NEC3 ECC: Can the Employer terminate for budget cuts?

You are the Project Manager on the construction of a new asset. The tendered total of the Prices was approximately £10m, ECC Option A was used with secondary Options X1, X2 and Y(UK)2 incorporated. The Contractor started works on the Site some 3 weeks ago and has set up his site compound, commenced site clearance, started erecting some temporary fencing and arranged a number of subcontracts. On Monday of the fourth week, as part of budget cuts, the Employer wishes to terminate the Contractor’s obligation to provide the Works.
a. Can the Employer terminate for budget cuts?
b. What needs to happen to put the termination provisions into effect?
The Project Manager issued the termination certificate later that day.
c. What is the procedure for this termination and what is the role of Employer, Contractor and Project Manager in this?
d. Who determines the payment on termination and how is this done?


Yes, the Employer could terminate for budget cuts.

This though is not a reason listed in clause 92. Consequently, it is for ‘A reason other than R1 - R21’ as per the table in clause 90.2.

As a result, procedures P1 and P2 of clause 92 are followed and amounts A1, A2 and A4 are due as stated in clause 93.

Agreeing with Jon’s answer here save to clarify that it is ok to terminate for budget cuts as the work will not be carried out at all, it is not permissible to terminate for budget cuts to re-let the same works to a cheaper contractor.