A termination for convenience clause is an important provision in construction contracts, particularly for the owner. An owner needs the contractual right to terminate a contractor for convenience. This means the owner does NOT need a reason to exercise a termination. This is night-and-day different from a termination for cause (or default) wherein an owner must have a material basis to exercise that right. Sometimes, the relationship is not where it should be, or not what was expected, or performance does not rise up to the level you require but does not rise up to a material breach. The termination for convenience clause gives the owner the discretion to just end the relationship.
As a contractor, you need to understand the types of damages (costs) you are entitled if an owner exercises the termination for convenience. Don’t overlook this, because if an owner exercises the termination for convenience, you want to make sure you feel like you are protected. This could include a termination for convenience fee. There are a number of ways this can be accomplished, but you need to be sure you are entitled to costs incurred through the date of termination with reasonable overhead and profit, demobilization costs, early return fees, and costs incurred due to the termination. Regardless, keep in mind that it is your burden, as the contractor, to prove these costs with a reasonable degree of certainty.
In government contracting, a Federal Acquisition Regulation (FAR) provision would be incorporated into the prime contract to give the government (contracting officer) a basis to terminate for convenience. For example, in a fixed-price contract, FAR 52.249-2 would be the termination for convenience provision incorporated into the contract. In a recent case out of the US Court of Federal Claims, the Court explained this FAR clause:
[This] clause provides that, should the contractor and contracting officer fail to agree on an amount to be paid after a contracting officer terminates for convenience, the contractor shall be paid: (1) the contract price for completed but previously unpaid services; (2) costs incurred in the performance of the work terminated; (3) settlement costs that are properly chargeable to the terminated portion of the contract; and (4) fair and reasonable profit. [The clause] further provides that the cost principles in FAR Part 31 shall govern all costs claimed, agreed to, or determined under FAR 52.249-2.
FAR 31.201(2)(1) specifies that a cost is allowable only when the cost is reasonable, allocable, and complies with generally accepted accounting principles, the terms of the contract, and any limitations set forth in that subpart. The contractor ‘bears the burden of proof to demonstrate compensable damages resulting from the termination.’ Unsubstantiated calculations will not do; instead, ‘termination costs must be proved to an acceptable degree of certainty.’ Nonetheless, because ‘[f]air compensation is a matter of judgment and cannot be measured exactly,’ … the FAR recognizes that ‘[c]ost and accounting data may provide guides, but are not rigid measures, for ascertaining fair compensation.’ Accordingly, the FAR explains that ‘[t]he amount of recordkeeping, reporting, and accounting related to the settlement of terminated contracts should be kept to a minimum compatible with the reasonable protection of the public interest.’
Intelligent Investments, Inc. v. U.S., 2025, WL 265087, *6 (US Court of Federal Claims 2025) (internal citations omitted).
If you are dealing with a termination for convenience, make sure you understand recoverable costs you are entitled and, importantly, you are in a position to substantiate those costs with a reasonable degree of certainty. This doesn’t mean exact certainty. Just reasonable certainty.
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.