Chapter 17 - § 17.14 • TERMINATION FOR CONVENIENCE

• Jurisdiction: Colorado

§ 17.14 • TERMINATION FOR CONVENIENCE

In 1997, the AIA General Conditions added a new and unique provision, a "termination-for-convenience" (TFC) clause. The provision allows the owner (or general contractor if there is a TFC clause in its subcontract) to terminate the contract for any reason or no reason at all, i.e., "for convenience."

The TFC concept arose in early days when the U.S. government required those provisions to allow it to cancel contracts for wartime equipment and material at wars' end.⁸⁷

The AIA TFC clause allows the owner to terminate a contract. That may be done under the 2007 AIA provisions at a substantial cost, i.e., costs of termination and "reasonable overhead and profit on Work not executed."⁸⁸ It is a high cost - it is about what the contractor may be entitled to if it had been wrongfully terminated, placing the contractor in about the same position or better than what it would have been if it had been allowed to complete. However, the authors of the 2017 AIA General Conditions provided that the owner's payment to the contractor upon the owner's termination for convenience was for work "properly executed; costs incurred by reason of the termination, including costs attributable to termination of Subcontract; and the termination fee, if any, set forth in the Agreement." Knowledgeable counsel drafting or negotiating contracts on behalf contractors would be wise to include a termination fee since, under the revision, the contractor would not benefit as it would have under the earlier AIA version.

The ConsensusDocs TFC provision is much different. It provides for termination-related costs and not overhead or profit for unperformed work. It also allows the parties to fix a "premium" for the termination to be included in their contract.⁸⁹

At the contracting stage, the parties and their lawyers must examine TFC provisions to determine whether owners would be willing to pay profit and overhead on unperformed work or be amenable to some less-costly formula in the TFC clauses of their contracts. At...