FIDIC

Wrongful Termination Under FIDIC — Consequences and Damages

Termination without proper cause or without following the contractual procedure is a fundamental breach — it may constitute repudiation, entitling the injured party to claim damages for the lost benefits of the contract, including lost profit on unexecuted work.

7 min read · Updated 23/05/2026

In this article

1. Wrongful Termination — Definition and Scope
2. The Repudiation Doctrine
3. Contractor’s Damages for Wrongful Termination
4. Quantifying Loss of Profit
5. Mitigation and Offset
6. Employer’s Defences and Counterclaims

Key takeaway

Wrongful termination is a repudiatory breach — it allows the injured party to treat the contract as discharged and pursue damages. The contractor can claim lost profit on the unexecuted portion of the contract, demobilisation costs, and all costs incurred in consequence of the breach. These damages can be substantial. However, the injured party must mitigate loss — it cannot sit idle after termination without seeking alternative work or employment.

1. Wrongful Termination — Definition and Scope

Termination is wrongful where:

• There is no genuine ground for termination (the contractor is not in material breach, or the grounds alleged are pretextual)
• The contractual procedure is not followed (for example, no notice of default is given, or the cure period is not allowed)
• The termination is otherwise improper under the contract or under law

Wrongful termination is a fundamental breach of contract — it deprives the injured party of the benefit of the bargain (the right to have the contract performed or to perform it). Unlike a breach of a minor term, which gives rise to limited damages, wrongful termination gives rise to damages for loss of the entire contract.

2. The Repudiation Doctrine

Under contract law (common law and code-based systems), a wrongful termination may constitute repudiation. Repudiation is a party’s clear indication that it will not perform the contract or that it will perform only in a manner inconsistent with the contract.

When a party repudiates a contract, the other party has an election: to accept the repudiation (and treat the contract as discharged), or to affirm the contract (and continue to insist on performance). If the injured party accepts the repudiation, the contract is discharged, and the injured party is entitled to damages for breach.

Example: The employer terminates the contractor’s contract without just cause. This is repudiation — the employer is saying it will not perform its obligation to allow the contractor to continue working. The contractor can accept this repudiation and pursue damages for the breach. Alternatively, the contractor can affirm the contract and insist that work continue — but this is usually impractical (the contractor cannot be forced to site if the employer has taken possession).

3. Contractor’s Damages for Wrongful Termination

Where the employer wrongfully terminates, the contractor can claim:

4. Quantifying Loss of Profit

The loss of profit claim is the most significant but also the most contested. The contractor must prove:

• The unexecuted value: How much of the contract remained unperformed? What was the contract price for that portion?
• The profit margin: What was the contractor’s expected profit margin on the contract? (This is calculated from the tender documents, budget, or expert assessment of typical industry margins.)
• The unexecuted profit: Profit margin × unexecuted contract value = loss of profit

Example: The contract price is AED 100 million. The contractor completes 60% of the work (AED 60 million). The contractor’s budgeted profit margin is 10%. The unexecuted work is worth AED 40 million. Loss of profit = 10% × AED 40 million = AED 4 million.

The employer can challenge this by arguing that the contractor’s actual costs would have exceeded the budget, reducing or eliminating the profit. This requires the contractor to prove (via budget analysis, expert evidence, or historical cost data) that the profit margin was achievable.

5. Mitigation and Offset

The injured party has a duty to mitigate loss: the contractor must take reasonable steps to reduce the loss caused by the wrongful termination. This means:

• Seeking alternative projects or employment to deploy resources that would have been used on the terminated contract
• Reducing demobilisation costs by salvaging or redeploying equipment
• Settling disputes with subcontractors rather than pursuing full claims

If the contractor obtains alternative work at a similar profit margin during the period when the terminated contract would have been executing, the profit earned on the alternative work offsets the loss of profit on the terminated contract.

However, the contractor is not required to accept inferior alternative work — only reasonable alternative opportunities must be pursued. If alternative work is unavailable or is at a lower rate, the contractor retains its full damages claim.

6. Employer’s Defences and Counterclaims

The employer defending a wrongful termination claim may argue:

• The contractor was in material breach: Termination was justified (this requires the employer to prove the breach)
• The contractor abandoned the works: The contractor’s own conduct justified termination
• Loss of profit is not recoverable: The contract terms exclude or cap loss of profit; or the contract expressly provided for termination for convenience with a specified buyout (avoiding loss of profit claims)
• The contractor failed to mitigate: The contractor did not take reasonable steps to reduce loss

The employer may also pursue counterclaims: for defects in work completed, for delay caused by the contractor, or for other breaches. These counterclaims are offset against the contractor’s damages.

Wrongful Termination Claims and Defence

We advise on loss of profit claims, repudiation doctrine application, mitigation assessment, and counterclaim defence. Wrongful termination disputes are significant — expert financial analysis is essential.

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