Government Constructively Terminated Contract for Convenience
On April 10, 2017, in Dream Management, Inc. v. Department of Homeland Security, CBCA 5517, the Civilian Board of Contract Appeals ("Board") ruled that the Department of Homeland Security, Immigration and Customs Enforcement ("ICE") cannot end a contract without relying on the termination for convenience clause. The contract called for language services. ICE did not order any services under the contract for an extended period of time, however. Meanwhile, the contractor had hired the necessary staff to fulfill the contract requirements and was incurring costs. ICE and the contractor ultimately signed a bilateral modification agreeing to end the contract early.
The contractor then sought breach of contract damages, or in the alternative, termination for convenience damages. ICE argued that the contractor had voluntarily agreed to end the contract by signing the modification and that this agreement should not be disturbed by the Board. The Board disagreed and held that "major deletions of contract work, however, may not be accomplished through modifications." As such, the modification was treated as a termination for convenience:
The bilateral modification to end performance of all work under DMI’s contract was, in effect, a termination for convenience. The task order explicitly incorporated the GSA terms and conditions, which included a termination for convenience clause. Because the modification did more than change part of contract performance, and the contract included a termination for convenience clause, the modification will be treated as a termination for convenience by the agency.
Because the bilateral modification did not include any release language, the Board also rejected the Government's claim that the contractor waived its rights to termination for convenience damages.
Given that the contract was terminated for convenience, the Board held that the contract could seek costs preparing for the work, even though no services were actually provided to the Government.
Oftentimes, the Government is faced with the need to end a contract due to budgetary or other reasons. There is a tendency to descope the contract by modification rather then terminated it for convenience (partially or fully) to reduce damages owed to the contractor. This case sends a strong message to the Government that it cannot descope a major portion of a contract and get away with paying termination for convenience damages.
