If a government agency cancels my contract, are they in breach?

On Behalf of | Dec 29, 2021 | Business Litigation |

Most businesses would consider it a boon when they obtain a government contract. After all, there’s a certain level of comfort knowing that the agency will almost always make payments on time and in full. They represent a secure income stream not often present in private contracts. But government contracts are not without their potential downsides.

Termination for convenience

The federal government enters into contracts with private businesses all the time. But it retains a power not available to those businesses – termination for convenience. This is the authority of the government to cancel a contract whenever it’s in the government’s interest to do so.

What does ‘in the government’s interest’ mean? Well, it’s a phrase which is construed broadly. It may be that the agency no longer needs the goods or services for which it contracted or they have decided to handle them in-house moving forward. The government may propose a modification to an existing contract, which the contractor declines, leading the agency to cancel it. Or the relationship between the agency and the contractor may simply deteriorate.

Whenever the government chooses to terminate a contract for its own convenience, it is required to provide written notice to the contractor. Does that mean it’s in breach of contract? Usually not. Typically, there must be some sort of malfeasance on the part of the agency, such as entering into the contract with no intention of honoring it to begin with. However, the contractor is entitled to a settlement, following termination, so that it may recoup unavoidable costs resulting from the cancellation.