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Terminating contracts for convenience

Any party that has entered into a business contract in Northern Kentucky and Cincinnati knows that such agreements cannot be terminated without a valid reason, right? While that may be the case in many private agreements, public contracts with government entities are slightly different. The law often allows them a great deal of leeway when determining what sort of circumstances warrant terminating a contractual relationship

Terminating a contract without just cause is known as a termination for convenience. Such action can typically only be undertaken if a contract contains a clause allowing it. Such language does not, however, have to specify the parameters which justify a contract's termination. Kentucky's Administrative Rules point out that state agencies are allowed to end contractual agreements for convenience as long as they believe that doing so is in the best interest of the commonwealth. When the state exercises this authority, it is only entitled to pay the contractor for the services rendered as well as the costs associated with ceasing operations. 

Under this law, a commonwealth agency exercising a termination for convenience clause would not qualify as breach of contract, which seemingly denies the contractor the right to pursue damages through litigation. Yet that may not be entirely true. In its Model Jury Instructions, the American Bar Association states that contractors may indeed be able to secure damages even when a termination for convenience clause exists. However, it would need to be able to prove one of two elements, the first being that the agency acted maliciously or with animus towards it. The second would be that the agency secured the agreement already knowing that it had no intention of fulfilling the contractual terms. 

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Gatlin Voelker,PLLC

Gatlin Voelker, PLLC
2500 Chamber Center Dr. Ste. 203
Fort Mitchell, KY 41017

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