When and how can you suspend work?

Geoff Hardy has 46 years’ experience as a commercial lawyer and is a partner in the Auckland firm “Martelli McKegg”. He guarantees personal attention to new clients at competitive rates. His phone number is (09) 379 0700 and email geoff@ martellimckegg.co.nz.

There are three situations where you might want to suspend work. The first is where you badly need to take a break or it is overwhelmingly in your interests to do so. Examples of that would be where a competitor poaches your senior staff, you suffer a serious illness, the Christmas holidays arrive, you are offered a project in Dubai that will set you up for life, or you win Lotto. The second situation is where you simply cannot continue because a third party has intervened or some natural event has occurred – for example where some critical components aren’t delivered, or your plant and machinery breaks down or is destroyed in a fire, or you get a lawyer’s letter saying the design you are manufacturing to is someone else’s intellectual property. The third situation is where your customer is in default – such as by not paying you, not issuing directions, or not giving you access to install your product.

It might surprise you to learn that in none of those situations do you have an automatic right to suspend work. Under your joinery contract you have undertaken to work diligently and conscientiously until the project is completed, and unless the contract lets you off the hook, you have to see it through to the end. If you plan to take a holiday midproject, you need to have made that clear at the outset. If you win an all-expenses-paid, two-month trip to the World Cup, that’s too bad, unless you can arrange cover for yourself.

And the most surprising thing of all, is that if your customer is well overdue in payment and has no reasonable excuse, the law still requires you to keep honouring your obligations regardless. That is, unless prior payment is a precondition to you starting or continuing work. Or, the customer’s default is so bad that you can actually cancel the joinery contract (assuming you want to). If you don’t have those rights, then the theory is that you have a process under the contract or under the general law for recovering your payment – whether that be mediation, arbitration, adjudication, the Disputes Tribunals, or the Courts – and in the meantime you have to keep working.

Fortunately there are four exceptions to the rule:

1. If the contract is “frustrated” (which means it become impossible to perform – such as where the building you are making the joinery for disappears into the sea) then the law gives you a get-outof-jail card. However this situation is very rare.

2. Most sophisticated contracts allow you to suspend work in “force majeure” situations where you are held up by things beyond your control like earthquakes, volcanic eruptions, tsunamis, floods, wildfires, states of emergency, riots, strikes or lockouts. However to do so you need to have a written joinery contract that contains a force majeure clause.

3. Regardless of your contract, the Construction Contracts Act allows you to suspend work if you have given your customer a valid payment claim, and the customer either hasn’t given you a valid payment schedule in time, or hasn’t paid what the payment schedule said would be paid. But there are a few traps to look out for here. First, there aren’t many tradesmen who manage to satisfy all the criteria for a valid payment claim under the Act. Secondly, even if you have, you then have to give the customer a special written notice and allow five working days for the notice to be complied with, before you can suspend. Thirdly, as soon as you do get paid you have to resume work immediately – not when it suits you.

4. However the best option of all is to use a joinery contract that allows you to suspend work in situations where it would be unfair to make you behave like a saint when your client is behaving like a sinner.

If you are required to sign up to one of the NZ Standards or NZ Institute of Architects contracts, they do give you some suspension rights, but they are not as favourable to you as they might be. Under the NZS contracts you can suspend work for non-payment or for some other persistent, flagrant or wilful default, but you have to give a written warning and allow the customer time to comply. Under the NZIA contracts you can suspend work if you have not been paid or you have not been provided with security for payment, but there is a similar requirement to allow time to remedy the default. However the biggest obstacle is that you are prohibited from suspending work during a dispute, and there are very few construction projects where an alleged default is not disputed.

Ideally your joinery contract would give you two specific rights to suspend work. The first is where the customer has not complied with his/her/its obligations, whatever those obligations may be. Then you could suspend work as soon as you have given the customer a written notice of suspension that identifies the particular default relied upon, and states that you will be suspending work. The second situation is where you have reasonable cause for concern about the customer’s ability to pay your future invoices. Under your contract, you could ask for security for payment such as a bond or money paid in advance, and if you don’t get it within a specified number of days, you could then suspend work.

The important point to note is that there would have to be a genuine default on the part of the customer before you can suspend, and there is a process you would have to follow. If you don’t have valid grounds, or you don’t follow that process, then you would be in default and it is you who will be liable to the customer. The process should be outlined in the contract, and chances are it will be more complicated if you are actually installing your handiwork on the customer’s site. In that case it is unlikely that you could just pull your guys off the job and assume that it will be okay. When you send the notice, there are certain issues that it may be important for you to address.

Before you down tools there may be some critical work you need to do to secure the site to prevent vandalism, theft, or obvious health and safety risks, or to avoid damage due to exposure to the elements. Use your common sense here, and take basic precautions before vacating the site. You might even need to remove scaffolding or other plant and equipment to avoid incurring unnecessary hire charges, if the suspension looks like it will last for a while. Ideally all costs and expenses that you incur because of the suspension, including the costs of recommencing work, should be chargeable as a variation under your joinery contract.

The most important point to emphasise in your suspension notice is that you are ready, willing and able to resume work once the default is remedied. This is to avoid the impression that you have abandoned the project for good, or cancelled the joinery contract, which could expose you to a claim for damages for unlawful termination. You should reserve your right to cancel if the delay drags on too long, but make it clear that that hasn’t happened yet. You should also point out that if you remove your plant and equipment off site, that is merely for security reasons so they are not vandalised or stolen, or so that you can use them elsewhere or avoid paying unnecessary rental on them, and it is not to be interpreted as evidence that you have departed for good.

From a practical point of view, you will not be able to effectively manage health and safety risks while you are away from the site, so you should put on record that primary responsibility for health and safety logically reverts to the customer during the period of suspension, as the party best able to manage and control what goes on at the site.

Suspension of work should automatically extend any required completion date under your contract. The resulting delay may result in the contract works insurance lapsing before the new completion date, so someone will need to extend the policy. Typically in a renovation that will be the owner, and in a new build it will be the head contractor. Bear in mind that if the cost is on you, you will want the right to recover it as a variation.

Once you suspend work you will have to reallocate your resources to other projects to generate income and keep your staff occupied, and it will be difficult to predict when you will free up again. It is important that your contract doesn’t require you to resume work immediately the customer’s default is remedied, because that may be difficult for a small joinery business. Your suspension notice should therefore state that the precise date of recommencement will depend on your commitments at the time and will have to be mutually agreed.

Finally, you should bear in mind that any fixed pricing or cost estimates you gave your customer originally were based on prevailing rates at the time and may not adequately cover your costs at the time of recommencement. If you have cost adjustment provisions in your joinery contract then you will be covered. Although you may need to hold your costs as much as reasonably possible you should be able to reprice the job at the time to ensure that your profit margin is not eroded.