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.
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.