Termination for Convenience Risk Checker in California Construction Contracts
'Termination for convenience' lets the GC or Owner cancel the contract without cause and pay only work-in-place plus limited close-out costs — no lost profit on unbuilt work. Combined with a broad definition of 'costs,' this can leave you with millions in unrecovered mobilization or lost-margin.
Enforceable subject to good-faith limitation; recovery includes reasonable overhead and profit on work performed.
California Public Contract Code §9203 — good faith and fair dealing implied in every public contract
Typical exposure per project when a T-for-C clause slips into a signed contract.
CA requires good-faith exercise. Negotiate a defined termination-settlement fee to avoid disputes.
CA's good-faith duty means a purely pretextual T-for-C can be challenged as a T-for-Default (with damages).
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“Contractor may terminate this Subcontract for its convenience at any time, and in such event Subcontractor shall be entitled only to payment for Work satisfactorily performed through the effective date of termination.”
“Upon a termination for convenience, Subcontractor shall be entitled to (i) payment for all Work satisfactorily performed through the effective date of termination, (ii) demobilization, subcontractor cancellation, and restocking costs, (iii) reasonable overhead and profit on Work actually performed, and (iv) a termination settlement fee equal to five percent (5%) of the unperformed portion of the Contract Sum.”
- 1Always negotiate demobilization and cancellation costs into the T-for-C recovery formula.
- 2Push for a fixed termination settlement fee (typically 3–8% of unperformed value).
- 3Distinguish T-for-C from T-for-Default — the latter should require notice and a cure period.
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