By: Alexander A. Miuccio Published: August 2013

Court Rules On Owner's Termination of Contract for Convenience

Construction contracts in public works and some private works contain a termination for convenience clause allowing the owner to terminate a contract for its own convenience, with or without cause, and without constituting a breach of contract. The contractor is entitled to costs reasonably incurred prior to the termination, including its potential liability to subcontractors

In the recent case of Matter of Strong Steel Door Corp. v City of New York, a contractor challenged the termination of its contract with the City of New York.

Background

In 2009, Strong Steel Door Corp. submitted a bid to the New York City Department of Environmental Protection on a Job Order Contract and was approved as a contractor. Subsequent to the award, Strong Steel was awarded three projects under the Job Order Contract. During the performance of these projects, several disputes arose relating to work where Strong Steel claimed that the City was requiring that it take safety shortcuts. Shortly after these disputes arose, the City cancelled the projects on which Strong Steel was working, did not proceed with other projects it had previously informed Strong Steel that it would be performing, and did not award Strong Steel any additional projects under the Job Order Contract. The City claimed the parties met to discuss what the City described as Strong Steel's lack of adequate progress and agreed to cancel two of the projects, and that with regard to the other projects, Strong Steel never submitted acceptable proposals.

Strong Steel sued the City to have its project cancellations annulled and for an award of money damages for lost profits, lost business opportunities and injury to reputation. The City opposed, arguing that its actions were permissible under the contract's termination for convenience clause.

Decision

The court dismissed Strong Steel's lawsuit, relying on the presence of the termination for convenience clause. The court noted that where a party has an unconditional, absolute right to terminate a contract on notice pursuant to such a clause, the termination is an exercise of a contractual right that is not subject to any judicial review.

Comment

Where a contract contains a termination for convenience clause, the owner may terminate it for any reason, or for no reason whatsoever, provided that the termination is in good faith and does not involve fraud or an improper motive. The only requirement imposed on the owner is that it comply with the notice provisions and compensate the terminated contractor for the costs incurred to the date of the termination.

About the author: Mr. Miuccio is a partner of the law firm of Welby, Brady & Greenblatt, LLP and General Counsel to the Construction Industry Council of Westchester & Hudson Valley, Inc. Gregory J. Spaun, an associate with the firm, assisted with the preparation of this article.

© Welby, Brady & Greenblatt, LLP.
All Rights Reserved. By visiting this site, you agree to our Terms of Service. For more information please read our Privacy Policy Attorney Advertising