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Terminating contracts for convenience

On Behalf of | Dec 11, 2019 | Business & Commercial Law

Business owners and company representatives in Peoria know how important contractual agreements are to the growth and stability of their organizations. Securing one seemingly ensures stability and prosperity, as well as the assurance that as long as the business fulfills its obligations, the agreement will remain intact.

This confidence comes from the assumption that a contracted partner can only end an agreement early if the other partner breaches or does not otherwise fulfill the terms. Yet is that true in every case?

What is termination for convenience?

It is true that most contracts require there to be cause for a party to end such an agreement early. However, there is a legal principle known as termination for convenience that allows an agency, organization or company to end a contract if and when it believes it to be in its best interests to do so. Some may think that such a privilege is only afforded in rare cases, yet it is actually quite common.

Who can terminate a contract for their convenience?

Per the Congressional Research Service, federal agencies are automatically afforded the right to end contracts for their convenience. Common reasons for which they may do so include:

  • If they develop the capability to provide the contracted goods or service in-house
  • If their contracted partner is not willing to renegotiate the terms of their agreement
  • If they believe they no longer need the products or services provided

Private companies can also cite convenience when terminating a contract, but only if such a privilege is part of the terms of their contract.

Does the partner have to pay damages?

Damages for breach of contract are typically not an option if a partner that legally has the right decides to end a contract for their convenience. The only exception would be if the other partner was able to prove that the first partner initially negotiated the contract in bad faith. In most cases, all the company ceasing services can collect is outstanding balances on work already done, as well as the expenses associated with ending the work.