District of Columbia v. Organization for Environmental Growth, Inc.
700 A.2d 185 | District of Columbia Court of Appeals | 1997
What This Case Means for Subcontractors
The District of Columbia terminated a contract with a contractor for convenience and paid only a small portion of the claimed amount. The contractor appealed and won a large award including lost profits. The appeals court reversed, ruling that when a government contract includes a termination-for-convenience clause, the contractor cannot recover common law damages like lost profits—only the costs of work performed and reasonable demobilization costs. This protects the government's right to terminate without cause.
Key Takeaways
- •Termination-for-convenience clauses in government contracts prevent you from recovering lost profits or damages, even if you had performance difficulties or the government acted unfairly.
- •When terminated for convenience, you can only recover payment for work completed and direct termination costs—not speculative future earnings.
- •Always review termination clauses before bidding. If a contract allows termination for convenience, price your bid to cover risk in the early stages, not later phases.
Board's award of common law damages nullified protection afforded by termination for convenience clause.
Frequently Asked Question
If a government agency terminates my contract for convenience, can I sue for lost profits?
No. When a contract includes a termination-for-convenience clause, you cannot recover lost profits or common law damages. You can only recover payment for work already completed and reasonable costs directly tied to the termination. The termination-for-convenience clause is designed to protect the government's right to end the contract without cause, and courts enforce this limitation strictly.
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