Securing a new business contract can be a milestone event in the lifecycle of your business. It signals security and continued relevance in your particular space. That confidence no doubt comes from the assumption that your business cannot simply walk away from your agreement without cause.
Such is the assumption of many of those that come to see us here at Saavedra-Goodwin. Yet that may not be the case. A legal principle exists known as “termination for convenience” which allows certain contracted parties to end agreements when they believe it to be in their best interest to do so. Should one of your partners cite this privilege, knowing its nuances may help you know the legitimacy of such an action.
Reasons for citing termination for convenience
According to the Congressional Research Service, government entities automatically have the right to terminate contracts for their convenience; private companies may only cite this benefit if you ceded it to them when negotiating your contract. Common reasons for terminating a contract for convenience may include:
- A general breakdown in your business relationship
- Your company losing its eligibility for the contract awarded
- You refusing to renegotiate the terms of your contract
- Your partner securing the ability to provide the goods/services you offer “in-house”
Damages for breach of contract?
In most cases where a partner lawfully cites termination for convenience, your company may only collect for those products/services already provided. However, if you prove that your partner initially negotiated your contract in bad (never intending to fulfill its terms), you may be able to pursue damages for breach of contract.