FIDIC

Employer’s Right to Terminate for Contractor Default Under FIDIC

Termination for contractor default is a powerful remedy — it allows the employer to remove the contractor from site and complete the works using others. However, the right is conditional: proper notice must be given, the contractor must be in genuine default, and the procedure must be strictly followed. Wrongful termination creates substantial liability for the employer.

7 min read · Updated 23/05/2026

In this article

1. Grounds for Termination for Default
2. Notice and Opportunity to Cure
3. The Termination Process
4. Effects of Termination
5. Wrongful Termination — Consequences
6. Practical Considerations

Key takeaway

Termination for contractor default is available only where the contractor commits a material breach and fails to remedy it within a specified notice period. The procedure is strict: notice must be clear, the contractor must have a genuine opportunity to cure, and the breach must be continuing at the point of termination. Wrongful termination — termination without proper cause or procedure — can result in damages for wrongful repudiation.

1. Grounds for Termination for Default

FIDIC Red Book 2017, Clause 15.2 sets out grounds for termination for contractor default. The main grounds are:

• The contractor abandons the works or fails to proceed with due diligence
• The contractor fails to comply with the programme or progress requirements (persistent failure to maintain progress)
• The contractor fails to comply with safety, environmental, or insurance obligations
• The contractor becomes insolvent, bankrupt, or enters receivership
• The contractor breaches a fundamental obligation and fails to remedy the breach within a notice period

Not every breach justifies termination — only material breaches do. A temporary delay, a minor quality issue, or a short-term payment default may not be grounds for termination. The breach must be significant enough to justify removing the contractor.

2. Notice and Opportunity to Cure

The contractor is entitled to notice and an opportunity to remedy the breach. FIDIC typically requires 28 days’ notice stating the default and requiring the contractor to remedy it within that period.

The notice must be specific: it must identify the default with precision, state why it constitutes a material breach, and clearly explain that if the default is not remedied within the notice period, the employer may terminate.

A generic notice — “your work is in default” — is inadequate. The notice must pinpoint the issue: “Your work is in default because you have failed to achieve 40% progress completion by 30 April 2026 as required by the contract. Your current progress is only 25%. You must achieve 40% completion by 31 May 2026 or termination proceedings will be commenced.”

The contractor must be given a genuine opportunity to remedy. If the default is remediable (which most are), the contractor is entitled to time and resources to fix it. A contractor denied a genuine cure opportunity can challenge the termination as wrongful.

3. The Termination Process

The termination process requires strict procedural compliance:

1. Notice of Default (Step 1): Issue a notice identifying the default and requiring remedy within 28 days
2. Wait Period (Step 2): Allow 28 days for the contractor to remedy. If the contractor remedies within this time, the default is cured and termination is not pursued
3. Confirmation of Continued Default (Step 3): If the default persists, issue a termination notice confirming that the contractor remains in default and termination is effective immediately (or on a specified date)
4. Take Possession (Step 4): Take possession of the site, plant, and materials. Remove the contractor’s personnel. Secure the works

Each step must be documented. Failure to follow the procedure — for example, issuing a termination notice without first issuing a 28-day notice of default — can render the termination wrongful and challengeable.

4. Effects of Termination

On termination, several consequences follow:

5. Wrongful Termination — Consequences

If the employer terminates without proper cause or without following the procedure, the termination is wrongful. Wrongful termination has serious consequences for the employer:

• Repudiation of contract: Wrongful termination may constitute repudiation by the employer, which entitles the contractor to treat the contract as discharged and pursue damages for the employer’s breach
• Damages for wrongful removal: The contractor can claim damages for loss of profit on the remainder of the contract, costs incurred in demobilisation, and reputational harm
• Recovery of work value: The contractor is entitled to payment for all work performed up to the point of termination, plus an adjustment for work not yet begun (depending on the contract terms)
• Performance bond call: The performance bond is not available to the employer because there is no default by the contractor justifying its call

The quantum of damages for wrongful termination can be substantial. It typically includes the profit the contractor would have earned on the remaining work, plus all costs incurred in demobilisation, plus any increased costs borne by the contractor (for example, costs of disputes, arbitration, or compliance with wrongful instructions).

6. Practical Considerations

Before contemplating termination, the employer should consider:

• Is there a genuine material breach? Or is the issue a temporary delay or minor non-compliance?
• Has the contractor been given fair notice and a genuine opportunity to cure?
• Will termination actually improve the outcome? If completion cost will be higher with a replacement contractor, termination may not be economically justified
• What is the contractor’s likely response? A well-resourced contractor will defend a wrongful termination claim vigorously, potentially leading to expensive arbitration
• Are performance securities adequate to cover completion costs if termination is pursued?

Many employers are tempted to terminate when performance slips, but should resist this unless the breach is genuinely material and cannot be remedied. Termination is a nuclear option — it should be used only when the contractor is genuinely in material default and cannot be rehabilitated.

Termination Strategy and Risk Assessment

We advise on the merits of termination, proper notice preparation, and mitigation of wrongful termination risk. Termination is a powerful remedy but must be used carefully and procedurally.

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