International construction contracts face growing termination risk

International construction disputes are surging. The International Chamber of Commerce's (ICC) preliminary 2025 statistics for its dispute resolution services reported 894 new arbitration cases, one of its top three years by volume, and a record 1,869 ongoing cases. Construction, engineering and energy disputes accounted for 44% of all new ICC cases registered in 2024. In the UK, adjudication referrals hit a record 2,264 in the year to April 2024. The message is clear: the sector is under unprecedented contractual strain and termination risk has never been higher.

More terminations, more complexity

Termination disputes are rising globally, experts observed on a recent panel discussion hosted by Osborne Clarke at London International Disputes Week. The war in Ukraine, the Middle East conflict, inflation, supply chain disruption and expanding sanctions regimes are all placing significant strain on the viability of major international construction projects.

A substantial programme of defence construction is also now gathering momentum, with the UK committed to spending 2.5% of GDP on defence by 2027 and NATO members targeting 5% of GDP by 2035, driving a pipeline of steel and energy-intensive projects that carry heightened cost overrun and insolvency risk. Properly terminating a contract in such complex circumstances is critical, and getting it right starts long before service of any notice. Improperly terminating can lead to significant expense and exposure.

Strict compliance

In common law jurisdictions, such as England, termination is either contractual or at common law for repudiatory breach. There is no implied right to terminate for convenience and no general duty of good faith. Standard form contracts typically impose multi-step procedures (including notice of default, cure periods and a secondary termination notice within a defined window) and strict service requirements. 

The UK Supreme Court's decision in Providence Building Services Ltd v Hexagon Housing Association Ltd is a timely reminder that each notice window is a separate compliance event. The point is one of general public importance because the contract in question incorporated the JCT Design and Build Contract (2016 edition), a standard form very widely used in the construction industry, and the disputed termination clause continues to appear unchanged in the 2024 edition.

Parties that get the steps wrong do not simply fail to terminate; they risk becoming the repudiating party, with exposure to significantly greater damages as a result. Providence is a clear illustration of that risk. The contractor's invalid notice of termination gave the employer the opportunity to assert repudiation, reversing the parties' positions entirely.

Broadly, a crucial practical step for parties is to map all termination routes, cure periods, notice steps and service requirements before signing and to weigh the total cost of each termination route, including dispute costs. For parties using the JCT Design and Build Contract in any edition, that means understanding from the outset that the clause 8.9.3 gateway must be opened before clause 8.9.4 can ever be used, and taking legal advice before serving (or accepting the cure of) any default notice under the standard form termination regime.

Civil law continuity

Civil law jurisdictions take a fundamentally different approach.  French law offers a clear illustration. Unlike common law systems, civil law imposes a mandatory duty of good faith (bonne foi) across all stages of the contract, including termination. A party that terminates in bad faith, even if technically entitled to do so, risks liability. A party seeking to terminate an established commercial relationship is required to give the other sufficient notice to allow it to redirect its activities towards new clients. Failure to do so  may be treated as an abrupt termination (rupture brutale), exposing the terminating party to a claim for damages.

French courts consistently favour a pro-continuity approach and completion over termination, particularly where works are substantially advanced. A party issuing a termination notice may find itself facing an order to perform rather than an award of damages. 

A practical takeaway was that practitioners and clients should be alive to these stark differences, particularly where their project is governed by the laws of a civil law jurisdiction or where they may face a civil law decision maker in an arbitration. Understanding the cultural nuances is essential.

The governing law of the main contract is important, as is the local law of the place in which works are carried out. Any conflicts between the two should be considered at the drafting stage. Given that England is a common seat for arbitrations on international construction projects, civil law contractors and employers should be prepared for decision makers to take a different approach.

Defence build-up

In the defence sector, where a significant construction wave is underway, the supply chain is small and relationships are key. The incentive to resolve matters commercially rather than terminate is correspondingly high. Offset obligations add further complexity, as they are typically governed by a separate agreement and survive termination of the primary contract. Where a party fails to perform those obligations, non-performance can itself become a ground for the state party to terminate. Any termination strategy must accordingly be designed with the offset agreement firmly in hand.

Renewable energy

In the renewables and energy sector, termination for convenience remains a legitimate exit route where the contract expressly confers it. On sanctions and force majeure, the UK Supreme Court's decision in RTI Ltd v MUR Shipping confirmed that a reasonable endeavours proviso in a force majeure clause does not require a party to accept a fundamentally different mode of performance. General force majeure clauses will not stretch to cover sanctions events in the way parties often assume. A sound approach would be to include targeted drafting that maps out how a sanctions regime is treated contractually in the event that it disrupts performance.

Evidence counts

Once trust breaks down, evidence deteriorates, and the cost to a party of substantiating its case escalates. The panel noted that the valuation questions at termination are consistent across jurisdictions: what is the account position, what is the real value of work done, and how are disputed variations, prolongation claims and subcontractor liabilities to be dealt with? The answer to each begins with solid records and evidence maintained from an early stage, because the gap between the parties' positions widens rapidly post-termination. Parties can benefit greatly from expert input when it comes to preparing their quantum evidence to demonstrate the loss suffered.

Osborne Clarke comment

Whether acting for an employer or a contractor, knowing how to exit a contract before it is signed is among the most commercially important aspects of construction risk management. The financial, reputational and legal consequences of termination can be severe if the process is not handled with precision.

This Insight draws on conversation at the London International Disputes Week seminar "Broken Contracts, Broken Trust: Managing termination risk in international construction projects" between Osborne Clarke partners Helen Waddell and Jessica Madesclair; Tim Tapper, Robert Lea and Diarmuid Bairead of consultancy Turner & Townsend; and Lizzie King of built environment specialists BakerHicks