end before their services are complete.
Identify the Basis of Termination
Start by establishing which termination right was exercised, and whether any conditions were met. The contract may contain terms that dictate how work, materials and other costs are valued after a particular termination event.
A contractual right to terminate can arise without a breach being committed that is serious enough to support a claim for loss of the whole remaining bargain. An express compensation provision may nevertheless allow recovery of that future loss, depending on its wording. Equally, a valid contractual termination may coexist with a claim for a serious breach. The notice and the surrounding correspondence can therefore affect the analysis.
If termination was unjustified, the client may have its own claim. The amount recoverable cannot sensibly be assessed without considering that risk.
Payment Already Earned
Accrued rights generally survive termination. Outstanding payment for completed work or services may remain recoverable, subject to the contract terms, valuation and applicable payment requirements.
For a contractor, this may involve measuring work completed, assessing variations and establishing the treatment of retention. For a consultant, it may mean deciding whether a fee milestone was achieved or how partially completed services are valued under the appointment.
Do not assume that every retention becomes immediately payable, or that a final account is due on the date you leave site. Termination provisions may introduce a separate timetable or new conditions for payment.
Materials and committed expenditure
Materials ordered for the project, cancellation charges and reasonable demobilisation costs may be relevant under the contract or as losses caused by the client's breach. Each item needs a legal basis and evidence.
Check ownership and risk before removing materials or equipment. Some materials may already belong to the client, even if they remain in your possession or on site. The ability to reuse or sell materials can also affect the loss claimed.
Costs which would have been incurred regardless of the breach should not simply be added to every other claim. Identify what was wasted, what remains useful and whether the contract already compensates the same item.
Profit on the remaining work
Where termination follows a breach giving a right to recover the lost bargain, the contractor may claim the net profit it would have earned. That is different from claiming all unpaid future revenue.
For example, if the remaining work would have generated £100,000 in payment but required £80,000 in costs which are now avoided, the starting profit calculation is £20,000. Further adjustments may be required for overheads, replacement work, contractual limits and other relevant circumstances.
For a professional practice, the analysis should examine the services actually commissioned, the resources needed to deliver them and costs genuinely saved. A proposed future phase is not necessarily a guaranteed instruction.
Reduce Loss and Avoid Double Recovery
You must take reasonable steps to reduce losses claimed as damages. That may include cancelling unnecessary orders, redeploying staff or seeking replacement work. You are not required to achieve a perfect result, but the commercial choices should be reasonable and supported by records.
A claim for lost profit and a separate claim for wasted expenditure may overlap. The aim is compensation for the legally recoverable loss, rather than payment twice for the same financial consequence.
Keep the Account and Evidence Organised
Retain the contract, notices, applications, site records and a valuation at termination. Support each claimed cost with invoices, orders or payroll records, and explain the connection with the breach. Also examine the client's allegations of defects, delay or overpayment: counterclaims may affect the overall balance.
Termination and dispute resolution provisions will be at the heart of what can be recovered. If you need help ensuring you follow them, and in doing so maximise your recoverable amount, contact Hamshaw today. We can assist both with ensuring the termination is done correctly, and assessing the types of loss that can be recovered.