A TERMINATION FOR CONVENIENCE IS NOT A TERMINATION FOR DEFAULT

Posted on March 30, 2024March 30, 2024 by David Adelstein

A termination for convenience is NOT a termination for default. They are NOT the same. They should NOT be treated as the same. I am a huge proponent of termination for convenience provisions because sometimes a party needs to be able to exercise a termination for convenience, but the termination is not one that rises to a basis for default. However, exercising a termination for convenience does not mean you get to go back in time and convert the termination for convenience into a termination for default. It does not work like that. Nor should it.

An opinion out of the Civilian Board of Contract Appeals – Williams Building Company, Inc. v. Department of State, CBCA 7147, 2024 WL 1099788 (CBCA 2024 – demonstrates a fundamental distinction between a termination for convenience and a termination for default, i.e., that you don’t get to conjure up defaults when you exercise a termination for convenience:

Because a termination for convenience essentially turns a fixed-price construction contract into a cost-reimbursement contract, allowing the contractor to recover its incurred performance costs, the resolution of this appeal will involve identifying the total costs that [Contractor] incurred in performing this contract before [Government] terminated it for convenience. Since [Government] terminated the contract for convenience rather than for default, it no longer matters whether, in the past,[Contractor] acted intentionally in overstating the amount of its incurred costs or committed a contract breach. Ultimately, as permitted in response to a termination for convenience, [Contractor] will recover those allowable costs that [Contractor]establishes it incurred in performing the contract.

Williams Building Company, supra.

In this matter, the government terminated a contractor for convenience as it was entitled to do per the Federal Acquisition Regulations (FAR). The contractor submitted its incurred costs through the termination and a dispute arose as the costs the contractor was entitled to. The government claimed the contractor committed prior material breaches of contract prior to the termination for convenience. Unfortunately, the government can’t have its cake and eat it too by trying to convert its termination for convenience into one of default:

Once [Government] terminated the contract for convenience, [Contractor] became entitled to recover the allowable costs that it can show it incurred in performing the contract. If [Government] had wanted to hold [Contractor] responsible for prior breaches ofthat contract, it should have terminated the contract for default. [Government’s] decision to terminate for convenience, rather than default, effectively precludes [Government] from treating past contractor improprieties as material breaches of contract for which it can obtain relief.

Williams Building Company, supra (internal citations omitted).

This does not mean the contractor does not have to demonstrate its costs through the termination. The contractor still “bears the burden of establishing the costs that it incurred in performing its contract.” Williams Building Company, supra. It does mean, however, that the contractor is not in a position where it’s defending a termination for convenience as if it were terminated for default.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

TERMINATING CONTRACTS FOR CONVENIENCE — “JUST BECAUSE”

Posted on June 5, 2021June 5, 2021 by Edward Garber

Termination for convenience provisions are important provisions to include in construction contracts. These are provisions that allow a party to terminate the contract for ANY REASON. No cause is needed to exercise the termination for convenience provision. In other words, the terminating party does not have to demonstrate the other party breached the contract. A termination for convenience can be exercised “just because.”

Typically, the party providing the service should not get to terminate for convenience. However, the party receiving the service will want to be afforded this contractual right.

For example, an owner (receiving a service) will want to include a termination for convenience provision with its prime contractor (providing a service). And, a general contractor (receiving a service) will want to include a termination for convenience provision in its subcontract with its subcontractor (providing a service). However, a general contractor providing a service for an owner, or a subcontractor providing a service to a general contractor, should not be able to terminate the contract for their convenience “just because” a better opportunity comes along.

Consideration should be taken as to the required notice to exercise the termination for convenience and any fee associated with the termination for convenience. A party providing a service that agrees to a contractual termination for convenience provision will want to consider and negotiate a termination for convenience fee in the event the other party exercises this right, which is a fee in addition to all costs incurred through the date of the termination for convenience, including any demobilization costs and any early return fees (i.e., costs associated with the termination for convenience). Sometimes the fee included in the termination for convenience provision make it cost prohibitive for the other party to ever exercise this right. But it should be a consideration and negotiation on the frontend because a termination for convenience provision is an enforceable contractual provision and, as quoted below, “difficult to argue around.” There is flexibility to have the contractual right to terminate “just because” without having to establish the cause or breach supporting the termination.

The Middle District of Florida discussed termination for convenience provisions in a non-construction case:

Termination-for-convenience clauses are difficult to argue around. The only plausible exceptions under federal andFlorida law are: (1) bad faith, or possibly (2) lack of consideration. As to the latter exception, Florida courts have heldthat “proper notice” is sufficient consideration. And “proper” notice does not mean that the language of the contractmust provide for “advance” notice—contemporaneous notice will suffice.

Oakes Farms Food and Distributions Services, LLC v. The School District of Lee County, Florida, 2021 WL 2186457, *11 (M.D.Fla. 2021) (internal citations omitted).

It is unclear whether Florida recognizes a “bad faith” exception to exercising a termination for convenience. See id. This is an exception applied in the federal context in limited circumstances where the government-owner acts with malice towards the contractor or with intent to harm the contract by exercising the termination for convenience. See id. Clearly, a difficult exception to prevail upon! However, it is doubtful this exception would support a a basis to argue around the properness of a termination for convenience.

Keep in mind that termination for convenience provisions are enforceable. This is why when reviewing a contract–and hopefully you are working with construction counsel–that includes such language (and this will be included in many construction contracts), negotiating the notice provision and costs/fees in the event such provision is exercised should not be overlooked.

FEDERAL GOVERNMENT TERMINATING FOR DEFAULT “SEPARABLE” CONTRACT

Posted on February 28, 2016February 28, 2016 by Edward Garber

If a contractor is terminated for default on a federal project (really, any project), the objective for the contractor is to convert that termination for default into a termination for convenience so that the contractor can get paid for work performed and associated profit on that work through the date of the termination. For more information on termination for defaults and convenience, check out this article and this article.

The Armed Service Board of Contract Appeals (ASBCA) decision, Nelson, Inc., ASBCA No. 57201, 2015 WL 959241 (ASBCA 2015), provides an example of the government terminating a prime contractor for default where the prime contractor argued the termination was improper. The prime contract called for the construction of stone dikes at four sites along the Mississippi River. Each site had separate pricing, separate notices to proceed, and separate performance periods and durations for the construction of the stone dikes. After the prime contractor had started to perform at two of the four sites, the government terminated the prime contractor for default based on the prime contractor’s failure to timely perform in accordance with the schedules for those sites.

The prime contract included the F.A.R. 52.249.10 clause (set forth in full at the bottom of this posting) relating to termination for defaults. Applicable here, F.A.R. 52.249-10(a) and (c) provide:

(a) If the Contractor refuses or fails to prosecute the work or any separable part, with the diligence that will insure its completion within the time specified in this contract including any extension, or fails to complete the work within this time, the Government may, by written notice to the Contractor, terminate the right to proceed with the work (or the separable part of the work) that has been delayed. In this event, the Government may take over the work and complete it by contract or otherwise, and may take possession of and use any materials, appliances, and plant on the work site necessary for completing the work. The Contractor and its sureties shall be liable for any damage to the Government resulting from the Contractor’s refusal or failure to complete the work within the specified time, whether or not the Contractor’s right to proceed with the work is terminated. This liability includes any increased costs incurred by the Government in completing the work.

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(c) If, after termination of the Contractor’s right to proceed, it is determined that the Contractor was not in default, or that the delay was excusable, the rights and obligations of the parties will be the same as if the termination had been issued for the convenience of the Government.

This case focused on the language “separable part” in F.A.R. 52.249-10(a) to determine whether the government properly terminated the prime contractor from ALL four of the sites along the Mississippi River when the termination focused on the prime contractor’s delay at only two of those sites.

“The government has the burden of proving that the termination for default was justified.” Nelson, Inc., supra, citing Libson Contractors, Inc. v. U.S., 828 F.2d 759, 764 (Fed. Cir. 1987). When a contract is separable, or divisible, “and a contractor is delinquent only as to a separable part of the contract work, it is improper for the contracting officer to terminate for default the entire contract.” Nelson, Inc., supra, citing Overhead Electric Co., ASBCA No. 25656, 1985 WL 16703 (1985).

The ASBCA found that the four sites were separable because each site had separate performance periods, notices to proceed, and pricing. The commencement of the prime contractor’s work at one of the sites was not dependent on or related to its completion of work at another site. (To support the divisibility of the work, the ASCBA stated: “Work at each of the locations did not involve sequential or incremental and interdependent progression of construction, e.g., of one building or levee at one contiguous site.” Nelson, Inc., supra.) Therefore, the ASBCA found that terminating the prime contractor for default from all four of the sites was improper since the prime contractor’s work was separable (and the government based the termination on delay of two of the four separable sites).

Importantly, even when a prime contractor challenges a termination for default claiming it should be converted to a termination for convenience, the prime contractor needs to comply with the Contract Disputes Act. In other words, the prime contractor needs to submit its termination for convenience costs / claim. For more information on this important issue, check out this article.

F.A.R. 52.249-10 Default (Fixed-Price Construction)

(a) If the Contractor refuses or fails to prosecute the work or any separable part, with the diligence that will insure its completion within the time specified in this contract including any extension, or fails to complete the work within this time, the Government may, by written notice to the Contractor, terminate the right to proceed with the work (or the separable part of the work) that has been delayed. In this event, the Government may take over the work and complete it by contract or otherwise, and may take possession of and use any materials, appliances, and plant on the work site necessary for completing the work. The Contractor and its sureties shall be liable for any damage to the Government resulting from the Contractor’s refusal or failure to complete the work within the specified time, whether or not the Contractor’s right to proceed with the work is terminated. This liability includes any increased costs incurred by the Government in completing the work.

(b) The Contractor’s right to proceed shall not be terminated nor the Contractor charged with damages under this clause, if—

(1) The delay in completing the work arises from unforeseeable causes beyond the control and without the fault or negligence of the Contractor. Examples of such causes include (i) acts of God or of the public enemy, (ii) acts of the Government in either its sovereign or contractual capacity, (iii) acts of another Contractor in the performance of a contract with the Government, (iv) fires, (v) floods, (vi) epidemics, (vii) quarantine restrictions, (viii) strikes, (ix) freight embargoes, (x) unusually severe weather, or (xi) delays of subcontractors or suppliers at any tier arising from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and the subcontractors or suppliers; and

(2) The Contractor, within 10 days from the beginning of any delay (unless extended by the Contracting Officer), notifies the Contracting Officer in writing of the causes of delay. The Contracting Officer shall ascertain the facts and the extent of delay. If, in the judgment of the Contracting Officer, the findings of fact warrant such action, the time for completing the work shall be extended. The findings of the Contracting Officer shall be final and conclusive on the parties, but subject to appeal under the Disputes clause.

(c) If, after termination of the Contractor’s right to proceed, it is determined that the Contractor was not in default, or that the delay was excusable, the rights and obligations of the parties will be the same as if the termination had been issued for the convenience of the Government.

(d) The rights and remedies of the Government in this clause are in addition to any other rights and remedies provided by law or under this contract.

RELEASES ON FEDERAL PROJECTS — MAYBE THE RELEASE IS NOT A FINAL RELEASE

Posted on May 6, 2015May 6, 2015 by Edward Garber

Executing partial releases and a final release in consideration of payment are routine on construction projects. Counsel will correctly tell you not to sign a release if you don’t intend to release all of your claims through the date of the release. Counsel will also tell you to be sure to exempt those claims from a release that you do not intend on releasing. The reason for this is that if you sign a release and then seek damages or costs pre-dating the release, the party you gave the release too will waive it in front of your face and say “tough luck; you released these claims and costs!”

However, the opinion in H.J. Lyness Construction, Inc. v. U.S., 120 Fed.cl. 1 (Fed.Cl. 2015) gives those contractors (or subcontractors), particularly federal government contractors, that sign a release and do not exempt certain claims or costs from the release some hope that not all is lost. In this case, the federal government terminated a contractor for convenience. After the termination for convenience, the contractor submitted a release and was paid in consideration for that release. The contractor did not exempt or carve out any claims or costs from that release even though the release allowed the contractor to do so. In other words, the release did not carve out any termination for convenience settlement costs that the contractor would be entitled to. Notwithstanding, the government and contractor continued to discuss termination for convenience settlement costs and when an agreement could not be reached, the contractor filed suit.

The government moved for summary judgment that the contractor released the government for termination for convenience settlement costs because the contractor executed the unambiguous release after the termination for convenience. The contractor countered that the release did not apply to termination for convenience settlement costs and, to show this, the government continued to entertain discussions regarding these costs after it received the release the government is arguing under. Furthermore, the contractor argued that it timely and properly submitted its settlement costs in accordance with F.A.R. 52.249-2(e) that provides:

(e) After termination, the Contractor shall submit a final termination settlement proposal to the Contracting Officer in the form and with the certification prescribed by the Contracting Officer. The Contractor shall submit the proposal promptly, but no later than 1 year from the effective date of termination, unless extended in writing by the Contracting Officer upon written request of the Contractor within this 1–year period. However, if the Contracting Officer determines that the facts justify it, a termination settlement proposal may be received and acted on after 1 year or any extension. If the Contractor fails to submit the proposal within the time allowed, the Contracting Officer may determine, on the basis of information available, the amount, if any, due the Contractor because of the termination and shall pay the amount determined.

Based on these facts and circumstances, the contractor took the position that the government never intended the release the contractor furnished post-termination for convenience to operate as a final release and release of its termination for convenience costs. The Court of Federal Claims sided with the contractor:

The Court finds that through the affidavit provided by Mr. Lyness [contractor’s representative], the parties’ actions and course of conduct in this case creates a genuine issue of material fact regarding whether the release constituted a full and final release of claims given in exchange for a final payment, or was simply a routine payment application form that was used with respect to all applications for partial payments requested by HJL [contractor].

H.J. Lyness Construction, supra.

Now, why is this case helpful? Because it goes directly to the argument on federal projects that even if a contractor executed an unambiguous release and does not exempt or carve out any claims, there may be an argument that the conduct of the parties reflects that the parties did not intend the release to operate as a final release of all claims. In H.J. Lyness the argument was that the release was not intended to bar termination for convenience settlement costs even though the release was executed months after the termination for convenience.

Regardless of the holding in H.J. Lyness, it is important for contractors to read what they sign and be cognizant of those claims and costs they do not want to release. This includes executing a release without properly exempting termination for convenience settlement costs if the contractor does not intend its release to be a final release of all claims.

CONVERTING THE DREADFUL TERMINATION FOR DEFAULT INTO A TERMINATION FOR CONVENIENCE

Posted on October 5, 2014October 5, 2014 by Edward Garber

Contractors, whether prime contractors or subcontractors, terminated for default (also known as termination for cause) want to convert that termination for default into a termination for convenience. The termination for default ultimately means the contractor materially breached the contract and would be liable for any cost overrun associated with completing their contractual scope of work. On the other hand, if the termination for default is converted into a termination for convenience, the contractor would be entitled to get paid for the work performed through the termination along with reasonable profit on the work performed and, depending on the contract, reasonable anticipatory profit on the work NOT performed. A huge difference and the fundamental reason contractors terminated for default should aim to convert that termination for default into a termination for convenience!

Under the Federal Acquisition Regulations, contractors terminated for convenience may recover reasonable profit on work performed, but NOT profit for work not performed. (See F.A.R. s. 52.249-2 and 49.202)

But, under the standard AIA A201 General Conditions, if an owner terminates a general contractor for convenience, “the Contractor shall be entitled to receive payment for Work executed, and costs incurred by reason of such termination, along with reasonable overhead and profit on the Work not executed.” (See AIA A201, para. 14.4.3)

Yet, under the ConsensusDocs 200, “If the Owner terminates this Agreement for Convenience, the Constructor shall be paid: (a) for the Work performed to date including Overhead and profit; and (b) for all demobilization costs and costs incurred as a result of the termination but not including Overhead or profit on Work not performed.” (See Consensus Docs, 200, para. 11.4.2)

As reflected above, a contractual provision will dictate the costs recoverable when there is a termination for convenience. The AIA A201 General Conditions is favorable to a contractor by providing for reasonable overhead and profit on the work not executed. Whether reasonable profit on work not performed is recoverable, the objective should always be converting that termination for default into one for convenience so that at least the contractor can recover for work performed and profit on the work performed along with other associated termination costs that the contract may provide.

When a party is terminated for default, the key issues that will arise will typically be: (a) whether the termination for default was proper, i.e., whether the terminating party procedurally complied with the termination for default provision in the contract, (b) whether the cause or default was material and rose to the level of constituting a default termination, and (c) converting the termination for default into a termination for convenience and the recoverable costs pursuant to the termination for convenience provision in the contract. Again, a termination for default will likely mean that the terminated party owes the terminating party money associated with the overrun for completing their scope of work. A termination for convenience, on the other hand, will likely mean that the terminated party is owed money for work it performed irrespective of any overrun experienced by the terminating party.

A recent ruling in U.S.A. f/u/b/o Ragghianti Foundations III, LLC v. Peter R. Brown Construction, Inc., 2014 WL 4791999 (M.D.Fla. 2014), illustrates a dispute between a prime contractor and a subcontractor on a federal project after the prime contractor default terminated the subcontractor. The prime contractor hired a subcontractor to construct the foundation, slab on grade, and site concrete. As the subcontractor was pouring the slab on grade concrete, it was determined that there were deficiencies in the concrete. The prime contractor sent the subcontractor notice under the subcontract regarding the deficiencies and that the subcontractor needed to provide an action plan prior to future concrete placement. Although the subcontractor responded with a plan including when it was going to demolish the defective portion of the slab, it failed to live up to its own recovery schedule. Accordingly, the prime contractor terminated the subcontractor for default and incurred costs well in excess of the subcontractor’s original subcontract amount to complete the subcontractor’s scope of work. The subcontractor filed suit against the prime contractor and its Miller Act surety and the prime contractor counter-claimed against the subcontractor.

There were numerous interesting issues raised in this case. This article will only touch upon a couple of the legal issues. The first issue was whether the prime contractor properly terminated the subcontractor for default pursuant to the subcontract; if not, the termination should be deemed a termination for convenience. The Court found that the termination was procedurally proper, but declined to determine whether the termination was wrongful, perhaps because the Court determined that once the termination for default was properly implemented pursuant to the subcontract there was no reason to delve into any further analysis. In other words, once the prime contractor procedurally, properly terminated the subcontractor for default pursuant to the subcontract, it appeared irrelevant whether the cause forming the basis of the default was material. This implication is certainly beneficial for the prime contractor and it is uncertain why the Court did not entertain the argument as to whether the procedurally proper termination was wrongful. This determination would seem important because if the termination was wrongful, the terminating contractor would be responsible for its own cost overrun in addition to the costs incurred by the terminated subcontractor. Although, in this case, by the Court finding that the termination for default was procedurally proper, the Court seemed to recognize that there was cause supporting the implementation of the termination for default; otherwise, the termination for default would not have been procedurally proper.

The next issue discussed in this case pertained to recoverable delay-type damages under the Miller Act. The Court expressed:

A Miller Act plaintiff is entitled to recover under the bond the out-of-pocket labor and expenses attributable to delays.

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[A] damage claim against a surety that does not flow directly and immediately from actual performance [of its agreement] is barred by the Miller Act….A subcontractor cannot recover on a Miller Act payment bond for the cost of labor and materials provided after the termination of work under a government construction project, and cannot recover profits on out-of-pocket expenditures attributable to delay.

Ragghianti Foundations, supra, at *18, 19 (internal quotations and citations omitted).

What does this mean? This means that a subcontractor is not entitled to recover against a Miller Act surety: (a) anticipated lost profits on work not performed, (b) delay-related costs that do not flow directly and immediately from actual performance under the subcontract, (c) profit on delay-related costs, and (d) costs incurred after the termination of the work. These are all categories of damages that are applicable to a terminated subcontractor that it will NOT be able to recover against a Miller Act surety. This is important because if a subcontractor is looking to capitalize on its damages for converting a termination for default into one of convenience, it may want to sue the terminating contractor so that it is not leaving any damages on the table by only suing the Miller Act surety.

TERMINATION FOR CONVENIENCE IN FEDERAL GOVERNMENT CONTRACTS

Posted on May 13, 2014May 13, 2014 by Edward Garber

Termination for convenience clauses are standard (and required) contractual clauses in federal government contracts and will be read into the contract even if not specifically incorporated. See G.L. Christian and Assocs. v. U.S., 160 Ct.Cl. 1 (Ct.Cl. 1963). The clause allows the government to terminate the contract at its discretion if it is in the government’s interest to do so. Yet, even though the government (through the contracting officer) has discretion to exercise the termination for convenience provision, it cannot do so with “bad faith” or with an “abuse of discretion”, although proving that that the government acted in bad faith or abused its discretion is extremely challenging because government officials are presumed to act in good faith. See T&M Distributors, Inc. v. U.S., 185 F.3d 1279 (Fed. Cir. 1999). The Court of Federal Claims explained this challenging legal standard to establish that the government improperly exercised its termination for convenience provision:

“The Federal Circuit—and the former Court of Claims—have recognized that an improper termination for convenience may give rise to a breach of contract claim when the agency (1) terminates the contract in bad faith or (2) abuses its discretion in its decision to terminate the contract. If a contractor can demonstrate that the agency’s termination for convenience was improper, the contractor will not be limited to damages identified in the termination for convenience clause. In such a case, traditional common law damages for breach of contract will be available to the contractor.

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Contractors face a high burden of proof for demonstrating an agency acted in “bad faith” by terminating the contract for convenience. To establish a breach based on bad faith in this context, the contractor must present clear and convincing evidence that the government’s termination was made with the “intent to injure” the contractor.

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In determining whether the CO clearly “abused its discretion” in terminating a contract for convenience, the court will consider four factors: (1) the CO’s bad faith, (2) the reasonableness of the decision, (3) the amount of discretion delegated to the CO, and (4) any violations of an applicable statute or regulation.” TigerSwan, Inc. v. U.S., 110 Fed.Cl. 336, 345 (Fed.Cl. 2013) (internal citations omitted).

One instance of bad faith / abuse of discretion could arise if the government terminates the contractor simply to acquire a better bargain or price from another contractor. See Krygoski Const. Co., Inc. v. U.S., 94 F.3d 1537, 1541 (Fed. Cir. 1996) (“A contracting officer may not terminate for convenience in bad faith, for example, simply to acquire a better bargain from another source.”). Another instance of bad faith / abuse of discretion may exist if the government contracts with a party knowing full well that it has no intent to honor the terms of the contract. See Torncello v. U.S., 231 Ct.Cl. 20 (Ct.Cl. 1982).

This bad faith / abuse of discretion component to the exercise of termination of convenience provisions may also be applied if a prime contractor terminates a subcontractor on a federal project. See Morrison Knudsen Corp. v. Fireman’s Fund Ins. Co., 175 F.3d 1221 (10^th Cir. 1999) (explaining that if subcontractor proved termination was in bad faith it could have recovered breach of contract damages).

An example of standard termination for convenience language for fixed sum contracts is included in the Federal Acquisition Regulations, 48 CFR 52.249-2:

“(a) The Government may terminate performance of work under this contract in whole or, from time to time, in part if the Contracting Officer determines that a termination is in the Government’s interest. The Contracting Officer shall terminate by delivering to the Contractor a Notice of Termination specifying the extent of termination and the effective date.” (See also 48 CFR 52.249-6 which provides for standard termination for convenience language for cost-reimbursement contracts).

The termination for convenience language in the Federal Acquisition Regulations is substantially longer than what was provided above, but the point is that the government can simply terminate for convenience if it is in its interest.

When a fixed sum contract is terminated for convenience, the contract “is essentially converted into a cost reimbursement contract.” White Buffalo Const., Inc. v. U.S., 52 Fed.Cl. 1, 3 (Fed.Cl. 2002). The Federal Acquisition Regulations–sections noted above–govern what costs a contractor is entitled to recover when the contract is terminated for convenience. Basically, “[t]he clause limits the contractor’s recovery to costs incurred prior to the termination, a reasonable profit on the work performed, and certain additional costs associated with the termination. Anticipatory profits and consequential damages are not recoverable.” Best Foam Fabricators, Inc. v. U.S., 38 Fed.Cl. 627, 637-38 (Fed.Cl. 197). Thus, when a contact is terminated for convenience, the contractor cannot recover anticipated profits on the balance or unperformed part of the construction work. To recover these damages, the contractor will need to argue that the government breached the contract by exercising the termination for convenience provision in bad faith or with an abuse of discretion. These damages are a major reason why a contractor would argue that the government wrongly exercised the termination for convenience provision. See TigerSwan, 110 Fed.Cl. at 345.

If a contractor on a federal project is terminated for convenience or believes it will be terminated for convenience in the immediate future, it is imperative for that contractor to seek counsel to determine its rights. These rights can include assistance in determining the recoverable costs under the Federal Acquisition Regulations and whether to pursue breach of contract damages for a wrongful termination for convenience for damages that would not be covered under the Federal Acquisition Regulations.

TERMINATION FOR CONVENIENCE PROVISIONS ARE ENFORCEABLE UNDER FLORIDA LAW

Posted on June 21, 2013June 21, 2013 by Edward Garber

Last year I discussed the enforceability of termination for convenience provisions in the case of Vila & Son Landscaping Corp. v. Posen Construction, Inc., 99 So.3d 563 (Fla. 2d DCA 2012). In that case, the contactor terminated its subcontractor for convenience because it found another subcontractor at better pricing. The Second District Court of Appeals found that there was no wrongful termination and the termination for convenience provision in the subcontract was enforceable.

Recently, in a non-construction contract setting, the Fourth District Court of Appeals in Handi-Van, Inc. v. Broward County, Florida, 38 Fla. L. Weekly D1350b (4th DCA 2013), discussed the enforceability of termination for convenience provisions which are “contractual provisions which ‘permit one party to terminate a contract, even in the absence of fault or breach by the other party, without suffering the usual financial consequences of breach of contract.’” Id. quoting Harris Corp. v. Giesting & Assocs, Inc., 297 F.3d 1270, 1270 (11th Cir. 2002). The Fourth District maintained in a lengthy discussion that termination for convenience provisions are enforceable under Florida contract law. In that case, the party challenging the termination tried to argue that there was not sufficient consideration for the termination for convenience provision (and, thus, it was not enforceable); however, the court seemed to quickly dismiss this argument by finding that because the provision required 90 days written notice prior to the termination for convenience, this notice constituted sufficient consideration to uphold the enforceability of the provision.

Parties that challenge termination for convenience provisions in Florida often rely on federal procurement / government contracting cases because there is a “bad faith” exception, i.e., a federal agency cannot terminate a contract for convenience in bad faith. See TigerSwan, Inc. v. U.S., 110 Fed.Cl. 336, 345 (2013). This is no different than the parties in Hani-Van or Vila & Son Landscaping that tried to challenge the termination for convenience provisions in their respective agreements. However, this bad faith exception has really been pushed to the bottom of the barrel in Florida contract law because courts are not in the business of rewriting contractual provisions in order to relieve a party from a provision contraced for and agreed to.

Termination for convenience provisions are important provisions for owners, contractors, and even subcontractors that utilize sub-subcontractors. The key is for the provision to be clear and it is good practice to include that the party can exercise the termination for convenience provision by giving the other side notice (whether it is 7 days, 10 days, etc.) to remove any argument whatsoever that there was not sufficient consideration for the provision.

For more information on termination for convenience provisions, please see: https://floridaconstru.wpengine.com/the-enforceability-of-termination-for-convenience-provisions/

THE ENFORCEABILITY OF TERMINATION FOR CONVENIENCE PROVISIONS

Posted on November 8, 2012November 8, 2012 by Edward Garber

Termination for convenience provisions are common in construction contracts, whether it’s a contract between an owner and a general contractor or a general contractor and a subcontractor. These provisions allow either a general contractor, by way of example, to terminate its subcontractor for its convenience without cause. While the subcontractor would be entitled to its costs incurred through the date of the termination (typically the recoverable costs are itemized in the termination for convenience provision), it would lose out on all of the profit it anticipated on receiving for that project. Termination for convenience provisions are enforceable.

The case of Vila & Son Landscaping Corp. v. Posen Construction, Inc., 2012 WL 4093545 (Fla. 2d DCA 2012), illustrates the enforceability of termination for convenience provisions. In this case, the general contractor terminated the subcontractor for convenience because it found another subcontractor that would do the same work cheaper. The terminated subcontractor asserted that the termination was wrongful and sued the general contractor. The subcontractor’s main argument was that the general contractor needed to utilize good faith in terminating the subcontractor for convenience and it did not by terminating it for a better price. The Second District Court of Appeal essentially found that the termination for convenience provision was enforceable, i.e., there was no wrongful termination simply because the general contractor terminated the subcontractor to obtain better pricing.

Contractors need to be aware of termination for convenience provisions. Subcontractors should be especially aware because these provisions can allow a general contractor to terminate it in order to obtain a different subcontractor to do the same scope of work at a reduced price. If this is a concern, one approach is to try to negotiate the recoverability of some profit (or termination damages) in the event the termination for convenience provision is exercised.