For businesses, obtaining a government contract can be immensely profitable. Government agencies can be more stable and reliable than private companies, representing a sizable and regular source of income. However, these contracts are not without their pitfalls, as evidenced by a termination for convenience.
What is termination for convenience?
Unlike private persons or entities, government agencies have the unilateral ability to cancel a contract without being in breach of its terms. Known as termination for convenience, this authority allows agencies to end a contract prior to its expiration, for no other reason than doing so is in the best interests of the government.
Those interests will vary, but may include that the government no longer needs the goods or services or that the agency has chosen to restructure its contractual obligations. There may be many other reasons as well. Generally speaking, once the government elects to exercise its right to terminate for convenience, it cannot be held liable for breach of contract.
Sometimes, however, the government can be held liable for breach of contract – such as when the agency enters into the contract in bad faith, knowing the contract will not be honored. Regardless, the contractor is entitled to notice of the termination and settlement following the termination. Settlements include costs which the contractor has already absorbed as a result of performing their end of the contract. Not surprisingly, the amount of the settlement can vary greatly from one contract to another. Frequently, the contract itself will contain the formula used to arrive at a settlement amount and the contractor will submit its claim for the amount once termination has occurred.