As a subcontractor, signing a subcontract means you’re legally obligated to do the work listed in that contract. You must fulfill your end of the agreement—you can’t just decide you don’t want to do the work or fail to show up when told to begin work. It’s important to understand termination for convenience clauses and their impact on your business before signing a construction contract. Real-world examples help clarify how it all works in this blog, all about how the termination for convenience clause works.
What Does a Termination for Convenience Clause Look Like?
A termination for convenience clause is a provision in a subcontract that allows the general contractor to terminate the agreement without cause. This clause essentially gives the general contractor unilateral authority over the subcontract, granting them greater flexibility in managing it. 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.
So, even if the subcontractor has fulfilled all of their obligations, the general contractor can still choose to end the agreement at any time. It is important for subcontractors to carefully review their contracts, understand the implications of such clauses, and negotiate the terms of a subcontract before agreeing to them to ensure they are protected in the event of termination.
When are Termination for Convenience Clauses Used?
A termination for convenience clause is a contractual provision that allows one party to terminate the agreement without cause or penalty. In the construction industry, this clause is often included in subcontracts between a general contractor and a subcontractor. This clause is most commonly used either before the subcontractor begins work, or during the project if the general contractor finds a cheaper subcontractor to do the same work. If this happens, the subcontractor will typically receive a letter from the general contractor notifying them of the termination and that their services are no longer required. The letter will specify that they are enforcing the termination for convenience clause that is in the subcontract and the subcontractor’s services will no longer be needed.
The termination for convenience clause is a contractual provision that allows a party to terminate a contract without cause. In the construction industry, this clause is often included in subcontractor agreements. In some cases, the general contractor may wrongfully terminate the subcontractor and use the termination for convenience clause as a way to avoid liability. This means that even though the termination was not justified, the general contractor can still terminate the subcontractor without facing any legal consequences.
Termination for Convenience Clause: Example 1
Here’s one example of what the wording for a termination for convenience clause might look like in a subcontract:
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.
Negotiate Better Construction Contracts
At The Cromeens Law Firm, we have extensive knowledge and understanding of construction contract laws and are licensed in Texas, Georgia, and California. We are often able to solve contract disputes for our clients through informal negotiations, mediation, or arbitration. Work with us to equip yourself with the ability to properly evaluate your risks before you sign and negotiate your next subcontract with greater confidence and ease.
Termination for Convenience Clause: Example 2
Another example of what the wording for a termination for convenience clause might look like in a subcontract follows:
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.
Termination for Convenience Clause: Example 3
The termination for convenience clause can be problematic for subcontractors, as it gives the general contractor the ability to terminate the subcontractor’s work without explanation or justification. We 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 was terminated for allegedly failing to perform their work diligently, but the real reason for their termination was unclear.
When our office sent a letter to the general contractor, they responded that even if they did wrongfully terminate, it did not matter because they could just say they were terminated for convenience. When the subcontractor demanded payment for their wrongful termination, the general contractor cited the termination for convenience clause as a defense. Unfortunately, this clause prevented the subcontractor from recovering any damages, even if they were wrongfully terminated.
What Can You Do?
When negotiating your subcontract, it is advisable to consider the termination for convenience clause. This clause allows one party to terminate the contract without cause, which can be detrimental to the other party. If you encounter resistance when trying to remove this clause, suggest making it mutual so that both parties have the right to terminate the contract without cause. This can help ensure a fair and balanced agreement for all parties involved.
When it comes to construction contracts, it’s important to be aware of potential clauses that could leave you liable and without payment. One such clause is the termination for convenience clause, which could result in the loss of your job and earnings. To avoid losing out on what you’ve rightfully earned, it’s crucial to take preventative measures and protect yourself from harmful subcontract clauses.
To protect yourself and your hard work, don’t let harmful clauses jeopardize your livelihood. If you’re unsure about how to navigate these complex contracts, don’t hesitate to reach out to us for guidance and support. We’re here to help you secure your rights and protect your livelihood.
Knowing how to protect yourself best is essential, especially when growing your business, and having a team to support you when you’re facing the potential of getting sued is a huge advantage. The Cromeens Law Firm team is here to help keep you out of the courtroom on the front end or help you win the fight inside of it. Contact us today and set yourself up for success with the support of a legal team.
This article is intended as a general educational overview of the subject matter and is not intended to be a comprehensive survey of recent jurisprudence, nor a substitute for legal advice for a specific legal matter. If you have a legal issue, consult an attorney.