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The origins of termination for convenience clauses

A termination for convenience clause is fairly powerful, in that it gives one party the ability to call off the deal even if the other party argues that everything was done perfectly.

For example, a contractor could be hired to construct a new building. The project may be progressing perfectly, it may be on time, the quality of the work may be top-notch and that clause still means that the contractor could essentially be fired. This isn't a breach of contract because the clause allows it, making it difficult to start a lawsuit, even though taking on that job may have been costly and meant giving up other work.

These termination for convenience clauses are now used in a lot of business deals, but the origins can actually be traced back to the United States government. The clauses gave the government a way to back out of deals that no longer made sense based on changing circumstances. This helped protect government funds and tax dollars.

For instance, during a time of war, the government could put in an order for 3 million rounds of ammunition. Then the war may end suddenly, after only 1 million were delivered. The clause could end the deal so that the government wasn't forced to spend tax money on 2 million rounds of ammunition that it no longer needed.

If you sign a contract, whether in business or with the government, it's critical to know what clauses can give either party a legal out. Never assume the contact has to be honored at all times. Be very sure you know your legal rights and obligations prior to signing.

Source: Contractor Magazine, "Dealing with termination for convenience clauses," Michael E. Callahan, accessed Sep. 06, 2017

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