Terminating contracts for convenience

| Jan 18, 2019 | real estate litigation |

Developers in New York will typically jump at the opportunity to bid on government contracts. This is likely due to assumption that such agreements tend to more stable than those made with private entities. While government agencies may offer their partners a greater sense of security, that does not necessarily mean that a contract with such an organization is always ironclad. On the contrary, government agencies are afforded special privileges when it comes to managing contractual agreements.

Typically a contracted partner needs to have cause to terminate an agreement with a developer. That is not the case with government agencies. They are allowed to terminate contracts “for convenience.” What this means is that of a government entity believes that its contractual agreement is no longer convenient (in other words, in its best interest), it is allowed to simply walk away from it without the fear of facing any penalties for breach of contract. Per the Center for Homeland Defense and Security, common reasons that government agencies may cite when terminating a contract for convenience include:

  • A contracted partner being unwilling to renegotiate the terms of its agreement
  • A breakdown in the relationship with a contracted partner
  • Deciding to restructure all of its contractual agreements

What would a government entity be required to pay a developer if it decided to end a contract in this manner. The Congressional Research Service states that all that would be required would be any expenses for services already rendered, along with whatever costs are associated with terminating any work in progress. A developer hoping to gain punitive damages in this scenario would need to prove that the agency negotiated in bad faith when originally developing the contract.