A termination for convenience is NOT a termination for default.  They are NOT the same. They should NOT be treated as the same.  I am a huge proponent of termination for convenience provisions because sometimes a party needs to be able to exercise a termination for convenience, but the termination is not one that rises to a basis for default. However, exercising a termination for convenience does not mean you get to go back in time and convert the termination for convenience into a termination for default.  It does not work like that.  Nor should it.

An opinion out of the Civilian Board of Contract Appeals – Williams Building Company, Inc. v. Department of State, CBCA 7147, 2024 WL 1099788 (CBCA 2024 – demonstrates a fundamental distinction between a termination for convenience and a termination for default, i.e., that you don’t get to conjure up defaults when you exercise a termination for convenience:

Because a termination for convenience essentially turns a fixed-price construction contract into a cost-reimbursement contract, allowing the contractor to recover its incurred performance costs, the resolution of this appeal will involve identifying the total costs that [Contractor] incurred in performing this contract before [Government] terminated it for convenience. Since [Government] terminated the contract for convenience rather than for default, it no longer matters whether, in the past,[Contractor] acted intentionally in overstating the amount of its incurred costs or committed a contract breach. Ultimately, as permitted in response to a termination for convenience, [Contractor] will recover those allowable costs that [Contractor]establishes it incurred in performing the contract.

Williams Building Company, supra.

In this matter, the government terminated a contractor for convenience as it was entitled to do per the Federal Acquisition Regulations (FAR). The contractor submitted its incurred costs through the termination and a dispute arose as the costs the contractor was entitled to. The government claimed the contractor committed prior material breaches of contract prior to the termination for convenience.  Unfortunately, the government can’t have its cake and eat it too by trying to convert its termination for convenience into one of default:

Once [Government] terminated the contract for convenience, [Contractor] became entitled to recover the allowable costs that it can show it incurred in performing the contract. If [Government] had wanted to hold [Contractor] responsible for prior breaches ofthat contract, it should have terminated the contract for default. [Government’s] decision to terminate for convenience, rather than default, effectively precludes [Government] from treating past contractor improprieties as material breaches of contract for which it can obtain relief.

Williams Building Company, supra (internal citations omitted).

This does not mean the contractor does not have to demonstrate its costs through the termination. The contractor still “bears the burden of establishing the costs that it incurred in performing its contract.” Williams Building Company, supra.  It does mean, however, that the contractor is not in a position where it’s defending a termination for convenience as if it were terminated for default.

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.