When Massachusetts’ highest State court rejected Federal law on termination for convenience (T4C) a public entity’s “sole discretion . . . for any reason” ended a supplier’s contract. Is this too much governmental power or good stewardship of public resources?
Under a public contract, a Supplier agreed to provide fuel to the Massachusetts Bay Transportation Authority. About eleven months into the two-year contract, the Authority terminated the contract because it could get the same fuel for a cheaper price from a different supplier.
Upon 30-days written notice, termination by the Authority was within its “sole discretion . . . for any reason.” The terminated party was expressly entitled to payment for: demobilization, contract closeout, and costs of and profit on work performed.
The Massachusetts State Supreme Judicial Court held the termination was proper and made several points:
- Federal law on termination for convenience was not binding on the Commonwealth;
- General principles of contract interpretation under State law applied;
- The termination language was unambiguous and broad; and
- The requirement for pre-termination written notice was enough consideration for a contract.
The Court expressly stated it was not deciding whether a T4C would be proper to rebid the contract in search of a lower price. But, the roadmap of this decision would make it easy for a Court to find even such a T4C was OK.
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Jonathan J. Straw
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