Congratulations, you have just been awarded a big contract.  You have beaten out your competition and this project will show case your company’s talents and dedication to the industry.  You have mobilized your crew and you are ready to get to work.  Then you get the notice from the owner that the project is canceled, and you are terminated for convenience.  This is far from convenient for you, but what choice do you have?  Do you have any options?  The best place to start is the contract.

Termination for Convenience Clauses

Most of the major form contracts contain a Termination for Convenience Clause.

The AIA A201 General Conditions provides

the Owner shall pay the Contractor for Work properly executed, cost incurred by reason of the termination, including cost attributable to termination of the Subcontracts; and the termination fee, if any, set forth in the Agreement.

Under the ConsensusDocs 200 if the Owner terminates the contract for convenience, the Constructor shall be paid:

(a) for the Work performed to date including Overhead and profit; (b) for all demobilization costs and costs incurred resulting from termination, but not including Overhead or profit on Work not performed; (c) reasonable attorneys’ fees and costs related to termination; and (d) a premium as follows _____________.

Practical Impact

If your contract contains either of these termination for convenience clauses, this means that you can demand payment for work performed to the date of termination. This should include overhead and profit for the work performed.  Depending on how you negotiated your contract, you may also be entitled to a termination fee or premium.  You will not, however, be entitled to overhead and profit for work that has not been performed.

Take Away: A termination for convenience is never a good thing, but you have the right to demand payment for work performed and maybe even more than that.  As always, it a good idea to have your contract reviewed by an experienced construction attorney before you sign it or to assess your rights in a termination for convenience situation.