How to Legally Terminate a Contracting Agreement Without Risking Litigation in Bahrain

In Bahrain’s contracting industry, there are times when a project cannot continue as planned,whether due to persistent breaches, non-performance, financial issues, or external circumstances. While termination may be legally justified, improperly ending a contract can trigger costly litigation, claims for damages, and reputational harm.

This blog explains the legal grounds, required procedures, and best practices for terminating a contracting agreement in Bahrain without escalating into a dispute.

Explore our solutions for Bahrain contracting and subcontracting disputes.

Legal Grounds for Termination

Termination rights are usually set out in the contract and may include:

Termination for Cause
- Breach of key contractual obligations (e.g., failure to meet deadlines, defective work, non-payment).
- Insolvency or bankruptcy of one party.
- Repeated safety violations or regulatory non-compliance.
Termination for Convenience
- Some contracts allow the employer to terminate without cause, subject to notice and compensation.
- Less common in lump-sum construction contracts unless specifically negotiated.
Force Majeure Termination
- Events beyond the control of the parties, such as natural disasters or government actions, making performance impossible.

Legal Framework in Bahrain

Under Bahraini contract law:

Termination must follow the procedure agreed in the contract unless the parties mutually agree otherwise.
Notice requirements must be strictly followed — including form, delivery method, and response deadlines.
Wrongful termination (terminating without valid legal or contractual grounds) can result in damages against the terminating party.

Risks of Improper Termination

Claims for wrongful termination and breach of contract.
Loss of retention money or performance security.
Delay damages if the termination causes project disruption.
Reputational damage with clients, subcontractors, and suppliers.

Steps to Terminate a Contract Legally

Review the Contract
- Identify termination clauses, grounds, and notice requirements.
Gather Evidence
- Document breaches, delays, or other termination grounds with correspondence, inspection reports, and expert opinions.
Issue a Formal Notice
- State the contractual grounds for termination and give the other party a chance to rectify (if required).
Follow Notice Periods
- Comply with timelines specified in the contract to avoid invalid termination.
Settle Outstanding Payments
- Pay for work done up to the termination date, unless contractually entitled to withhold.
Engage Legal Counsel
- Seek advice to ensure all procedures comply with Bahraini law and the contract.

Draft and review agreements with Contract Lawyers in Bahrain.

Example:

A developer in Bahrain engaged a contractor for a large residential project. The contractor repeatedly missed deadlines and failed to address defective works despite multiple warnings.

The employer issued a termination notice but failed to give the contractually required 14-day cure period. The contractor sued for wrongful termination, claiming lost profits.

A lawyer reviewing the case noted that the termination could have been valid if the proper notice procedure had been followed — instead, the procedural error gave the contractor strong grounds for legal action.

Best Practices

For Employers: