Obtaining a government contract can seem like a boon for most businesses. After all, a government contract may represent a reliable stream of income with little risk attached. However, government agencies retain powers which private entities do not, so their contracts are not without pitfalls.
Termination for convenience
Every contract binds the respective parties to perform certain things throughout the duration of the contract. If a party fails in their obligations, they are typically in breach of the contract and can be held liable for that breach. But government agencies are not as tightly bound as private parties, due to their ability to terminate a contract for their own convenience.
Termination for convenience refers to an agency’s ability to void all or part of a contract prior to the contract’s expiration, when it’s in the government’s interest to do so. And unfortunately for the contractor, what is in the government’s interest is a concept which is construed broadly. Everything from a deterioration of the business relationship to the agency simply no longer needing the goods or services contracted for can provide grounds for the agency to terminate for its convenience.
What remedy is available?
An agency can be in breach of contract if it terminates all or part of a contract prior to its expiration. But in light of termination for convenience, breach of contract will usually require some malfeasance on the part of the agency – such as entering the contract knowing it would terminate it prematurely. Otherwise, the contracting party will likely be limited to a settlement including its unavoidable costs resulting from the termination.