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Contracts: the termination for convenience clause

On Behalf of | Jul 27, 2022 | Firm News |

Obtaining a new contract—particularly when it’s with a government agency—can seem like a boon for a business. After all, it represents a new and reliable stream of income. However, that contract is not without potential drawbacks, particularly when it includes a termination for convenience provision.

What is termination for convenience?

Historically, termination for convenience has been a power wielded by contracting governments. However, they’re beginning to crop up more often in private contracts as well. The clause refers to the government’s authority to prematurely end a contract when it suits the agency’s needs, without creating a breach of that contract.

What is “convenient” for the government is an idea that is broadly construed. The agency may decide to handle the good or services for which it contracted, in-house. Or it may simply decide that it no longer needs them. If the contractor refuses an offered modification to the contract or the relationship deteriorates in some way, this too can provide the basis for termination. If the reason is considered in the government’s interest, it can be considered “convenient.”

Does the contractor have a remedy?

Normally, a contractor could sue for breach of contract when the terms are violated prior to completion. But this is not an option when a termination for convenience clause is exercised unless the contractor can show malfeasance on the part of the contracting agency—for instance, the agency entered into the contract knowing it would terminate early.

Instead, the contractor will be entitled to a settlement. The government agency is required to give the contractor notice that it intends to terminate so that the contractor can take steps to mitigate its losses. The settlement will then include the costs that could not be avoided as a result of the early termination, despite the mitigating steps taken.