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Terminating contracts for convenience

On Behalf of | Apr 19, 2018 | Contracts, Firm News

When executing contracts in Detroit, most would think that those party to them cannot simply walk away from these agreements for no reason. Yet depending on the type of company or agency involved (or the exact terms of a contract), the law may allow one to do just that.

The concept of “termination for convenience” applies to all government agencies (as well as private organizations that qualify). This allows such parties to terminate contracts if they do not believe them to be in their best interests. Indeed, Section 52.249-2 of the Code of Federal Regulations (as shared by the Cornell University Law School) reaffirms this fact. It states that any government entity can cite convenience when terminating a contract in whole or from time to time.

What are some reasons why a government agency would terminate a contractual agreement for convenience? The Congressional Research Service lists those to be:

  • When it no longer needs a particular product or service (or is able to provide what is needed in-house)
  • If questions arise over the propriety of the agreement
  • If its relationship with the contracted partner has deteriorated

When a government entity cites convenience as a reason to terminate a contract, the contracting partner can typically only expect to recover a termination settlement that would cover work already done as well as any costs associated with ending its contracted services. Damages and anticipatory profits that may otherwise be awarded for breach of contract are only recoverable if the contracted partner can show that the agency operated in bad faith when negotiating the agreement.

The right to terminate for convenience is inherent with government agencies; the same is not true for private organizations. Private companies may qualify for this benefit, however, if they include language in their contracts allowing for it.