10 Contract Clauses That Survive Termination in Construction Projects

Termination of a construction contract marks the end of contractual obligations, but not all provisions automatically cease to exist. Certain clauses, referred to as "surviving clauses," continue to remain enforceable even after the contract’s termination. These provisions ensure that rights and obligations that cannot be fulfilled within the term of the contract or are intended to survive post-termination remain effective. For construction projects, where complexities around payments, warranties, and claims are prevalent, understanding which clauses survive termination is crucial for both contractors and employers. The typical contract clauses that commonly survive termination and their importance in construction projects are discussed below.

1. Payment and Final Accounts

Even after termination, clauses related to payment, final accounts, and any accrued obligations regarding compensation for work done up to the date of termination remain active. Under most standard forms of contract, including FIDIC, NEC, and JCT, contractors retain the right to be paid for work performed, materials supplied, and services rendered before the termination date.

• Key Example: Under FIDIC contracts, Sub-Clause 15.6, related to the employer’s right to terminate, allows the contractor to submit a statement of work executed up to the date of termination and claim payment for those works. The final account settlement process often continues well after the contract termination, enabling both parties to settle financial matters.

2. Confidentiality

Confidentiality clauses are often designed to survive the termination of a contract. These clauses ensure that sensitive project information shared between parties during the project execution remains protected after the contract ends. In the construction industry, where technical drawings, designs, methodologies, and other proprietary information are exchanged, the confidentiality clause is vital for safeguarding intellectual property and sensitive commercial information.

• Key Example: A confidentiality clause may prohibit the disclosure of sensitive project data, designs, or pricing structures by any party, even after the project has been terminated, for a specified period or indefinitely.

3. Warranties and Guarantees

In construction contracts, warranties and guarantees (both for materials and workmanship) generally survive the termination of the contract. These provisions typically extend beyond the project’s completion and are designed to ensure that the contractor remains liable for defects or failures that may arise post-construction.

• Key Example: In a FIDIC Yellow Book contract, the Defects Notification Period (Sub-Clause 11.1) often remains valid even after termination, requiring the contractor to remedy any defects arising during this period. Similarly, performance guarantees or bonds, provided by the contractor to ensure project performance, remain enforceable post-termination.

4. Indemnity Clauses

Indemnity provisions, which allocate risk for specific liabilities, such as third-party claims, personal injury, or property damage, also tend to survive termination. These clauses are particularly critical in construction projects, where the risk of legal claims or accidents remains a possibility long after the contractor has left the site.

• Key Example: An indemnity clause may stipulate that the contractor continues to be responsible for indemnifying the employer against third-party claims arising from the contractor’s work even after the termination of the contract.

5. Dispute Resolution (Arbitration)

Termination does not extinguish disputes, especially regarding the circumstances leading to the termination or the settlement of outstanding claims. Arbitration or other dispute resolution clauses usually survive termination, ensuring that any unresolved disputes can still be referred to an agreed forum for resolution.

• Key Example: Under FIDIC’s Sub-Clause 20.6, arbitration remains an available dispute resolution mechanism even after contract termination. This allows either party to pursue unresolved claims or disputes arising from the contract through arbitration, ensuring a fair resolution process.

6. Intellectual Property

Clauses concerning intellectual property (IP) rights are vital in construction contracts, particularly in projects involving significant design and innovation. These clauses typically survive termination to ensure that the contractor does not use or claim ownership of designs, drawings, or other IP elements developed for the project.

• Key Example: Intellectual property clauses in design-build contracts ensure that any designs or methods developed by the contractor for the employer during the project remain the employer’s property, even after termination.

7. Insurance Obligations

Insurance provisions, especially those related to liability insurance or all-risk construction insurance, often survive the termination of a contract. This is crucial because claims may arise even after the contract has been terminated, such as in cases of latent defects, accidents, or other covered events.

• Key Example: A clause may require the contractor to maintain certain insurance coverage (such as professional indemnity insurance) for a specified period following the termination to cover latent defects or other liabilities.

8. Limitation of Liability

A limitation of liability clause restricts the amount or types of damages one party can recover from the other. These clauses often survive termination to protect the parties from excessive liability claims that may arise even after the project ends.

• Key Example: A limitation of liability clause in a construction contract might cap the contractor’s liability for defects or delay damages even after the contract has been terminated.

9. Retention of Title

Retention of title clauses, often included in contracts concerning materials supplied, ensure that the ownership of materials remains with the contractor or supplier until payment is made in full. This type of clause frequently survives termination to protect contractors or suppliers from losing ownership of unpaid materials that have already been delivered to the site.

• Key Example: A clause in a supply contract might specify that the ownership of materials remains with the supplier until full payment is received, even if the construction contract is terminated before the project is completed.

10. Governing Law and Jurisdiction

Governing law and jurisdiction clauses are essential for determining the legal framework that applies to the contract. These provisions typically survive termination to ensure that any disputes or claims arising after termination are governed by the same legal principles and are subject to the agreed jurisdiction.

• Key Example: A governing law clause might specify that the contract is governed by the laws of a particular country or state, and this provision remains in effect even after the termination to resolve any post-termination disputes.