When building, you may encounter a clause in your construction contract that allows the owner or the general contractor to terminate your work “for convenience.” This means that they can end the contract without any fault on your part, and without any specific reason. This may sound unfair, but it is legal and enforceable in Florida, as long as the clause is clear and unambiguous.
Why use “for-convenience” clauses?
Termination for convenience clauses are usually intended to give the owner or the general contractor some flexibility in case they face financial difficulties, change their mind about some aspect of the project or find a cheaper or better alternative. These clauses can also protect them from liability for breach of contract if they decide to cancel the project for any reason.
What are the rights and obligations of the parties?
When a termination-for-convenience clause is invoked, the terminated party must stop performing any further work on the project, unless otherwise instructed by the terminating party. The terminating party must pay the terminated party for the actual work completed in accordance with the original contract and may also have to pay a surcharge or termination fee to compensate the terminated party for some degree of profit and overhead.
The amount of the surcharge or termination fee may be specified in the contract or calculated based on a formula or percentage. The terminated party may also be entitled to recover reasonable costs incurred as a result of the termination, such as demobilization, storage, transportation expenses, etc.
Are there any limitations or defenses?
One limitation to a termination-for-convenience clause is that it must be invoked in good faith and fair dealing by the terminating party. This means that the terminating party cannot use the clause to avoid paying the final payment, to hire another contractor at a lower price or to punish or discriminate against the terminated party. If the terminated party can prove that the terminating party acted in bad faith or breached the implied covenant of good faith and fair dealing, they may be able to challenge the validity or enforceability of the termination-for-convenience clause and seek damages for breach of contract.
Another limitation to a termination-for-convenience clause is that it must comply with any applicable statutes or regulations that govern public contracts. For example, Broward County’s code requires that all construction contracts for Broward County must contain clauses allowing for termination for convenience.