termination for convenience clause

How Termination for Convenience Clauses Work

When you sign a subcontract, you as a subcontractor are on the hook to do the work listed therein. You can’t just decide you don’t want to do the work, or not show up when the project manager tells you to be onsite to begin work. Simply stated, you must hold up your end of the bargain. Let’s look at the definition of termination for convenience clauses and some real-world examples. It is critical you understand what this clause looks like and how this will affect you and your business before you sign your next construction contract.

What Does a Termination for Convenience Clause Look Like?

What’s the definition of a termination for convenience clause? It essentially means that the general contractor may not have to hold up their end of the bargain just because of one clause in the subcontract. If your subcontract contains a termination for convenience clause, the general contractor isn’t held to the same standard and can walk away from their obligations to you at any time.

Example 1

Termination for Convenience. A contractor may terminate an agreement for its convenience in whole or in part at any time without cause by its Notice of such termination, issued after conferring with Subcontractor and Subcontractor shall terminate the Work as instructed by Contractor. Upon termination, if Subcontractor has begun work, Contractor shall pay to Subcontractor, in full satisfaction and discharge of all liabilities and obligations owed to Subcontractor with respect to the Work so terminated, the actual value of the work performed. If Subcontractor has not begun work Subcontractor is not entitled to recover any amount from Contractor due to such termination.

Example 2

Contractor may at its sole discretion, by written notice to Subcontractor terminate this Subcontract, in whole or in part, when Contractor determines that it is in the best interest of Contractor to do so. Upon receipt of twenty-four (24) hours written notice from Contractor, Subcontractor shall take all reasonable measures after consultation with Contractor to terminate or, at Contractor’s option, assign to Contractor subcontracts, purchase orders or other commitments related to the Subcontract Work or the Project on terms and conditions.

When are Termination for Convenience Clauses Used?

Normally, termination for convenience clauses are used in two different situations. The first situation is before the subcontractor has begun work under the subcontract and the general contractor has found a different subcontractor to do the scope for less money. When this happens, you will normally just receive a letter from the general contractor informing you that they are enforcing the termination for convenience clause that is in your subcontract and your services will no longer be needed.

In the second situation, the termination for convenience clause is used when the general contractor has wrongfully terminated the subcontractor and they need a scapegoat. This means the general contractor was wrong when they terminated the subcontractor, but they will not face any liability for the wrongful termination because they can just say they terminated the subcontractor for convenience and not for cause.

Example 3

I once represented a drywall subcontractor that was hired on a public project that required special badges to enter the project. One day the drywall subcontractor showed up for work and the project manager took their badges without explanation. The drywall subcontractor then sent several emails to all his contacts at the general contractor’s office asking why the badges were revoked. The general contractor never responded, but then terminated the drywall subcontractor for failing to diligently perform his work. When my office sent a letter to the general contractor demanding the money my client was owed for their wrongful termination, the general contractor responded that even if they did wrongfully terminate the drywall subcontractor it did not matter because they could just say they were terminated for convenience. Because of this, the drywall subcontractor was not able recover anything for being wrongfully terminated.

What Can You Do?

If you can, try to remove the termination for convenience clause in your contract. If you are given push back on this, request that it be made mutual. Give your company the right to walk away from the subcontract just like the general contractor has that right.

Conclusion

There are many things you need to be on the lookout for in your construction contracts. You could be held liable for specific clauses like the termination of convenience and lose your right to work on a job and get paid. Don’t lose out on the hard-earned money you are owed and the job you have secured and planned for. Contact us, so we can help you walk through the preventative steps needed to protect yourself from harmful subcontract clauses. Join our associate attorney, Joseph Munoz, for our free webinar on November 17th, at 12 pm, where we will discuss how to best protect yourself and your business from termination and other harmful contract clauses. RSVP today! We look forward to seeing you.

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