“For Cause” Versus “For Convenience” Contract Termination Part 2
In the second half of this article we will continue to discuss the differences between a “for cause” termination and a “for convenience” termination in a construction contract. As construction attorneys in Orlando, we know how important it is for contractors to be aware of these differences when drafting their contracts. Using the wrong provision in a contract can lead to unnecessary liability and costs for a contractor. To view the first half of this article, please visit Part 1.
The contrasts in these two termination provisions are notable. For example, if a contract is terminated for cause by the contractor, the owner is authorized to halt payments to the contractor and commandeer the contractor’s materials and equipment for use during contract completion. In addition to that, the terminated contractor can potentially be liable for the costs of contract completion above the original agreed upon amount. A termination for cause can create negative impacts on the contractor’s future work and can also hurt them regarding bonding capacity and credit rating.
Termination for convenience, however, allows both parties to walk away satisfied. With this provision, the contractor tends to be permitted to collect payment for finished work, which can include reasonable profit. The contractor can additionally recoup any reasonable expenses of termination, such as demobilization costs and penalties for terminating other subcontracts. A termination for convenience is also beneficial for the owner because the contractor will not be permitted to receive any anticipatory profits resulting from the terminated work.
As Orlando construction attorneys, we that where a termination for cause is unjustified, the majority of contracts will change the termination provision to termination for convenience. If a contract does not include a provision for this change, courts will usually recognize the doctrine of “constructive termination for convenience.”
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.