Terminating contracts for a company’s convenience

On Behalf of | Oct 3, 2020 | Business Litigation |

Businesses in Ohio may feel a great deal of security after securing a contract with a new business partner. Such a feeling is often justified; after all, as long as the business fulfills its terms of the agreement, its partner has no cause to end it, right? 

That may not necessarily be the case. There is a legal principle known as “termination for convenience” that allows a company to end a contract simply when it believes it to be in its best interest to do so. The question then becomes which companies have this right (and what should one do if a partner exercises it). 

Who can terminate a contract for convenience?

According to the Congressional Research Service, government agencies automatically have the right to terminate contracts for their convenience. Private companies can only do it if their partners afford them the right during contract negotiations. Some common reasons why a company may give for terminating a contract for convenience include: 

  • A general breakdown in its business relationship with its partner 
  • It developing the capacity to provide the contracted goods or services in-house 
  • A question arising as to the partner’s initial eligibility to assume the contract 
  • Its partner showing an unwillingness to renegotiate the terms of the agreement 

What to do when a contract suddenly ends?

The American Bar Association states that the first step a company whose partner ends an agreement for convenience should do is terminate whatever services the client wishes to end (be it a total or partial termination). The next step is to prepare a termination proposal detailing the expenses still owed. Typically a company can collect for both services rendered and the costs associated with ending its work. The company must then submit that proposal to its now-former partner within one year of the contract ending.