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Knowing who can terminate contracts for convenience

Most of those who deal contractually in Detroit and Chicago likely do so assuming that the only way their contractual partners can terminate their agreements is if they have legitimate cause to do so (after all, how valid can an agreement be if one side can walk away from it at any time?). Yet there are scenarios where a contracted partner can indeed end an agreement for its convenience. The trick to avoid getting caught up in such a scenario is knowing what situations the right to terminate for convenience applies to. 

Typically, this privilege is extended automatically to government entities. Indeed, the Code of Federal Regulations shows that the right to terminate all or part of a contract due to it not being in an agency’s best interest is inherent. In the event that a government entity does end an agreement in this way, its contracted partner only has the right to collect payment for whatever services it had already rendered, as well as the costs associated with ending its work. 

What are scenarios where it might be viewed as being in an agency’s best interest to end a contract? The Congressional Research Service has determined those to be: 

  • When it no longer needs the goods or services being provided
  • When its contracted partner refuses to modify the terms of the agreement
  • When question arise as to the propriety of the contract
  • When the contracted partner ceases to be eligible for the contract
  • When its relationship with the contracted partner has deteriorated
  • When it decides to perform the contracted services in-house

Private organizations are not automatically allowed the same privilege to terminate contracts for convenience. They must include such a clause in a contract’s terms in order to walk away from a deal without cause