Termination for Convenience and the Contractor's Claim
Alfa EOOD contracted with Beta AD to build a warehouse for EUR 500,000, with completion in 12 months and a 10% retention. Month 5: Beta had completed 40% of the work and had incurred EUR 210,000 in costs plus EUR 30,000 in expected profit on the remaining work. Alfa sent a notice terminating "for convenience" citing changed business plans. The contract has a clause allowing termination on 30 days' notice but is silent on compensation. Beta claims the full contract price minus payments received; Alfa argues it owes only for work actually performed and that the clause caps its exposure. Beta also claims EUR 50,000 for materials ordered for the remaining work.
1. What is the measure of Beta's compensation for termination for convenience?
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The starting point is that a termination-for-convenience clause is valid but does not automatically extinguish the contractor's right to be made whole for the work done and commitments reasonably incurred. Beta is entitled to the contract price for the 40% completed (EUR 200,000) plus reasonable demobilization and committed costs, but not the full unpaid contract price, because that would convert a convenience termination into a breach with full expectation damages.
The disputed EUR 50,000 in materials: recoverable to the extent they were ordered in reasonable reliance on the contract and cannot be mitigated (returned, resold, or used elsewhere). Beta must prove the orders and mitigation efforts. Expected profit on unperformed work (EUR 30,000) is generally not recoverable for a convenience termination unless the clause or governing law so provides; it would be recoverable only if the termination were treated as a breach. The 10% retention is released according to the contract's defect-liability provisions.
2. How should the 30-day notice clause be interpreted where compensation is silent?
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Silence on compensation does not mean zero compensation. The clause grants a right to terminate early; it does not, absent clear wording, waive accrued payment rights. Interpretation favors the reading that preserves the contractor's remuneration for work performed, because a clause purporting to allow uncompensated termination of a partly performed construction contract would be construed narrowly against the party relying on it. The notice period must be reasonable and actually observed; if Alfa's notice was short, Beta may claim costs caused by the shortened wind-down. The clause limits damages for the unperformed balance but not payment for completed work.
3. What should Beta plead and prove, and what is the likely recovery range?
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Beta should plead: the contract and price; the 40% completion with evidence (site reports, certificates); the EUR 210,000 costs; the EUR 50,000 materials with invoices and mitigation; and demobilization costs. It should plead the termination clause and argue it does not bar accrued claims. Likely recovery: EUR 200,000 for completed work (less any prior payments), plus proven committed costs subject to mitigation, plus demobilization. The EUR 30,000 lost profit and the full unpaid contract price are unlikely absent a finding of breach. Alfa's counterclaim for delay or defects, if any, would offset. The retention is withheld pending the defect-liability period.