For most businesses, obtaining a government contract would seem like a boon. After all, such a contract can represent a stable and reliable income stream, beyond that which is often available through private contracts. But even government contracts are not without risk, as evidenced by an agency’s ability to end it.
What is termination for convenience?
For private entities, cancelling a contract without a justifiable reason will often lead to breach of contract and litigation. The federal government, however, has much more latitude when taking such an action. Termination for convenience is the ability of the federal government to cancel a contract when it’s in the agency’s interest to do so.
What does that mean? Unfortunately, for the contractor, the ‘government’s interest’ is broadly construed. It may mean that the agency no longer needs the goods or services provided by the contract or that it has decided to handle them in-house. If the agency has proposed a modification to the contract, but the contractor has refused the modification, it may be in the agency’s interest to cancel it. Or the government may simply have decided to move in a different direction and the contract no longer suits its new goals.
Does the contractor have any remedy?
When an agency exercises its ability to terminate a contract for convenience, it will rarely be considered in breach of the contract. To be in breach, there will need to be some malfeasance by the agency, such as entering into the contract knowing that it would be terminated. But the contractor is entitled to a settlement following the termination. The agency must provide proper notice of the upcoming termination so that the contractor can mitigate losses – and the agency is obligated to compensate the contractor for losses which could not be avoided due to the termination.