The contractor walked off the job: what can you do?

A building left half-finished loses value every day it sits. The exposed structure weathers, materials already bought deteriorate, and the date the building can open slides with no end in sight. So most owners move fast and bring in a new contractor straight away.

Moving fast is right, but the order of steps matters more than the speed. The law lets an owner terminate and have someone else finish the work, and claim the extra cost from the original contractor. That right only arises when the statutory steps are followed. An owner who skips them can end up as the party in breach, and owe damages to the contractor who walked away.

Do you have to wait until the completion date?

No. The law lets an owner terminate before the completion date in three situations.

• The contractor does not start work within a reasonable time.
• The contractor falls behind in breach of the agreed timetable.
• The contractor is so far behind that it can be foreseen the work will not be finished in time, and the delay is not the owner's fault.

The last one matters most in practice, because a contractor who walks off is usually not yet in breach of the completion date on the day they stop. The owner has to show that, comparing the work left with the time left, it cannot be done in time. The programme attached to the contract and the engineer's progress reports are the key evidence.

One caution: if the delay comes from the owner's side, such as late stage payments, design changes midway, or failing to hand over the site on time, the owner cannot rely on this ground.

How must you notify the contractor before terminating?

Where work is continuing but not to the drawings or is defective, the law requires the owner to give notice to put it right within a reasonable time first. If the contractor does not, the owner may have someone else repair or finish the work at the original contractor's risk and expense.

• Give the notice in writing, stating clearly what must be corrected or completed.
• Allow a period that is reasonable for the amount of work. Too short a period invites the argument that it was not a reasonable time.
• Send it to the address in the contract by a method that proves receipt, and copy it through whatever channel you actually use with the contractor.
• If you decide to terminate, give a separate written notice of termination stating grounds that match the facts.

The law also lets an owner terminate at any time while the work is unfinished, even where the contractor has done nothing wrong. But on that route the owner must compensate the contractor for the loss caused by termination. The difference between the two routes is whether you terminate because the contractor is at fault or because you changed your mind, and the notice you send must show it is the first.

Can you recover the extra cost of a new contractor?

Yes, if the steps above were followed. The amount by which the new contractor's price exceeds what was agreed with the original one is loss recoverable from the original contractor. You have to prove the state the work was left in, and that what the new contractor did was the remaining work and not new work.

Record the site fully before the new contractor goes in, because once they start, the evidence of the original state is gone.

• Photograph and film every part of the work with dates.
• Have an engineer or independent inspector report how much was complete and what was defective.
• Inventory the materials left on site.
• Invite the original contractor to inspect and sign. If they do not come, record that they were invited.

How do daily penalties and retention work?

Most construction contracts set a daily penalty for late completion and hold back retention from each stage payment, or require a bank guarantee. Both are tools the owner can use straight away under the contract.

• Daily penalties run as agreed, but where disproportionately high the court may reduce them to a reasonable amount.
• Retention held back can be set against the loss as the contract provides.
• A bank guarantee must be called before the expiry date stated on it. After that date it cannot be called, however clear the breach.

A common mistake is accepting a late stage and paying as normal without reserving the right to penalties. The Supreme Court has held that an owner who accepted and paid for stages delivered after the deadline without objection, and let the contractor carry on with the next stage, lost the right to penalties for that delay. An owner who wrote a reservation of the right to penalties into the handover record kept it. Each time you accept late work, write a reservation into the acceptance record.

Where the contractor delivers late, the law also lets the owner reduce the price, and where time is of the essence, such as a building that must open on a set date, the owner may terminate.

What evidence to keep from the day work stops

Abandonment cases are won and lost on documents. Gather these at once.

• The contract, drawings, specifications and the attached programme.
• Proof of every stage payment, with the inspection record for each stage.
• Dated progress photographs taken over time.
• All messages with the contractor on every channel. Do not delete any.
• The supervising engineer's reports and the site diary, if kept.
• The notices sent, and proof of receipt.

Watch the clock. A contractor's liability for defects must be sued on within one year of the defect appearing. But where the owner told the contractor to fix the work, the contractor did not come, and the owner had to hire someone else, the Supreme Court has treated the claim for that cost as enforcing the contract, with a ten-year period. Which period applies depends on what is claimed and on what basis, so the safe course is not to let time run.

This page is general information, not advice on your situation. Whether termination is valid and what can be claimed depends on the contract and the facts of each case. If the contractor has stopped work, send the firm the contract and evidence before serving notice of termination or letting a new contractor onto the site.