Replacement of the contractor: navigating the pitfalls between substitution, partial termination and variation

It is frequent in complex construction projects that the contractor fails to complete certain separable construction tasks in accordance with the agreed schedule and that the employer therefore seeks to replace the laggard for those specific tasks, while continuing the cooperation for the remaining project works (be it because those works are performed diligently or to minimize delay and disruption regarding the entire project). For example, the installation of the cooling system for a power plant may be delayed beyond the agreed milestones while the construction of the rest of the project progresses as planned. Despite the frequency of the issue, it is often not addressed in construction contracts, including widely-used model contracts, such as those of the International Federation of Consulting Engineers (“FIDIC”) or the Swiss Society of Engineers and Architects (“SIA”). This note casts some light on the available remedies in situations where a contractor is replaced and highlights possible issues that parties, and in particular employers, should be conscious of when negotiating construction contracts or in an actual replacement scenario.

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