Key Takeaways:

  • Contract suspension temporarily halts performance without fully ending the agreement, often used in construction projects before termination is considered.
  • Proper documentation and adherence to suspension clauses are critical for avoiding disputes and supporting construction suspension and termination claims.
  • Contractors may recover costs for delays, demobilization, and idle resources if suspensions impact schedules or finances.
  • Proactive communication, recordkeeping, and understanding contractual rights help mitigate risks of litigation or costly project delays.
  • Knowing how to navigate construction suspension and termination claims protects both owners and contractors in complex projects.

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.

Key Differences Between Suspension and Termination

While both actions affect project performance, suspension and termination serve different purposes:

  • Suspension: Temporarily halts work to assess circumstances, address breaches, or mitigate external delays (e.g., permitting or weather). Work may resume under original terms or with adjustments.
  • Termination: Permanently ends contractual obligations, often resulting in contract closeout, claims for damages, and the need to re-procure services.
  • Impact on Claims: Suspension typically allows recovery of time and limited costs, while termination can trigger broader claims, including lost profits or liquidated damages.

Understanding these distinctions is critical for managing construction suspension and termination claims without unnecessary escalation.

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
  • Schedules
  • Invoices
  • Other project documents

Keeping detailed records can facilitate accurate construction claims.

Best Practices for Managing Construction Suspensions

To effectively manage a suspension and avoid disputes:

  1. Review Contract Clauses: Confirm notice requirements, duration limits, and allowable reasons for suspension.
  2. Issue Formal Notice: Written notice ensures clarity and compliance with contract provisions.
  3. Track Costs and Delays: Document idle labor, equipment, and extended overhead to support future claims.
  4. Coordinate With Stakeholders: Maintain communication with owners, subcontractors, and suppliers to mitigate cascading delays.
  5. Evaluate Mitigation Options: Consider partial work continuance, resequencing tasks, or temporary demobilization to control costs.

Implementing these measures reduces risk and strengthens any future construction suspension and termination claims.

Common Issues

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.

Common Claim Types and Cost Recovery

Suspension events often lead to construction claims. Common recoverable costs include:

  • Idle Equipment and Labor: Costs for on-site resources that cannot perform work.
  • Demobilization and Remobilization: Expenses for moving equipment and personnel offsite and back again if suspensions are prolonged.
  • Extended Overhead Costs: Additional administrative, insurance, and site maintenance costs during delays.
  • Schedule Impact Claims: Time-related damages, especially when suspension affects project milestones or liquidated damages exposure.

Owners should anticipate potential cost impacts, and contractors should document all losses thoroughly. Strong records often determine the success of construction suspension and termination claims.

Frequently Asked Questions

1. What triggers a contract suspension in construction projects? Events like force majeure, regulatory delays, safety concerns, or owner-directed pauses can trigger a suspension.

2. Can a suspended contract automatically lead to termination? Not always. Termination occurs only if suspension exceeds the period allowed by the contract or if parties decide performance cannot resume.

3. What costs can contractors claim during suspension? Contractors may claim idle labor, equipment costs, extended overhead, and in some cases, demobilization and remobilization expenses.

4. How can owners protect themselves from excessive claims? By clearly defining suspension clauses, documenting communications, and promptly resolving the causes of suspension.

5. Why is documentation critical in suspension and termination claims? Detailed records of delays, costs, and communications are essential to validate claims and defend against disputes.

If you need help with contract suspension, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.