Introduction

Termination is a way to conclude the contractual relationship due to the breach of obligations attributable to any of the contracting parties.

In the private construction contract, it is essential that the parties’ will is expressed clearly and precisely. Additionally, the annexes of the contract, budget, programs, general and particular specifications, scope of works, etc., must be clearly indicated in the text of the contract, since they become part of the rights and obligations agreed.

Regulation of the private construction contract

In Mexico, the private construction contract’s regulation is limited and obsolete due to its adherence to federal or state civil legislation. Since the regulation’s only focus is the lump sum contract, unitary and mixed price contracts are left aside. For this reason, the contract and its annexes will be the basis to solve controversies, using civil legislation as applicable law alongside the general principles of law and jurisprudence.

Regulating the termination of the private construction contract

In private construction contracts, termination is expressed directly in the clauses of the contract. Generally, it is stipulated as a right granted to the contracting party to terminate the contract when one or more breach of obligations events, directly attributable to the contractor, are agreed. However, if the breach of contract is attributable to the contracting party, the contract is generally silent or provides that the contractor must initiate a legal procedure, court, arbitration or alternative means of dispute resolution, to request the termination.

This situation is an example of what civil law doctrine calls the “Express Commissary Agreement”, the agreement between the parties to unilaterally terminate the contractual relationship due to breach by either party, without the need to go to court.

Although in common law systems the “termination clause” is used to conclude the contractual relationship, Mexican Federal Law does not expressly regulate the termination of the construction contract. It does, however, regulate the termination or contractual resolution in a general manner in Article 1949 of the Federal Civil Code.

Effects of the termination of the private construction contract

The termination of the contractual relationship is the first effect with immediate occurrence, yet economic effects and other events are also triggered.

If the termination is attributable to the contractor, he/she must deliver the part of the work performed, materials and already paid equipment, as well as all information delivered at the beginning of the contract. Afterwards, the settlement of the contract will be made to establish the credits in favor and against each party. If there are balances against the contracting party, it must make the immediate return of the resulting balance; if it refuses, the contractor will enforce possessed guarantees, usually bonds. If the contractor abandons the work site, all the described acts will be notified and summoned properly, but if the contractor does not attend, they will be carried out unilaterally.

If the termination is attributable to the contractor, it will be subject to courts, arbitration or alternative means of dispute resolution. The economic effects will be quantified in a justified and proven manner by the contracting party so that the contractor’s conviction can proceed. To achieve this, all claims must be perfectly documented: non-payment estimates, non-payment interests, requests for adjustment of direct and/or indirect costs, expenses and damages.

Conclusions and recommendations

  1. Termination of the private construction contract should be the last resort to resolve disputes, as it affects both parties but mainly the construction work in process.
  2. Termination can often be avoided by properly employing alternative means of dispute resolution, specifically independent expertise, expert opinion and dispute panels.
  3. If the contractor is immersed in a probable termination, it should immediately seek professional help to make a legal analysis of the documents generated in the construction work, in order to build a proper defense.
  4. If you have already been terminated from a private construction contract, you may go to court to request annulment or compensation for the economic rights in your favor, if they are well-founded and can be reliably demonstrated with full proof.
  5. If you are the contracting party and wish to terminate the contract, you must make a legal review of the contract and annexes, as well as a validation of all evidentiary material of the contractor’s breaches, in order to avoid unjustified cancellation and economic claims.