Termination for Convenience was OK to Get a Lower Price

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:

  1. Federal law on termination for convenience was not binding on the Commonwealth;
  2. General principles of contract interpretation under State law applied;
  3. The termination language was unambiguous and broad; and
  4. 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.

A. L. Prime Energy Consultant, Inc. v. Massachusetts Bay Transportation Authority, 479 Mass. 419 (May 2, 2018).

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