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Government contracts and termination for convenience

On Behalf of | Feb 28, 2022 | Business Law

For most businesses, obtaining a government contract will represent a boon to their bottom line. Unlike many private contracts, a government contract can be a steady and reliable income stream. But they are not without their risk, as evidenced by the government’s power to end those contracts.

What is termination for convenience?

Typically, when one party fails to live up to the terms stated in their contract, they are said to be in breach of contract and the other party may have legal remedies against them for that breach. Government agencies, however, have the inherent authority to terminate a contract for convenience. What does that mean? Unfortunately for the contractor, it is a phrase and concept which is construed broadly.

Termination for convenience means that the government can terminate a contract whenever it is in the government’s interest to do so. This may be as simple as the agency no longer requires the goods or services it contracted for, or has decided to handle them in-house. The government may propose a change to the contractual terms which the contractor chooses not to accept – this can be grounds for termination for convenience. Or the relationship between the agency and contractor may simply deteriorate, making it in the government’s best interest to move on.

Does the contractor have any remedy?

Most of the time, when an agency terminates a contract for convenience, it is not considered to be in breach of that contract. It will usually take some sort of malfeasance on the part of the agency before it is considered to be in breach. However, the contractor is entitled to a settlement following termination. The agency must give the contractor written notice that it intends to terminate the contract and the contractor is entitled to collect an amount representing those costs which could not be avoided as a result of the termination.