Obtaining a government contract will be seen as a boon to many businesses. After all, it can provide a steady and reliable income stream not always found in private contracts. But government contracts are not without their potential drawbacks, as evidenced by the concept of termination for convenience.
What is termination for convenience?
For most parties to a contract, ending that contract without sufficient legal justification, prior to the contract’s expiration, would put them in jeopardy of breach and open them up to litigation. For the government, it’s different. Government agencies retain the authority to terminate a contract for its own convenience and, unfortunately for the contractor, ‘convenience’ is a term construed broadly.
An agency may terminate a contract simply because it no longer needs the goods or services for which it has contracted, or it may have decided to handle them in-house. The agency could propose a contractual amendment to the contractor, which is rejected – this could provide a basis for the agency to terminate for its convenience. Or the relationship between the agency and the contractor may deteriorate, leading the agency to conclude that moving on is in its best interest.
Does the contractor have any remedy?
In most cases, a government agency will not be considered in breach of contract when it terminates for convenience. For breach to occur, it will typically require some sort of malfeasance on behalf of the agency – such as entering into the contract knowing it would terminate the contract early. However, even in the absence of breach, the contractor is entitled to a settlement following termination. The agency is required to give the contractor written notice of its intent to terminate, giving the contractor an opportunity to mitigate its losses. The contractor is then entitled to recoup any losses which could not be avoided due to the agency’s early termination.