The process of terminating for Contractor Default is more complex than other routes to termination. This is, in part, because the compensation payable is calculated on a different basis and there is no guarantee that the senior lenders will be fully paid out. Hence in bank financed projects the funders have a key role to play in this scenario.
Most importantly the Funder's Direct Agreement gives the right to receive notification of the Authority's intention to terminate at the same time as the Contractor and the right to step-in to resolve the situation itself. Once the funder has stepped in the Direct Agreement will severely restrict the Authority's ability to terminate the Contract and this remains the case until the funder steps out.
The Contract Management Manual should also state that elements of the definition of Contractor Default may be subject to rectification periods. The period may vary from element to element. Thus if the Contractor rectifies the default within the specified period from the Termination Notice the notice will be deemed to be revoked.
If persistent breach is the issue there will be a requirement to give one or more warning notices before the Authority is entitled to issue a valid termination notice.