The financial risks of a contractor wrongfully terminating a construction contract

When a contractor accepts a construction contract, it is a serious and usually long-term commitment. The work must be completed as agreed and that may take months. During that period, a contractor may want to terminate the assignment prematurely—for example, due to difficult cooperation with the client. Simply ‘pulling the plug’ can have major financial consequences. Construction lawyer Rosa Ruimschotel explains this difficult reality.

Is a contractor allowed to simply stop working?

A client always has the legal option to terminate a construction contract (Section 7:764 of the Dutch Civil Code). The situation is different for the contractor: they can only terminate the contract in certain cases, such as force majeure, consent of the client or when the client does not comply with the contract (for example in the event of payment default). An appeal to ‘difficult cooperation’ or ‘breach of trust’ is in principle not a valid reason to unilaterally terminate or dissolve a contract. If the contractor does so anyway, they are usually regarded as being in breach of contract.

The financial consequences for the contractor

If a contractor ceases their work without valid grounds (and is therefore in breach of contract), the client can hold the contractor liable for the damage. Depending on the phase the work is in, this can have major consequences. These consequences include damage due to delayed delivery, resulting in additional costs for the client. The client may also recover from the contractor the (typically higher) costs of having the work carried out by another party. Finally, the contractor may also have to bear the costs of any legal proceedings initiated by the client.

Case law: practical examples

That more is required for a contract to be terminated than mere irritation or lack of trust follows from a ruling by the Court of Appeal Arnhem-Leeuwarden (ECLI:NL:GHARL:2023:5860). The contractor is annoyed by (repeated) comments from the client, removes material and ceases the work. The contractor seeks to terminate the contract due to a breach of trust, but the Court held that this alone is insufficient to justify termination of a construction contract. The contractor is therefore in breach of contract and liable for damage. On the other hand, termination is justified if the unworkable collaboration cannot reasonably be attributed to the contractor (ECLI:NL:RBNHO:2020:11292).

Practical advice for contractors

Before you decide to terminate a contract, it is wise to first seek legal advice. Sometimes a client’s attitude can make the work difficult, but that does not mean that the contract can be terminated. This usually requires more serious grounds, for example, the client being in breach of contract. Whether this is the case must be investigated on a case-by-case basis. You should therefore keep close track of what happens and record any problems properly (in writing!). Set limits on the client’s actions, such as clear deadlines for providing necessary information about the design or the coordination of additional work. This is how you compile a dossier.

Conclusion

It is advisable for contractors not to end a contract too quickly when communication with the client is problematic. A unilateral termination without a solid legal basis can cost you dearly. Sometimes it is financially wiser to complete the work than to have to pay a high third-party invoice along with additional claims for damages.