Obtaining a government contract can represent a boon for any business. The contract can ensure a steady and reliable income stream not often found in private contracts. But they are not without their drawbacks, as evidenced by the government’s right to terminate the contract for its own convenience.
Does the government need a good reason?
A business or other contractor does not have to engage in wrongdoing for the government to unilaterally cancel a contract to which it is a party. Termination for convenience, found in the Federal Acquisition Regulation, permits the federal government to end a contract when it sees fit. Moreover, the concept of ‘convenience’ is broadly construed.
Among the reasons courts accept and acknowledge as sufficiently convenient are that the agency no longer needs the goods or services provided by the contract or the agency has decided to produce them in-house. If the government wants to change the terms of the contract, but the contractor does not agree, this too can provide the basis for termination. Or, the agency may simply decide it’s in its best interest to move in a different direction.
Does the contractor have any recourse?
When the government terminates a contract for its own convenience, it is required to provide written notice of its intent to do. Generally, the contractor must begin to take steps to mitigate any loss, such as ceasing production of unneeded goods. The contractor is entitled to a fair and prompt settlement from the government and mitigation will impact that settlement. Settlements will include unavoidable costs resulting from the contract and will vary from one contract to the next. Although it is possible to sue the government for breach, the suit is unlikely to succeed unless it can be proved that the agency acted fraudulently or in bad faith when it initially entered into the contract.