Imagine one day you show up at a job site where your subcontracting firm is in the middle of a project only to find the fence around the property with a new lock on the gate and a large "no trespassing" sign affixed to it. When you contact the project superintendent to find out what's going on, he says that the project owner terminated the general contractor "for convenience" because the project exceeded the owner's budget. The superintendent adds, "By the way, here's your termination notice," and hands you an envelope.

It wouldn't be a great day for you, but if the general contractor allowed you to collect your tools and equipment from the site and paid you for completed work, materials procured for the project, demobilization costs, and lost profits on uncompleted work according to the "termination for convenience" clause in your contract, you could probably sleep that night. You might chalk the whole incident up to business misfortune. If you negotiated a smart subcontract agreement, your "termination for convenience" clause also would have made the "convenience termination" of your firm void your contractual warranty.

While not ideal (after all, maybe you passed on a better project for the one that fell through), this outcome more or less fits with the reasons owners ask for "termination for convenience" clauses to be included in their contract agreements with general contractors and at-risk construction managers. The buyer wants the option of canceling the project if it becomes too dangerous, difficult or expensive to continue, as where unanticipated site conditions increase the anticipated cost of the project.

A white paper on "Termination and Suspension for Convenience" published by the American Subcontractors Association (ASA) points out that, the way many "termination for convenience" clauses are written, your firm could have been much worse off than the imaginary scenario depicted above. For example, your subcontract agreement could have:

--Given the general contractor the right to terminate your firm for convenience without the owner having first terminated the GC.
--Included a flow-down provision from the prime contract allowing the owner to seize all the GC's tools and equipment, and therefore, your tools and equipment.
--Limited the amount you could recover to a fee less than the cost of your work (plus overhead and profit), or to the amount recovered "on your behalf" by the GC.

A "termination for convenience" clause without the right limits could turn the merely unpleasant situation of convenience termination into a financially disastrous situation for your company. Just imagine if the superintendent on the project had the contractual right to commandeer your tools and equipment and wouldn't unlock the gate for you to retrieve them! ASA's white paper explains what kind of language subcontractors want to look out for in a "termination for convenience" clause. It also explains how "suspension for convenience" clauses present risks of increasing a subcontractor's costs and need to be vetted to ensure that subcontractors can recoup any such added costs.

Learn more about termination and suspension for convenience. Visit ASA's Web site at www.asaonline.com and click on "Stand Up! for Subcontractors," or call ASA at (703) 684-3450. David Mendes dmendes@asa-hq.com