Most businesses would be thrilled to obtain a government contract. These can represent a reliable income stream for the life of the contract. However, government contracts frequently contain a “termination for convenience” clause which, when exercised, can suddenly and prematurely end the contract.
What is termination for convenience?
Most of the time, when one party to a contract fails to live up to the contract’s terms, it would be considered in breach of that contract. The aggrieved party then has the option to sue for breach, to remedy the failure to perform.
A termination for convenience clause makes this remedy much more difficult to achieve, as it allows the party exercising the clause to exit the contract for a host of reasons. The causes are commonly found in government contracts and what qualifies as convenient is broadly construed. Essentially, if early termination of the contract is found to be in the government’s interest, it is considered valid.
For instance, the government agency may decide that they no longer need the goods or services contracted for, or it may simply decide to handle them in-house moving forward. If the relationship between the agency and the contractor turns sour, this too can provide the basis for termination.
Termination for convenience clauses are also becoming more common in private contracts. When they are exercised, it is unlikely that the exercising party will be found in breach unless there is some form of malfeasance, such as fraud.
If you are considering entering into a contract with a termination for convenience clause, speak to an attorney who is experienced in business transactions. They can advise you of the risks and how best to proceed.