A termination agreement letter under the FIDIC (Fédération Internationale des Ingénieurs-Conseils) Conditions of Contract is a formal document that communicates one party’s intention to terminate the contract due to specific reasons outlined in the contract terms. The FIDIC contracts provide detailed provisions for termination by either the Employer or the Contractor, and it’s crucial to adhere strictly to these provisions to ensure the termination is legally effective.
Key Elements to Include in a Termination Agreement Letter as per FIDIC Conditions of Contract:
- Contract Reference and Parties Involved:
- Title and Date of the Contract: Clearly specify the name of the contract, contract number, and the date it was signed.
- Parties to the Contract: Identify both the Employer and the Contractor by their full legal names and addresses.
- Reference to Specific FIDIC Clauses:
- Termination Clause: Cite the exact clause(s) from the FIDIC Conditions of Contract that provide the basis for termination (e.g., Clause 15.2 for Termination by Employer or Clause 16.2 for Termination by Contractor).
- Conditions Met: Confirm that the conditions outlined in these clauses have been met, such as prior notices or failure to remedy a breach.
- Grounds for Termination:
- Detailed Reasons: Provide a clear and detailed explanation of the reasons for termination, referencing specific contractual breaches or failures.
- Evidence of Breach: Include any relevant facts, dates, and communications that support the claim of breach or default.
- Prior Notices and Opportunity to Remedy:
- Notice to Correct: Reference any prior notices given to the other party to correct the breach, including dates and content of such notices.
- Response (or Lack Thereof): Mention the other party’s response or failure to respond to these notices.
- Effective Date of Termination:
- Date Specification: Clearly state the date on which the termination becomes effective, ensuring compliance with any notice periods specified in the contract.
- Calculation of Notice Period: Demonstrate that the required notice period, as per the FIDIC Conditions, has been observed.
- Instructions Following Termination:
- Cessation of Work: Instruct the Contractor to cease all work by the effective date.
- Handover Requirements:
- List of Documents to be Handed Over: Specify all documents that need to be provided, such as as-built drawings, operation manuals, and maintenance records.
- Status of Works at Termination: Detail the current status of the works, including progress reports and any incomplete tasks.
- Transfer of Materials and Equipment: Provide instructions regarding the transfer or removal of materials, equipment, and temporary works.
- Site Clearance Requirements: Outline requirements for clearing the site, including disposal of waste and temporary structures.
- Temporary Works Disposal: Specify how temporary works should be dismantled or disposed of.
- Submission of Records: Request the submission of necessary documents and records.
- Future Obligations:
- Continuing Obligations: Detail any obligations that continue beyond termination, such as confidentiality agreements.
- Maintenance or Warranty Periods: Specify any maintenance services or warranty periods that remain in effect.
- Defects Liability Requirements: Address responsibilities for defects liability, including any required actions or inspections.
- Financial Arrangements:
- Payments Due: Outline the financial implications, including any payments due for work completed up to the termination date.
- Recovery of Costs: Mention any costs to be recovered due to the breach, such as additional expenses incurred in completing the works.
- Retention Monies and Guarantees: Address the status of retention monies, performance securities, and guarantees.
- Future Obligations (Financial): Detail any ongoing financial obligations, such as settlement of outstanding invoices or indemnities.
- Risk Management:
- Transfer of Risks: Address how risks are transferred upon termination, including risks associated with incomplete works.
- Insurance Requirements During Transition: Specify any insurance coverage that must be maintained during the transition period.
- Indemnification Clauses: Include clauses that indemnify either party against certain losses or liabilities arising from the termination.
- Consequences of Termination:
- Legal Rights Reserved: State that all legal rights and remedies are reserved under the contract and applicable law.
- Claims for Damages: Notify the other party of any intention to claim damages resulting from the breach.
- Future Obligations (Legal): Outline any legal obligations that persist after termination, such as dispute resolution processes.
- Request for Cooperation:
- Assistance in Transition: Request the other party’s cooperation in ensuring a smooth transition.
- Transition Arrangements:
- Process for Handover of Works: Define the steps required for an effective handover, including meetings or site visits.
- Timeline for Completion of Administrative Tasks: Provide a schedule for completing necessary administrative activities.
- Assignment of Subcontracts: Address whether subcontracts will be assigned to the Employer or terminated.
- Treatment of Permits and Licenses: Specify how permits, licenses, and approvals will be handled or transferred.
- Compliance with Contractual Notice Requirements:
- Method of Delivery: Ensure the letter is delivered in accordance with the notice provisions specified in the contract (e.g., registered mail, courier, electronic communication).
- Address for Service: Use the correct address for service as stipulated in the contract.
- Formal Closing:
- Authorized Signatory: The letter should be signed by an authorized representative of the party issuing the termination.
- Date of Signing: Include the date on which the letter is signed.
- Contact Information: Provide contact details for any further communication.
- Attachments and Enclosures:
- Supporting Documents: Attach any relevant documents that support the reasons for termination, such as copies of previous notices, correspondence, or records of non-compliance.
- Documentation:
- Inventory Lists: Include inventory lists of materials, equipment, and assets related to the project.
- External Valuations or Assessments: Reference any third-party valuations or assessments that are relevant.
- Reports and Records: Attach progress reports, site diaries, and financial statements as necessary.
Scenario 1: Employer (Indian Railway) Issuing Termination Letter to Contractor (Japanese Company)
Assumed Condition: The Contractor has failed to proceed with the Works with due diligence and has not complied with prior notices to correct breaches, leading to significant delays in the project schedule.
[Employer’s Letterhead]
Date: [Insert Date]
Mr. Hiroshi Tanaka
Project Director
Nippon Infrastructure Construction Co. Ltd.
[Contractor’s Address]
Tokyo, 100-0001
Japan
Subject: Termination of Contract No. IR/METRO/2020/01 under Clause 15.2 of FIDIC Conditions of Contract (Red Book 2017)
Dear Mr. Tanaka,
Re: Termination of Contract for the Construction of the Mumbai Metro Line 5 Project
We refer to the Contract Agreement dated 1st March 2020 between Indian Railway (“the Employer”) and Nippon Infrastructure Construction Co. Ltd. (“the Contractor”) for the construction of the Mumbai Metro Line 5 Project (“the Contract”).
Pursuant to Sub-Clause 15.2 [Termination by Employer] of the FIDIC Conditions of Contract for Construction (First Edition 2017, Red Book), we hereby give you notice of our intention to terminate the Contract effective 30 days from the date of this letter, i.e., on [Effective Termination Date].
1. Grounds for Termination
The termination is due to the following breaches:
- Failure to Proceed with Due Diligence: Despite multiple notices, you have failed to proceed with the Works in accordance with Sub-Clause 8.1 [Commencement of Works], leading to a delay of over six months in the project schedule.
- Non-Compliance with Notices to Correct: Notices issued on 15th January 2023 and 15th March 2023 under Sub-Clause 15.1 [Notice to Correct] have not been adequately addressed.
- Inadequate Resources: There has been a consistent failure to mobilize sufficient personnel and equipment as per the agreed program.
Evidence of Breach:
- Copies of the Notices to Correct dated 15th January 2023 and 15th March 2023 are attached.
- Progress reports indicating delays are enclosed.
2. Prior Notices and Opportunity to Remedy
As required by the Contract:
- Notice to Correct (15th January 2023): Highlighted delays and requested remediation within 14 days.
- Second Notice to Correct (15th March 2023): Notified continued non-compliance and provided an additional 14 days to remedy.
- Lack of Adequate Response: Your responses dated 29th January 2023 and 29th March 2023 were deemed insufficient.
3. Effective Date of Termination
The termination will become effective on [Effective Termination Date], in compliance with the 30-day notice period stipulated under Sub-Clause 15.2.
4. Instructions Following Termination
You are instructed to:
- Cease Work: Stop all Works by the Effective Termination Date.
- Handover Requirements:
- Documents to be Handed Over: Submit all as-built drawings, operation manuals, test certificates, and quality assurance records by [Date].
- Status of Works: Provide a detailed report on the status of the Works as of the termination date.
- Transfer of Materials and Equipment: Prepare an inventory of all materials and equipment on Site for joint inspection.
- Site Clearance Requirements: Remove all Contractor’s Equipment and Temporary Works not required by the Employer.
- Temporary Works Disposal: Dispose of Temporary Works in accordance with environmental regulations.
- Submission of Records: Submit all project records, including daily logs and financial statements, by [Date].
5. Financial Arrangements
- Payments Due: The Employer will assess and pay for the value of Works executed up to the termination date as per Sub-Clause 15.3 [Valuation at Date of Termination].
- Recovery of Costs: The Employer reserves the right to recover additional costs incurred for completing the Works under Sub-Clause 15.4 [Payment after Termination].
- Retention Monies and Guarantees: Retention monies will be held until the finalization of accounts, and performance securities will be addressed per the Contract.
6. Risk Management
- Transfer of Risks: Risks associated with the Works transfer to the Employer upon termination, except for risks related to your equipment and personnel.
- Insurance Requirements During Transition: You are required to maintain insurance coverage for your demobilization activities.
- Indemnification: You shall indemnify the Employer against any claims arising from your actions during the transition period.
7. Future Obligations
- Defects Liability Requirements: You remain responsible for defects in the Works executed prior to termination, as per Sub-Clause 11.1 [Completion of Outstanding Work and Remedying Defects].
- Warranty Periods: All warranty obligations remain in effect.
- Continuing Obligations: Confidentiality and intellectual property clauses survive termination.
8. Consequences of Termination
- Legal Rights Reserved: The Employer reserves all rights to claim damages under the Contract and applicable law.
- Claims for Damages: We intend to claim for losses incurred due to delays and additional expenses.
- Dispute Resolution: Any disputes will be addressed as per Sub-Clause 20.6 [Arbitration].
9. Request for Cooperation
We request your full cooperation to ensure a smooth transition:
- Transition Arrangements:
- Process for Handover of Works: Coordinate with our team for joint inspections and handover meetings scheduled for [Dates].
- Timeline for Administrative Tasks: Complete all administrative requirements by [Date].
- Assignment of Subcontracts: Provide details of all subcontracts for potential assignment.
- Permits and Licenses: Assist in the transfer or novation of permits and licenses.
10. Compliance with Contractual Notice Requirements
This notice is issued in accordance with Sub-Clause 1.3 [Notices and Communications] and delivered via registered mail and email as per the Contract provisions.
11. Attachments and Enclosures
- Supporting Documents:
- Copies of Notices to Correct dated 15th January 2023 and 15th March 2023
- Progress reports and schedules
- Inventory list template
- Site handover checklist
- External assessments of project delays
Conclusion
We regret that termination has become necessary. Our priority is to minimize disruption and proceed with the completion of the Project. Your prompt attention to the matters outlined is appreciated.
Yours sincerely,
[Authorized Signatory]
Mr. Rajesh Kumar
Chief Project Manager
Indian Railway
[Contact Information]
Email: rajesh.kumar@indianrailway.in
Phone: +91-XXXX-XXXXXX
Scenario 2: Contractor (Japanese Company) Issuing Termination Letter to Employer (Indian Railway)
Assumed Condition: The Employer has failed to make payments due under the Contract, despite repeated notices, leading to financial strain on the Contractor.
[Contractor’s Letterhead]
Date: [Insert Date]
Mr. Rajesh Kumar
Chief Project Manager
Indian Railway
[Employer’s Address]
New Delhi, 110001
India
Subject: Termination of Contract No. IR/METRO/2020/01 under Clause 16.2 of FIDIC Conditions of Contract (Red Book 2017)
Dear Mr. Kumar,
Re: Termination of Contract for the Construction of the Mumbai Metro Line 5 Project
We refer to the Contract Agreement dated 1st March 2020 between Indian Railway (“the Employer”) and Nippon Infrastructure Construction Co. Ltd. (“the Contractor”) for the construction of the Mumbai Metro Line 5 Project (“the Contract”).
Pursuant to Sub-Clause 16.2 [Termination by Contractor] of the FIDIC Conditions of Contract for Construction (First Edition 2017, Red Book), we hereby give you notice of our intention to terminate the Contract effective 14 days from the date of this letter, i.e., on [Effective Termination Date].
1. Grounds for Termination
The termination is due to the following breaches by the Employer:
- Failure to Make Payment: Certificates of Payment Nos. 12 and 13, amounting to INR 500 million, remain unpaid beyond the 56 days stipulated under Sub-Clause 14.7 [Payment].
- Non-Compliance with Notices: Despite our notices dated 15th February 2023 and 15th March 2023 under Sub-Clause 16.1 [Contractor’s Entitlement to Suspend Work], payments have not been received.
- Suspension of Work: We suspended work on 1st April 2023, as per the Contract, but no payments have been forthcoming.
Evidence of Breach:
- Copies of unpaid Payment Certificates Nos. 12 and 13.
- Copies of notices issued under Sub-Clause 16.1.
2. Prior Notices and Opportunity to Remedy
In compliance with the Contract:
- First Notice (15th February 2023): Notified non-payment and requested immediate action.
- Second Notice (15th March 2023): Advised of potential suspension and termination if payments were not made within 14 days.
- Lack of Response: No satisfactory response or payment has been received.
3. Effective Date of Termination
Termination will become effective on [Effective Termination Date], following the 14-day notice period required under Sub-Clause 16.2.
4. Instructions Following Termination
We will proceed as follows:
- Cessation of Work: All Works will cease by the Effective Termination Date.
- Removal of Equipment: All Contractor’s Equipment and Temporary Works will be removed from the Site by [Date].
- Handover Requirements:
- Documents to be Handed Over: Submission of all project documentation up to the termination date.
- Status of Works: Provision of a comprehensive report detailing the status of the Works.
- Site Clearance Requirements: The Site will be left in a safe and orderly condition.
5. Financial Arrangements
We are entitled to:
- Payment for Work Executed: Full payment for Works executed up to termination, including variations and adjustments.
- Cost of Materials: Payment for materials ordered and delivered, or for which we are legally bound to accept delivery.
- Demobilization Costs: Reimbursement of costs related to the termination, including repatriation of personnel and equipment.
- Interest on Late Payments: Interest accrued on overdue amounts as per Sub-Clause 14.8 [Delayed Payment].
6. Risk Management
- Transfer of Risks: Upon termination, risks associated with the Works transfer to the Employer.
- Insurance Requirements During Transition: We will maintain necessary insurance during demobilization.
- Indemnification: We reserve the right to seek indemnification for losses incurred due to the Employer’s breach.
7. Future Obligations
- Warranty Periods: Warranties on completed Works remain effective.
- Defects Liability Requirements: Obligations related to defect rectification are maintained for Works executed.
- Continuing Obligations: Confidentiality and intellectual property rights continue as per the Contract.
8. Consequences of Termination
- Legal Rights Reserved: We reserve all rights under the Contract and law to seek remedies.
- Claims for Damages: We intend to claim for losses, including loss of profit and additional costs incurred.
- Dispute Resolution: We are prepared to engage in dispute resolution as per Sub-Clause 20.6 [Arbitration] if necessary.
9. Request for Cooperation
We request your assistance in:
- Transition Arrangements:
- Process for Handover of Works: Coordinating the handover of the Site and Works completed.
- Timeline for Administrative Tasks: Finalizing administrative matters by [Date].
- Permits and Licenses: Facilitating the transfer or cancellation of permits and licenses.
- Settlement of Accounts: Prompt settlement of outstanding payments to mitigate further losses.
10. Compliance with Contractual Notice Requirements
This notice is issued in accordance with Sub-Clause 1.3 [Notices and Communications] and delivered via registered mail and email as specified in the Contract.
11. Attachments and Enclosures
- Supporting Documents:
- Copies of unpaid Payment Certificates Nos. 12 and 13
- Notices dated 15th February 2023 and 15th March 2023
- Inventory lists of materials and equipment
- External assessments of financial impact
Conclusion
It is unfortunate that we must take this step due to unresolved payment issues. We remain committed to fulfilling our contractual obligations and hope for an amicable resolution.
Yours sincerely,
[Authorized Signatory]
Mr. Hiroshi Tanaka
Project Director
Nippon Infrastructure Construction Co. Ltd.
[Contact Information]
Email: h.tanaka@nipponinfrastructure.jp
Phone: +81-XX-XXXX-XXXX
Important Notes for Both Letters:
- Legal Compliance: Both parties should consult legal counsel to ensure compliance with Indian law and international contractual obligations.
- Clarity and Professionalism: The letters are drafted to maintain a professional tone and clear communication.
- Attachments: Ensure all referenced documents are properly attached and sent in accordance with the Contract.
