For many businesses, obtaining a government contract can seem like a boon. After all, it can represent a dependable income stream with less risk than may be found in private contracts. But despite this potential benefit, government contracts are also not without potential drawbacks.
Termination for convenience
In private contracts, when one party unilaterally withdraws prior to the contract’s completion, they’re typically considered in breach of that contract and subject to litigation. Government agencies, however, retain the authority to terminate contracts for their own convenience. And, unfortunately for the contractor, what can be considered as ‘convenient’ for the government is construed rather broadly.
It’s considered in the government’s interest to terminate a contract if the agency no longer needs the goods or services contracted for, or if it decides to handle them in-house moving forward. If the agency seeks to modify the contract, but the contractor refuses, this too can be grounds for termination. Or there could simply be a deterioration of the relationship between the agency and the contractor.
Remedies for the contractor
Should an agency elect to terminate your contract for its convenience, the chances are reduced that it will be considered in breach of that contract. Something beyond the mere fact of termination – such as malfeasance on the agency’s part – would likely be required. However, the contractor is entitled to a settlement. The agency is required to give notice, in writing, of its intent to terminate the contract for its convenience. Following termination, the contractor is entitled to recoup any unavoidable losses it sustained as a result.