Cases of contract termination

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A contract may be terminated:

automatically7 [ A contract may also be automatically terminated in a case where the Contractor is a physical person and this person passes away. However, the Contracting Authority shall examine any proposal made by that person’s heirs or beneficiaries, should they express their wish, within fifteen (15) days of the date of decease, to continue the Contract. The decision of the Contracting Authority shall be notified to the parties concerned within thirty (30) days of receipt of the said proposal. ], if, it has not given rise to any payment within a period of one year after its signature by both parties.
by the Contracting Authority when the reasons stated in Table 6-10 are conducive;
by the Contractor when the reasons stated in Table 6-11 are conducive;

It is noted that at any rate, the termination shall be made without effect on any rights or authorities of the Contracting Authority as well as of the Contractor, by the force of the contract.


Table 610:  Reasons for which the Contracting Authority may terminate the contract

The Contractor fails substantially to fulfil its contractual obligations.
The Contractor does not comply within a reasonable time with the notice given by the Project Manager (or Engineer in the case of public works), whereby the Contractor is requested to make good every negligence or failure to perform its contractual obligations which seriously affects the proper execution of the Contract within the deadlines prescribed.
The Contractor refuses or neglects to carry out Orders given by the Project Manager.
The Contractor assigns the Contract or subcontracts a part thereof or replaces subcontractors without the authorisation of the Contracting Authority.
The Contractor becomes bankrupt or is being wound up, is having its affairs administered by the Courts, enters into an arrangement with creditors, has suspended business activities, is the subject of proceedings concerning similar matters, or is in any analogous situation arising from a similar procedure provided for by the national legislation and/or regulations.
The Contractor has been convicted of an offence concerning its professional conduct by a judgment which has the force of res judicata.
The Contractor has been guilty of grave professional misconduct, which may be proven by any means which the Contracting Authority can justify.
The Contractor has been the subject of a judgment which has the force of res judicata for fraud, corruption, involvement in a criminal organisation or any other illegal activity detrimental to the financial interests of the European Union and the Republic of Cyprus.
The Contractor undergoes organisational modifications involving a change of its legal form or of its nature, unless such modification has been recorded in an Addendum to the Contract.
It is found that the Contractor employs or is exploiting minors under the age of 15, in violation of articles 138 and 182 of the International Labour Convention.
Any other legal disability hindering execution of the Contract occurs.


Table 611: Reasons for which the Contractor may terminate the contract

The Contracting Authority fails to pay the Contractor the amounts due based on the certificate issued by the Project Manager (or the Engineer) following the expiration of the deadline set forth in the contract (e.g., in the case of service or supply contracts: 2 months following the expiration of the deadline for payment of the overdue payment, in the case of public work contracts: 56 days following the lapse of the time mentioned in the contract as the deadline for making the payment)
The Contracting Authority without reason intervenes or obstructs or refuses any approval required for the issue of any payment certificate.
The Contracting Authority in constantly unable to fulfill its contractual obligations following repeated reminders.
The Contracting Authority suspends the progress of services/ deliveries or any part thereof, for more than one hundred and twenty (120) days (unless if otherwise set forth in the contract), for reasons which are not mentioned in the Contract or for which the Contractor is not responsible.
The Contracting Authority refuses to serve notice to the Contractor that due to unforeseen financial reasons it is impossible for him to continue his contractual obligations.

None of the contracting parties must be considered as unable to fulfill its contractual obligations (and hence there are grounds for termination of the contract), if the fulfilment of these obligations is inhibited by any event of force majeure8 [ "Force Majeure" means acts of God, strikes (except if these are limited to the persons in the Contractor’s employment), lock-outs or other industrial disturbances, hostilities, wars (whether declared or not), blockades, insurrection, riots, epidemics, landslides, earthquakes, storms, lightning, floods, washouts, civil disturbances, explosions and any other similar unforeseeable events which are beyond the control of the parties, are occurring in the territory of the Republic of Cyprus over which Government exercises effective control or in the place where the Contractor is established, and cannot be overcome by due diligence by either party. ], which arises following the date of signature of the Contract. For the Contractor to be entitled to invoke force majeure, he is required to, within 20 days (unless otherwise set forth in the contract) from when the events constituting force majeure occurred, report these in writing and produce, if required, to the Contracting Authority the required evidence of proof. The Contracting Authority is required to answer within 30 days (unless otherwise set forth in the contract) from when the aforementioned report of the Contractor was devolved to it. If the Contracting Authority fails to answer within the above period of time, the said event of force majeure shall be considered to have been accepted. In a case where the Contracting Authority invokes force majeure, it is required to notify the Contractor within 20 days (unless otherwise set forth in the contract) from when the events constituting force majeure occurred. In a case where the force majeure affects the works of the Contractor, the Contracting Authority must suspend the execution of such works.

It is stressed that the Contracting Authority is not required to terminate the contract even if one of the reasons mentioned in Table 6-10 is conducive to it. It must first examine alternative ways for the compliance of the Contractor, such as for example, possible extension of the deadline for the submission of a deliverable, as long as such extension does not affect the completion date of the Project. This will give the Contracting Authority the possibility, if it so desires, to continue its cooperation with the specific Contractor.

In general, the termination of the contract due to the Contractor's failure to comply with the contract requirements must be the last solution and should not be construed as a form of penalty towards the Contractor. In this framework the Contracting Authority must, once it identifies a certain non compliance of the Contractor and before proceeding with the termination of the contract, make an effort to answer the following questions:

Checklist 66: Questions that must be answered before deciding to terminate the contract

Has every possible effort been put forward, in order to assist the Contractor with resolving the non compliance?
Have the terms of the contract been examined/ reviewed and the relevant legislation in order to ensure the legality of terminating the contract?
Does the Contractor document/ justify in a convincing manner the appearance of the specific non compliance?
How urgent is the need for the supply of the specific products or provision of the specific services or the construction of the specific project? (the Contracting Authority must weigh out the benefits/ advantages against the cost/ disadvantages in the case of continuing the cooperation with the existing Contractor as well as in the case of conducting a new tender to select another Contractor.)
Is there availability of the specific products or possibility to provide the services or capability to construct the project by other economic operators and if yes, how much time is required to acquire them (compared to the additional time required by the existing Contractor to complete his works)?
Are the necessary funds or necessary resources available to repeat the tender procedure in a case where such expenses cannot be recovered by the existing Contractor? (It is noted that, when provisioned in the Contract, the Contracting Authority is entitled to claim liquidated damages from the Contractor to cover the expenses for the re-announcement of the tender. However, it is possible that the financial status of the Contractor does not allow him to do this, in which case the Contracting Authority must take legal action against him.)

© 2007 Republic of Cyprus, Treasury of the Republic, Public Procurement Directorate
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