By: Alexander A. Miuccio Thomas H. Welby Published: September 2007

Damages Where Contractor Terminated-For-Convenience


One of the most important clauses in a construction contract is the termination-for-convenience clause. Such a clause normally grants the owner the right to terminate the contract for “convenience”, whether with or without cause, and without constituting a breach of contract. The contractor should include within the termination-for-convenience clause the right to collect all its costs incurred to the date of termination, including its potential liability to subcontractors.

In the recent case of Paragon Restoration Group, Inc. v. Cambridge Square Condominiums, the appellate court considered the award of money damages arising out of an owner’s termination of the contract pursuant to a termination-for-convenience clause.

Background

Paragon Restoration Group, Inc. contracted with Cambridge Square Condominiums to repair the roofs and replace the windows in a series of buildings owned by Cambridge. After only a portion of the work was performed, the owner terminated the contract without cause pursuant to the termination-for-convenience clause contained in the parties’ agreement. The clause stated that upon termination, the contractor was “entitled to receive payment for work executed, and costs incurred by reason of such termination, along with reasonable overhead and profit on the work not executed.”

When the owner refused to make payment pursuant to the clause, the contractor sued for breach of contract. The owner counterclaimed, alleging that based on the contractor’s defective performance, the owner was entitled to an offset for the costs incurred by it in completing the work.

The contractor moved for summary judgment, seeking to have the owner’s counterclaims dismissed and to have the court award the contractor its costs, profit and overhead without the necessity of a trial. The contractor argued that because the owner terminated for convenience, the owner could not counterclaim for the cost of curing any defective performance by the contractor. Additionally, the contractor submitted evidence establishing the amount of its expected profit and overhead.

The owner argued that because the contractor had defaulted on the parties’ agreement, it was entitled to a credit for the costs required to cure the contractor’s poor performance. The owner also submitted the affidavit of a construction expert stating that the profits claimed by the contractor were excessive.

The trial court denied the contractor’s motion for summary judgment and the contractor appealed.

Decision

The appellate court dismissed all counterclaims against the contractor. In relying upon established case law, the court held that where an owner elects to terminate for convenience, whether with or without cause, it cannot counterclaim for the cost of curing any default by the contractor.

With regard to the costs, profits and overhead claimed by the contractor, the appellate court affirmed the trial court. According to the appellate court, by submitting the affidavit of a construction expert stating that the profits claimed by the contractor were excessive, the owner raised a disputed issue of material fact which needed to be decided by a trial.

Comment

A party’s motive under a termination-for-convenience clause is rarely relevant. However, this case highlights the care and consideration which must be given throughout the termination process. As shown, if an owner enforces a typical termination-for convenience clause, the owner’s right to recover based on contractor default is lost. Accordingly, if an owner wishes to terminate based on a contractor’s default, termination under the convenience provision of the agreement is improper.

This case also illustrates how disputed issues of material fact will time and again bar the grant of summary judgment. Here, the contractor’s motion for summary judgment in connection with the award of costs, overhead and profit was denied because the owner disputed the value of those items. Where disputed issues of material fact exist concerning a claim, the court will not grant summary judgment and a full trial will be required to resolve the disputed facts.

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