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Avoiding Construction Contract Cancellation costs

Though we don't normally plan to, any number of factors can lead us to cancel construction contracts. This is especially true in the construction context, where even a rainy day can cause us to halt or abandon construction entirely. If construction contracts are not carefully considered before execution, these cancellations can be extremely costly.

A recent Oregon Court of Appeals decision reminds us the myriad ways how. In Shelter Products v. Steelwood Construction, a general contractor was dissatisfied with the work of his subcontractor. Raise your hand if you can already relate.

Seeking to terminate the relationship, the general contractor looked to the terms of their contract, which provided for termination for the general contractor's convenience. This "for convenience" provision, however, was rife with terms favorable to the subcontractor.

As a result, the Court decided that when the general contractor triggered the "for convenience" termination clause, the subcontractor was then owed a litany of costs related to the work, even though it was unsatisfactory work. The Court also found the provisions of the contract did not entitle the general contractor to offset that amount with the costs incurred in repairing the defective work.

Unfortunately, contractors' work is not always going to be what we envision or expect. But, cancelling contracts when that's the case doesn't have to be a costly proposition. Parties to a contract will always demand favorable terms before coming to an agreement. When carefully drafted, however, contract terms can take the extra step of reducing costs in the event of cancellation while still being favorable to both parties. 

Even when contract terms seem clear, you should always ask an attorney to review them to prevent these and other unexpected costs.

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