CONTRACT - Termination and Defaults by Contractors based on PWD203A

Post date: Jun 20, 2015 3:36:59 PM

Contract Form PWD 203A binds the Government and the Contractor to the true intent of the Contract as tendered physically and financially. In construction management, both are stakeholders. The Contract Document is a covenant that put both desirous parties into legal terms and conditions to complete tasks appropriately and more often observes time is of the essence, aside from physical and financial limits, terms and conditions.

1. In such condition, both have expressed and accepted their bargains and limits to the true intent of the contract. Contractual Document can never be a lie detector to ensure that both parties will play their roles to the true intent in order to complete the works as stipulated in the covenant.

2. Therefore, without prejudice; both parties that signed the covenant are willing to undertake task in completing the contract (to the true intent). In return, the Contractor will oblige to acts, laws, regulations, statutory requirements and continue to indemnify the Government. These obligations are stated in Clause of Contract 10.0 of the said Contract Form.

3. Nevertheless, in some conditions, the Contractor may not be diligent in their undertaking to execute works and possibly fraudulent instead of being professional. Therefore, the Government is not in place to be fully blamed (as many other international business ventures and contracts failed during the period of time in executing their obligations), instead to mediate and to conduct damage control to ensure the Government will not be in the losing end. Among the damage control would be (a) from holding the interim payment valuation for substandard works or non-conforming works or breaching of contractual limits, (b) contractual warning letter and (c) performance bond or bank guarantee. This is explained in detail in the Clause of Contract 56.0 [GOVERNMENT RECOUP CONTRACT COST]

4. Not all termination in construction industry mainly Government projects is due to incompetent Contractors. The condition of the initial contract may varied from what was planned and/or probably due to site condition. This is due to unforeseen obstacles by the Consultant(s) during the Preliminary Stage. From here, the Government will recoup the Contract cost by suing the Consultant and redeem incurred contract cost through Consultant's Professional Insurance (a very long process through High Court). In some Design and Build Contract, the failure of a design shall be borne by the Contractor under the Clause of Contract 22.0 through the Design Guarantee Bond. [GOVERNMENT RECOUP CONTRACT COST].

5. In some rare cases, a termination can be a mutual termination or due to Force Majeure. Contractor does not need to be in default for some cases of termination. Some works are not able to be carried out due to unforeseen circumstances, both agreed parties can go for Mutual Termination as mentioned in Clauce of Contract 50.3. If termination falls under this category, the Government is not hold responsible for any payment for construction cost incurred by the Contractor. [GOVERNMENT FREED FROM ADDITIONAL COST].

6. Aside from mutual termination, there are conditional termination of the Contractor where;-a. Contractor becomes bankrupt,b. Contractor becomes insolvents,c. resolution is effectively passed for winding-up,d. possession taken by creditors, and e. execution is levied against a substantial portions of assets.

7. Some may not be aware that the Contractor can be terminated due to National Interest, corruptions, unlawful or illegal activities.

8. A Contractor would think twice before defaulting a Contract since the Government shall be entitled to all losses, costs, damages and expenses including incidental cost and expenses incurred by the Government arising from the termination. [GOVERNMENT RECOUP CONTRACT COST].

9. At the end of the day, a termination is the last thing a Contractor would like to end up with after signing a covenant. The stake is high. These are some of the superficial understandings on Project Management and Contract.