Suspension of Works Under Construction Contracts

Learning Outcomes

By the end of this article, you should:

• Understand what suspension of works entails and when it may be invoked
• Know the purposes, limitations and procedures for suspension
• Be familiar with suspension clauses in key standard contracts
• Recognise how to value and claim suspension costs
• Appreciate steps parties can take to avoid suspension
• Be aware of trends and alternatives to suspension rights

What is Suspension, and Why is it Used?

Definition of Suspension

Suspension is the act of temporarily halting the performance of work under a contract. It represents a break made by one or both parties in the ongoing execution of their contractual obligations.

Suspension differs from termination, where the contract is ended altogether. It is a form of dispute management intended to pause the works pending resolution of the issues warranting the suspension.

The right to suspend recognises that it may become impossible or untenable for a party to continue carrying out their duties under certain circumstances. Suspension serves as a “circuit breaker”, allowing unresolved issues to be investigated and remedied.

Reasons for Suspension

There are several scenarios where it becomes prudent or necessary for a party to exercise the right of suspension:

• Non-Payment – If the client or paying party fails to make a properly due payment, the contractor may suspend work until payment is received. This is the most common form of suspension.
• Instructions Disputes – Disagreements over contract instructions can prompt suspension. For example, if the client issues instructions for additional work but disputes over the valuation arise.
• Defective Work – Suspension may occur if defective work is discovered, allowing time for inspections and remedial plans to be formed.
• Force Majeure Events – Occurrences like natural disasters, civil unrest or industrial action may temporarily prevent work from continuing, requiring formal suspension.
• Third-Party Legal Action – Suspension of works may be required if injunctions are imposed on the works or to allow investigations if third-party accidents or damage occur.
• Health and Safety Breaches – Serious health and safety violations could warrant suspension until rectified. This includes situations potentially requiring contract termination.
• Failure of Key Supply – An inability to access the site or receive essential materials for reasons beyond the contractor’s control could necessitate suspension.
  

Purposes and Effects of Suspension of Works

Suspension is used as a project management tool to pause the works to review and address material issues appropriately. The effects and objectives depend on the circumstances causing suspension:

• Non-Payment Suspensions
  • Apply financial pressure to secure outstanding payments.
  • Prevent accumulation of more debt if prices are not forthcoming.
  • Protect contractor/subcontractor cash flow and insolvency.
• Disputes Over Instructions
  • Allow time to review legal positions.
  • Negotiate an agreeable way forward.
  • Obtain expert evaluations of cost/time impacts.
  • Encourage settlement of disagreement.
• Defect Suspensions
  • Enable thorough defect investigations.
  • Develop repair procedures and programmes.
  • Agree on cost, time and quality impacts.
• Force Majeure Suspensions
  • Allow studies of effects on the project.
  • Formulate recovery plans and mitigation measures.
  • Negotiate liability for costs and delays.
  • Update programmes, resources and costs.
• Legal Action Suspensions
  
  • Pause works while legal orders are active
  • Carry out any mandated actions
  • Minimise further liabilities
• Safety Suspensions
  • Permit hazard removal and risk reduction.
  • Conduct safety reviews and overhaul procedures.
  • Protect the welfare of the workforce and the public.
• Key Supply Suspensions
  • Review and source alternatives
  • Mitigate potential additional costs
  • Renegotiate programme impacts

Suspension allows time-critical issues to be examined in depth and satisfactory solutions to be devised before progressing works.

Limitations of Suspension of Works

While a meaningful remedy, the suspension does have some inherent constraints and disadvantages that must be considered:

• It usually requires work on-site to stop completely, preventing all progress. This can lead to workforce layoffs and critical personnel being reallocated.
  
• Significant demobilisation and remobilisation costs can be incurred. Plant and equipment may need to be removed and later reinstalled. Site facilities may need to be dismantled.
  
• The working schedule can be severely impacted. The completion date will inevitably be delayed if work is suspended significantly. Delay liquidated damages may become due.
  
• Workforce productivity may be affected. Operatives will need time to regain efficiency after an extended suspension. Momentum is disrupted.
  
• Site security, safety and quality control become more challenging. Special measures are needed to secure a suspended site. Hazards can emerge. Completed works may degrade.
  
• Extended suspensions increase the dangers of deterioration. For example, incomplete elements are left exposed to weathering. Vandalism risks also rise.
  
• Overall project costs inevitably rise. Standing time for resources, extra security, acceleration measures and disruption impacts entail significant additional costs.
  
• Profitability will decline as delays accumulate and cost overruns grow due to the suspension.
  
• Delays lead to loss and expense claims. The contractor, in particular, will incur significant costs during suspensions warranted by employer acts or omissions.
  

The prolonged suspension tends to generate adverse ripple effects throughout projects. It is usually in all parties’ interests to limit the suspension period as much as possible.

Suspension Under Standard Form Contracts

Most standard-form construction contracts contain specific provisions defining the exercise of suspension rights. There are some key similarities and differences:

FIDIC Red Book Contracts

The FIDIC Suite of Contracts is an internationally recognised standard form. The FIDIC Red Book is intended for building and civil engineering works where the employer supplies the design. Under these contracts:

• The Engineer may suspend work for non-payment by the employer.
  
• Either party may suspend works for force majeure events.
  
• The Contractor must first notify a dispute, then can suspend work if the debate remains unresolved.
  
• Suspension costs are usually paid by the client and added to the contract price.
  

NEC Engineering and Construction Contract

The NEC contract takes a collaborative and integrated project management approach. Its suspension procedures include:

• The Project Manager instructs suspensions through a formal compensation event notice.
  
• The Contractor may suspend work if the Project Manager fails to certify payments properly due.
  
• Suspension by either party is defined as a compensation event entitled to time and cost recovery.
  
• Suspension costs are incorporated into the pricing mechanism through compensation events.
  

Suspension of Works in JCT Design and Build Contract

The Joint Contracts Tribunal publish the predominant forms for UK construction. Under the JCT Design and Build Contract:

• The Contractor can suspend work if the Employer fails to pay sums properly due.
  
• The Employer may suspend work at any time by giving written notice.
  
• Suspension costs incurred by the contractor are valued as a variation to the contract.
  

SBCC Building Works Contract

The Singapore Institute of Surveyors and Valuers publish the SBCC forms, which are gaining adoption in Asia-Pacific. Their approaches include:

• Contractors may suspend work if the employer fails to pay any sum due within 28 days.
  
• If works are suspended for over 15 consecutive days, the contractor may terminate the contract.
  
• If payment disputes arise, the contractor must give 14 days’ notice of intended suspension.
  
• Payment to the contractor will include costs reasonably incurred due to the suspension.
  

Under most forms, the contractor has the right to suspend for non-payment, with variations in applicable notice periods and costs recovery procedures. The employer’s right to suspend work is usually broader.

Exercising Suspension Rights

Certain protocols generally need to be followed when exercising suspension rights:

Notification Procedures

• Formal written notice communicated to the other party
• Specifies the grounds for suspension and date of commencement
• Provides evidence such as overdue certificates or correspondence

Defining the Suspended Scope

• Should identify parts of the works to be suspended
• Necessary health & safety, access, and security works continue
• Punchlist, snagging jobs or defects repairs can be exempt

Communications

• Inform subcontractors, suppliers, inspectors, and authorities.
• Prepare public communications if necessary

Securing the Works

• Remove or protect lifting gear, temporary works, materials
• Implement additional security measures
• Erect safety barriers and warning signs

Costs

• Record all costs associated with suspension
• Include overheads, plant, materials, preliminaries, storage
• Monitor daily expenditure

Programme

• Assess the delay impact of the suspension
• Review programme logic and constraints
• Develop recovery plan

Strictly following contractual procedures ensures suspension occurs efficiently. Maintaining contemporaneous records is vital.

Quantifying Suspension Losses

Suspension almost inevitably leads to loss and expense claims related to the following:

Prolongation of Contract

Delays to the completion date arising from suspension entitle the contractor to additional time-related preliminary costs:

• Labour and equipment remaining idle during the suspension period
• Inability to progress subsequent activities as planned
• Knock-on effects disrupting the downstream programme
• Extension of time awardable for employer risk events

Site Establishment Costs

The contractor can incur significant ongoing site establishment expenses during suspensions:

• Extra security, safety checks, maintenance works
• Standing time for temporary facilities such as power, lighting, fencing
• Extended rental costs for plant, machinery and equipment
• Insurance premium increases for delayed works

Overheads

The contractor’s head office overheads continue to accrue during suspensions:

• Management, administration and estimating resources
• Head office accommodation, utilities, IT costs
• Finance costs for suspended works and late payments
• Additional overheads due to delay absorbing fixed costs

Disruption

Suspensions invariably cause disruption, which can generate loss and expense:

• Loss of productivity restarting works after suspension
• Labour cost escalations from programme delays
• Supply chain disturbances – rework, substitutions, price rises
• Lower site morale and performance

Deterioration

Suspensions risk deterioration of works unless preventive action is taken:

• Degradation of completed works if left exposed
• Damage to materials and components on site
• Vandalism and water damage risks increase
• Extra protection measures are required to avoid deterioration

Variations

Prolonged suspensions may necessitate variation instructions:

• Alterations required due to deferred execution timings
• Changes to specifications after extended suspensions
• Subcontractor replacements, if unavailable when works resumes

Robust record keeping of all time and cost impacts provides the documentary evidence required to substantiate these compensation claims.

Avoiding Suspensions

Given the disruptive consequences, the suspension of works should always be a last resort. Preventative measures include:

Upfront Planning

Careful upfront planning can reduce suspension risks:

• Realistic scheduling with adequate float and flexibility
• Resource continuity planning – contractors obliged to re-engage
• Cash flow projections and profiling of payment applications

Proactive Communications

Proactive communication helps identify and resolve issues early:

• Early warnings of any problems arising
• Regular project status reviews
• Frank, but constructive discussions if issues emerge

Expediting Instructions

The employer’s representative must promptly issue instructions to avoid disputes:

• Rapid clarifications and answers provided to contractor queries
• Fast turnaround on requested information and approvals
• Clear direction on any proposed changes and variations

Timely Certification

The paying party needs to ensure timely certification and payment:

• Regular valuations and prompt payment turnaround
• Immediate confirmation when completion milestones reached
• No undue delays in releasing retentions

Efficient Inspections

Inspections should occur promptly to avoid defect disputes:

• Early notification of any noted defects or quality issues
• Rapid agreement of appropriate remedial plans
• Approvals to proceed given following rectifications

Accelerating Completion

Incentives can be offered for early completion to limit delays if a suspension occurs:

• Opportunities for fast-tracking and overlap
• Offsite modularisation and prefabrication
• Bonuses for defined early completion milestones

Procedures that nip issues in the bud prevent escalations warranting suspension. It pays to be cooperative, collaborative and proactive.

Drafting Suspension Clauses

Some recommendations when drafting suspension clauses in bespoke contracts:

• Specify formal notification procedures and timescales
  
• Allow for partial suspensions of specific works.
  
• Permit exemptions for some ongoing works during suspension.
  
• Require regular updates during the suspension period.
  
• Include limits on maximum suspension duration.
  
• Define precise valuation mechanisms for costs incurred.
  
• Describe mitigation duties during the suspension.
  
• Provide for termination rights after prolonged suspension.
  
• Specify a dispute resolution hierarchy to govern suspensions.
  
• Require security to be provided for cost recovery.
  
• Oblige continued adherence to health and safety requirements.
  
• Ensure insurances remain in place during the suspension.
  

Detailed mutual obligations provide fairness while promoting active cooperation and mitigation.

Consequences of Unjustified Suspension

Suspending works without proper contractual grounds can amount to severe breaches, leading to:

Breach of Contract Claims

Unwarranted suspension may constitute a repudiatory breach of contract:

• Failure to adhere to procedural notice requirements
• The contractor forced to suspend without entitlement
  
• Employer liability for proven losses
  

Liquidated Damages Claims

The employer may claim liquidated damages for delays caused by the suspension:

• Costs and time impacts fall on the contractor
• The burden to prove suspension was justified

Loss and Expense Claims

The contractor can claim losses for disruption and prolongation:

• The employer bears the cost risks of suspension
• Commercial pressure to settle claims

Loss of Productivity Claims

Unjustified suspension severely impacts productivity:

• Reduced efficiency and morale due to delays
• Disruption to site operations and planning
• The contractor may claim loss and expense

Acceleration Costs

The contractor may accelerate to recover delays after suspension:

• Extra resources and plant to speed up work
• Compression of the programme – overtime, multiple shifts
• Acceleration measures claimed by the employer

Reputation Damage

Unilateral suspensions damage trust and relationships:

• Perceived bad faith by party suspending works
• Undermines cooperative ethos

Parties must therefore exercise suspension strictly per the defined contractual rights and procedures. Unwarranted suspension can jeopardise relationships.

Suspension and Insolvency

Special provisions for suspension may apply when parties experience insolvency events during contracts:

Suspension on Insolvency

Either party may suspend work if the other becomes insolvent to allow reviews.

Suspension of Termination Rights

Prevents termination for insolvency breaches during the suspension period.

Mandatory Suspension Periods

Time provided for administrations to assess options after insolvency.

Caps on Liabilities

Limits losses and claims against administrations during suspensions.

These mechanisms aim to stabilize projects and encourage continuity of work where feasible when parties undergo financial distress. Suspension pending insolvency allows breathing space to determine next steps.

Alternatives to Suspension

While sometimes necessary, suspension can often be avoided through the below alternate strategies:

Accelerated Dispute Resolution

Fast-tracking dispute procedures or special tribunals focusing on key issues can lead to prompt resolutions, averting suspensions.

Separating Contested Works

Isolating small disputed work elements often allows major works to continue undisrupted. Suspension avoided.

Joint Expert Evaluations

Early referral to mutually agreed experts helps resolve disputes over technical matters like valuations.

Bridging Finance

Interim financing arrangements may tide contractors over payment delays, preventing suspension.

Contractual Workarounds

Temporary contractual amendments can enable works to proceed while disputes are settled.

Mediation and Negotiation

Structured settlement negotiations with a willingness to compromise may resolve disputes, avoiding suspensions.

Proactive engagement to find common ground demonstrates good faith and can keep work progressing.

Suspension in Collaborative Contracts

Partnering and collaborative project delivery approaches promote openness, joint problem solving and avoidance of disputes. Formal suspension procedures may not feature in relational contracts.

However, project charters signed by all parties should still:

• Recognise that suspension may occasionally be needed as a last resort
  
• Commit to exhausting all other options before the suspension.
  
• Oblige transparency about any issues threatening suspension.
  
• Provide for senior management negotiation to avert suspension.
  
• Specify how suspensions will be carried out if unavoidable.
  
• Require advance agreement on cost/time recovery procedures.
  
• Outline strategies to expedite re-commencement after suspension
  

Formal contracts can be drawn up to enact the above if normal collaborative processes fail to resolve serious problems. However, cooperation norms adopted under partnering agreements mean suspension should rarely, if ever, be required.

Global Suspension Trends

Some notable trends regarding suspension rights evident in international standard contracts include:

Expanded Grounds for Suspension

Contracts increasingly recognise suspension rights in health and safety threats or corporate insolvency circumstances.

Tiered Notice Regimes

Cooling-off periods may be mandated before formal suspension notices are issued, providing an opportunity for resolution.

Advanced Notification Duties

Requirements for early warnings and temporary ‘soft suspensions’ before full suspension are exercised.

Mandatory Senior Negotiations

Enforced escalation procedures necessitating negotiations between senior executives prior to suspension notices.

Restrictions on Concurrent Claims

Suspension period delays expressly excluded from prolongation or liquidated damages claims.

Mandated Acceleration Duties

Obligations after lengthy suspensions to accelerate work and recover lost time through additional resources.

Formal rights to suspend works remain a key contractual remedy to protect parties’ interests during disputes or events preventing performance. However, leading contracts seek to deter unnecessary suspensions through dispute avoidance mechanisms and better change management procedures. Suspension is