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Termination for convenience clause: A contractor’s dilemma

Few understand the intricacies of construction projects better than construction contractors. However, contractors can easily overlook some terms and conditions of a construction contract when embarking on a new project. One clause that favors construction project owners is termination for convenience (TFC) clauses.

These provisions demand careful review and consideration because they typically allow project owners to terminate a construction agreement at any point during the project for any reason or no reason whatsoever. When exercised, a termination for convenience provision can present a significant disadvantage for construction contractors.

The double-edged sword of the TFC clause.

The TFC clause is incorporated in construction contracts to allow project owners to pull out of an agreement when:

  • Their project priorities change
  • Funds run out
  • Unforeseen circumstances arise

Project owners can terminate an agreement even if the contractor has not breached any contract terms or conditions. As such, this clause can be like a ticking time bomb. The project owner can wake up tomorrow and decide that their contract has been terminated, and they won’t even have to explain why.

When a construction contractor embarks on a new project, it’s natural to anticipate the profits it should obtain upon the completion of the project. However, these profits become more speculative if there is a TFC clause since the project owner can terminate the agreement for any or no reason whatsoever.  Furthermore, the sudden interruption of workflow caused by a TFC can also be problematic.

Good faith and fair dealing.

Some states have stricter regulations for TFC clauses than in Idaho. The covenant of good faith and fair dealing, which is implicit in every construction agreement, prohibits project owners from prematurely terminating a construction contract for purely malicious reasons. However, proving that an agreement was terminated solely for malicious reasons isn’t easy or straightforward.

While the termination for a convenience clause provides flexibility for project owners, it can be disadvantageous for contractors. Contractors in Idaho can should carefully consider the implications of TFC clause with the help of a reliable legal team before signing a construction contract. Those facing premature contract termination can also learn more about how the law applies to their situation.