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Government contracts: what is termination for convenience?

On Behalf of | Feb 18, 2022 | Contract Law

For many businesses, obtaining a government contract is a boon for their bottom line. After all, it can be a steady and reliable income stream not often found in other contracts. But government contracts are not without their downsides, as evidenced by the agency’s ability to cancel them.

Is the government in breach of contract when it cancels?

Termination for convenience refers to the authority of a government agency to end a contract before its contracted expiration date. It can do so whenever it is in the government’s interest to no longer be a part of the contract. And, unfortunately for the business on the other end of the contract, what is in the government’s interest is broadly construed.

It may be that the agency simply no longer needs the goods or services contracted for, and terminating it is in their best interest. Or, it may have decided to handle the contract in-house. A deteriorating relationship between the agency and the contractor can also provide the basis for termination for convenience. A modification to the contract may be proposed, which the contractor refuses, making cancellation in the government’s best interest. As you can see, the government’s authority in this regard casts a wide net.

Under these circumstances, it’s unlikely that an agency will be found in breach of a contract when it terminates for convenience. To be in breach, there will need to be some malfeasance on the part of the agency, such as entering into the contract with no intention of fulfilling it. But the contractor is not without a remedy – the agency must provide written notice of its intent to terminate the contract, after which the contractor is entitled to a settlement. The settlement amount will depend upon the contract itself but should include those costs which were unavoidable due to the termination.