Contract Suspension: Everything You Need to Know
A contract suspension is the temporary cessation of performance. It's not the same as suspension of a particular contractor or supplier.3 min read
2. Actions to Take Before Termination
3. Common Issues
Updated October 27, 2020:
A contract suspension is the temporary cessation of performance. It's not the same as the suspension of a particular contractor or supplier. It also differs from termination, which is a permanent cessation of performance.
About Contract Suspensions
In a contract suspension, either party can suspend a contract for specific reasons outlined in an agreement's terms and conditions.
To suspend a contractor or supplier means to suspends the party from taking part in the bidding process or from signing an agreement for a certain period of time due to a breach of contract or another offense.
Suspension and termination are closely related. The end result of a suspension may be the same as a termination, depending on how the agreement is written. In general, either party can terminate the agreement once the agreed-upon suspension period is over.
The justification for a suspension is broadly similar to the termination. For instance, a change of circumstances may occur, making the continued performance of the contract impossible.
On occasion, a party may suspend a contract so that it has time to think about how to proceed with a project. As long as the party keeps things within reasonable bounds, the other party usually finds this acceptable. It's important to consider what happens when performance is resumed after suspension.
Actions to Take Before Termination
There should be a provision in a contract that outlines the conditions required for either party to suspend or terminate the agreement. These conditions may be outlined in a contract's general conditions. The suspension doesn't necessarily result in termination.
One example that could lead to suspension is a supplier or service provider's inability to comply with terms and conditions for reasons outside of its control (e.g., Force Majeure).
During the contractual period, if any deficiencies come up, the first step should be to verbally address the problem with the other party. If satisfactory results are not achieved after a verbal notification, the party should take formal steps to communicate the issue and give the other party a certain period of time to fix the problem. If the second party doesn't remedy the deficiency in the stipulated timeframe, the first party may decide to suspend or terminate the agreement after considering any other available remedies.
Before moving to termination, the suspension should be considered. One of the major aims of procurement is awarding contracts to satisfy particular requirements. There are cost implications to consider in having to secure another service provider, contractor, or supplier, so parties should exhaust all other measures before termination.
Regarding complex construction projects, suspension and termination are often complicated and expensive to resolve. Litigation or other types of dispute resolution may result.
Owners and contractors should always keep detailed records and documents, such as the following:
- Progress reports
- Costs reports
- Other project documents
Keeping detailed records can facilitate accurate construction claims.
There are several reasons why a party may suspend a contract.
Contractors can submit suspension-related claims if a suspension goes on long enough to impact a project's progress or cause delays. Usually, a schedule delay analysis is required to evaluate the impact on a project's progress in a suspension-related claim.
Other contractor claims might include the following issues:
- Demobilization/remobilization costs
- Standby or idle costs
- Other actual costs resulting from the suspension
On a long suspension, a provision for compensation to the contractor may be included. This allows the contractor to demobilize from the site and later remobilize. This helps the project owner avoid continuously paying for labor and equipment that's not being used.
If an owner's actions hold up a project's progress, but the suspension clause isn't invoked, the contractor may be able to claim for constructive suspension.
If a dispute arises between the owner and contractor, with termination under consideration, one can implement suspension. In addition, some contracts include provisions that terminate the agreement if the suspension goes on past a specified duration.
Certain agreements — such as construction contracts — require timely performance, and when this doesn't occur, parties should have some recourse. They don't want to wait around indefinitely for performance to happen. A well-written contract can help you avoid many issues, so consulting a professional before you sign one is often beneficial.
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