The termination for convenience clause arose at the end of the Civil War so the government could terminate construction contracts made during wartime once peace ensued, and not be liable for the contractor’s loss of anticipated profits. The War (now Defense) Department continued to use this clause throughout the 19th and 20th centuries. The clause allowed the government to enter into a 10-year contract to buy arms without worrying about the conflict ending in three years and being liable for seven years of the contractor’s anticipated profits.
Eventually, the termination for convenience clause became mandatory in all federal contracts, civilian and military, and then found its way into almost every construction contract, both public and private.
Damages that can be awarded when a contract is terminated for convenience or where a default termination is converted to a constructive termination are governed by both federal regulation and the contract at issue. See FAR 52.249-1 to 52.249-5; United Partition Systems, Inc. v. U.S., 90 Fed. Cl. 74 (2009). Contractors terminated for convenience are entitled to recover the amount of the cost of the contract work performed prior to termination, plus a fair and reasonable profit on that work. (See FAR § 52.249-2, (g)(2), see also Alternate I (SEP 1996) (g)(1), which is applicable to construction contracts.) In this scenario, the contractor has the burden of proving the actual value of the termination for convenience damages; and they must be proved with certainty so that the amount of damages will be more than mere speculation. Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 765 (Fed. Cir. 1987)