Termination for convenience: what you get paid when the GC walks away

Nearly every subcontract has a termination for convenience clause. It lets the GC end your contract at any time, for any reason or no reason, without you having done anything wrong. Owners have the same right against GCs, and GCs pass it down.

You probably can't get it removed. What you can do is make sure the clause pays you fairly when it's used.

What a typical clause pays

A common version reads something like: "Contractor may terminate this Subcontract at any time for its convenience, and Subcontractor shall be paid only for work completed and accepted."

That's one of the thinnest versions you'll see. A balanced clause usually pays:

• Work performed to the date of termination, priced under the contract and your schedule of values
• Reasonable costs of stopping: demobilization, cancelling orders, protecting work in place
• Materials ordered for the job, including custom items you can't return
• Overhead and profit on the work you did perform

What it often doesn't pay is profit on the work you didn't get to do. Some standard forms do: the 2007 edition of the AIA A201, still widely flowed down, pays reasonable overhead and profit on work not executed, and the 2017 edition replaced that with an agreed termination fee. Check which form sits above you, because a GC that's paid profit on unexecuted work by the owner may be passing on less to you.

Where the standard wording hurts

• "Completed and accepted." Work that's 80% done isn't "completed", and nobody may ever formally "accept" it. Ask for "work performed".
• No demobilization. If the clause doesn't name stopping costs, you may not get them. Name them.
• Materials. Switchgear, fixtures and fabricated items ordered for this job may be non-returnable. Ask for payment on delivery or transfer of title.
• Pay-when-paid stacked on top. Some clauses say you're paid for a convenience termination only when and if the owner pays the GC. Read the two clauses together.
• Sole remedy. Many clauses make the termination payment your only remedy. That's normal, but it makes the payment terms more important.

What to ask for

If Contractor terminates this Subcontract for its convenience, Contractor shall pay Subcontractor for all work performed through the termination date, the cost of materials and equipment ordered for the Project that cannot reasonably be returned or cancelled, reasonable demobilization and close-out costs, and reasonable overhead and profit on the work performed, within 30 days of Subcontractor's invoice.

That language doesn't ask for anticipated profit, so it's usually an easy conversation.

A related clause to read

Look at termination for default too. Many subcontracts say that if a default termination turns out to be wrong, it's converted into a termination for convenience. That makes the convenience payment terms your floor in a dispute as well, which is one more reason to get them right at signing.