An owner’s option to terminate a contract for convenience is a well-established right dating back to military procurement contracts in the American Civil War. SAK & Assocs. v. Ferguson Constr., Inc., 189 Wn. App. 405, 410 (2015). In fact, today termination for convenience clauses are required in most government procurement contracts. Id. (citing Krygaski Constr. Co. v. United States, 94 F.3d 1537, 1540 (1996)). The use of termination for convenience clauses has since transitioned to the private sector and can be found in most standard construction contracts, including forms provided by the American Institute of Architects, the Associated General Contractors of America, the American Subcontractors Association, the Engineers Joint Contract Documents Committee, and the Design-Build Institute of America. Id. (citing Ryan P. Adair, Limitations Imposed by the Covenant of Good Faith and Fair Dealing upon Termination for Convenience Rights in Private Construction Contracts, 7 J. Am. C. Construction Law. 127, 128 (2013)). However, as Washington’s Court of Appeals recently acknowledged, “[t]here is very limited authority addressing termination for convenience clauses in private contracts.” SAK & Assocs., 189 Wn. App. at 410.
In SAK & Assoc., the general contractor terminated a concrete subcontractor for convenience on a project involving the construction of airport hangars. The subcontractor was paid for the work actually performed, but sued for damages alleging the general contractor breached the subcontract “by unilaterally terminating ‘without cause.’” SAK & Assocs., 189 Wn. App. at 408. The subcontractor argued that the termination for convenience clause was “illusory” and the general contractor failed to give proper notice. Id. The Court disagreed by noting the subcontractor had partially completed its work (24% of the project), which provided adequate consideration to terminate for convenience. The Court also rejected any notion that terminating a contract for convenience runs contrary to the implied covenant of good faith and fair dealing. Rather, “an unambiguous termination for convenience clause is not limited by the implied duty of good faith.” Id. at 415(citing Badget v. Sec. State Bank, 116 Wn.2d 563, 570, 807 P.2d 356 (1991). The Court found that the termination for convenience clause was valid so long as the general contractor provided written notice of termination and payment was made for completed work proportionate to the total fixed price of the subcontract. No further explanation or justification beyond “convenience” was required to terminate the contract.