Changing Your Mind, for Whatever Reason – Terminating a Construction Contract for Convenience in Florida

Owner: “You're FIRED!  Please remove all equipment and leave the premises.”

Contractor: “You can’t do that. We signed a contract and have done everything that has been asked – we are performing ahead of schedule, under budget, and the work quality is superb.”

Owner: “Yes, but another company can do it cheaper and the contract we entered into has a termination for convenience provision.”

This scenario is a common one in private and public construction in Florida. When building in Florida, you may encounter a contractual provision that allows the owner or general contractor to terminate a contractor’s work “for convenience.”  What this means is that, depending on the language of the contract, one or both parties in a construction contract may have the right to terminate the agreement even in the absence of fault or breach by the other party, hence the name “termination for convenience,” or “T4C.”  The reason could be that the owner found someone cheaper, that the owner or general contractor is simply not satisfied with a contractor’s work, circumstances changed, such as budget constraints, changes in project or scope, or shifts in business priorities, or for various reasons other than a default or breach of the contract. Understanding termination for convenience is critical for both contractors and project owners, as its financial and legal consequences can be significant.

In Florida, termination for convenience provisions are generally enforceable as long as they are clearly outlined in the construction contract and comply with general principles of contract formation. If a contract contains a termination for convenience clause, Florida courts typically enforce the terms as written, although the party invoking the clause must comply with the contractual notice requirements by providing written notice within the timeframe specified in the contract.  In one Florida case, a contractor terminated a subcontractor simply to get a better price from another subcontractor.  The original subcontractor argued that the contractor acted in bad faith, breached the implied covenant of good faith and fair dealing, and that without the imposition of good faith limitations, the termination for convenience provision rendered the contract an illusory promise that lacked consideration. The Florida appellate court disagreed, finding the termination for convenience provision enforceable.  In fact, the court found that the contractor’s exercise of the termination of convenience provision simply to obtain a better price was not contrary to “the reasonable expectations of the contracting parties.” See Vila & Son Landscaping Corp. v. Posen Const., Inc., 99 So. 3d 564 (Fla. 2d DCA 2012).

Most commonly, the party that is receiving a service is the party that wants to be afforded the contractual right to terminate.  In the prime contract, it is the owner that often demands the right to terminate the prime contractor for convenience.  And, a general contractor will often want to include a termination for convenience provision in the subcontract with its subcontractor.  As a result, the party providing the service that may have no choice but to agree to a termination for convenience provision should be careful to negotiate a termination for convenience provision that provides some protection in the event the right is exercised by the other party.  For example, contractors will often negotiate a termination for convenience fee, which is a fee in addition to all costs incurred through the date of the termination of convenience, which may include things such as demobilization costs and other costs that may be associate with an unexpected termination.  It is critical that contractors negotiate these items up front given the fact that it is difficult and often impossible to get out of a termination for convenience provision.  As the Middle District of Florida acknowledged, such provisions are “difficult to argue around” and have limited plausible exceptions. See Oakes Farms Food and Distributions Services, LLC v. The School District of Lee County, Fla., 2021 WL 2186457, *11 (M.D. Fla. 2021). 

If an owner or contractor seeks to exercise a contractual right to termination, the proper steps will often be outlined in the contract. Typically, the owner must provide written notice to the contractor, stating their intent to terminate the contract for convenience. The contract will usually specify the amount of notice that must be given (i.e., 30 days, 60 days, etc.), and how the contractor should proceed with the termination. While the contractor is entitled to payment for work completed up to the point of termination, as well as other costs that may be allowed by the contract, contractors are generally not entitled to anticipated profits or damages beyond the scope of work completed.  The result is that contractors are likely to suffer losses for resources committed to the project, such as materials ordered, labor hired, or other investments made that cannot be re-used on future projects.  Therefore, it is imperative that a contractor use as much bargaining power as it has to negotiate and clearly specify available reimbursements in the event of a termination for convenience. 

Owners should understand the power of having a termination for convenience provision in their toolbox and should ensure that such provision is drafted in a manner that is enforceable.  Contrarily, contractors should understand the importance of negotiating the most favorable (or least unfavorable) termination for convenience provision to mitigate their potential risks and ensure fair compensation in the event they are terminated early, through no fault of their own.

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Author Troy Mainzer is an attorney in Carlton Fields, P.A.’s construction group in Tampa, Florida.  Troy represents owners, developers, general contractors, and subcontractors in connection with an array of construction disputes, including but not limited to commercial projects, infrastructure, residential home construction, site development, and other areas.  Troy can be reached at tmainzer@carltonfields.com or (813) 229-4239.

Meet the Forum's In-House Counsel: SONYA SEEDER

Company: Guidon Design

Email: sseeder@guidon.com

Website: www.guidon.com

Law School: IU McKinney School of Law (JD 2010)

States Where Company Operates/Does Business: Headquartered in Indianapolis, IN with federal, state and private projects across the country and Puerto Rico

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Q: Describe your background and the path you took to becoming in-house counsel.

A: I didn't come to in-house counsel through a traditional path (a law firm). After some time on both the prosecution and defense sides, I left criminal law and became a deputy corporation counsel to Code Enforcement. I realized that most legal questions were actually process questions in disguise. I ran the Bureau of Licensing and Permitting where I enjoyed molding process around municipal code. I moved on to run the city's real estate program where I acted as the Owner to multiple municipal projects. Seeing projects though planning, permitting and construction has given me a unique and practical perspective on construction projects. My ability to create process around the law (and understand permitting) was a big selling point to my current employer. 

Q: What percentage of your current legal practice is spent on construction-related work?  

A: I’m a one woman show, so it really depends on the day.  We are a Service Disabled Veteran Owned Small Business and a sizable portion of my time is spent on compliance processes around that certification.  I handle all corporate governance matters, insurance, licensing, occasionally dabble in land use matters, and take on anything else that comes across my desk.  I also have an unofficial business development role that keeps me active in the community and involved in project selection early in the process.

Q: What kind of work does your company do? Do you focus on specific sectors, states, or regions?  

A: Guidon is a full-service design firm that offers solutions for technically complex projects.  We have a focus on practical sustainability.  Our focus is on Healthcare, Science & Technology and Low-Income Housing projects nationally and civic projects on a local level.

Q: How and when do you use outside counsel?  

A: I use outside counsel in three situations; 1) I don’t know the answer, 2) I don’t have time to handle the matter, or 3) I’m making a record.  It’s important for outside counsel to understand WHY I’m coming to them in order to give the best service.  I rely on outside counsel for project contracts, claims and litigation, licensing, business transactions, immigration, IP and anything else that comes up.

Q: What are the work/business-related issues that tend to keep you up at night? 

A: Compliance, compliance, compliance!  I don’t know what I don’t know, and I rely on the updates firms issue to stay on-top of ever changing laws.  Additionally, like any other in-house counsel, I’m always worried about when a claim or lawsuit will hit and how it will disrupt business.  I work directly with our project managers on QA/QC processes on the front end to prevent claims, so thankfully, dispute resolution has not been a huge part of my job at Guidon (yet . . . knock wood).

Q: What do you or your company take into consideration when vetting and/or selecting outside counsel? 

A: Reputation is everything.  I need someone to vouch for you or to know you through the ABA or local bar association.  Firm reputation is also important, but I’ve had bad attorneys at good firms and vice versa. When it comes to construction law matters, I need you to understand the role of the design professional (and our insurance).  Your billing rate does get taken into consideration but isn’t a deal breaker, especially if I trust you will delegate matters appropriately and be measured in your billings.  I’m willing to pay for good advice.

Q: Describe a relationship with an outside attorney that was particularly successful. What made the relationship successful? 

A: I have been the first general counsel to two different A&E firms. In both of those roles, there was a well trusted outside counsel that had been supporting the company before I came along.  Neither of those attorneys viewed me as their competition.  They both went out of their way to help train me in areas I needed assistance with, even though it could mean less billings for them in the future.  They were both sounding boards for me, trusted advisors and I knew I could go to them with any question and they would get me what I needed and make sure I understood the why.  The outcome is that they have made me a better attorney, and because they have supported me and earned my trust so implicitly, I don’t hesitate to go to them with matters large and small.  They were able to build this relationship through multiple short phone calls, so not a ton of extra billing, but an impactful personal touch.  I recommend them to everyone.  

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Assistant Editor-in-Chief Jessica Knox is a Partner in the Minneapolis office at Stinson LLP. She represents owners, general contractors, and subcontractors in litigation disputes. Jessica can be contacted at jessica.knox@stinson.com. 

Professional Liability Insurance Considerations When Design Professionals are Involved

When it comes to managing risk, design professionals must carefully consider both commercial general liability (CGL) and professional liability insurance. While these two types of coverage both protect against third-party claims, they have key differences in how they work, when they apply, and what they cover. For lawyers working with design professionals, it is crucial to grasp the nuances in professional liability insurance in order to negotiate contracts and handle disputes effectively. By understanding these nuances and guiding clients accordingly, legal counsel can help design professionals navigate the complexities of insurance coverage and reduce their exposure to costly risks.

CGL v. Professional Liability Policies

A major difference between CGL and professional liability insurance is what risks they are designed to address and the form of the policy. CGL policies and endorsements are standardized across the industry/carriers and use forms issued by the Insurance Services Office, Inc. (ISO). CGL covers liabilities related to bodily injury, property damage, and personal/advertising injuries. It is meant to handle incidents occurring on the insured’s premises or due to non-professional activities.

Professional liability policies, on the other hand, do not use standardized forms and are unique to each carrier. But while there is variation in the form of the policy, the professional liability coverage itself has very little variation. Professional liability insurance focuses on claims arising from professional services and allegations of negligence, and coverage often includes losses directly related to design errors or omissions. These policies typically limit coverage and defense to the named design professional and its related entities for their professional negligence; limit contractual liability to tort liability only; and include “pre-loss” waivers of subrogation.

Given the lack of uniformity in professional liability policies, design professionals and their attorneys should carefully review each policy to understand its terms and potential coverage gaps.

Common Coverage Limitations and Gaps

Understanding the limitations of professional liability insurance is critical when negotiating contracts and managing risk with respect to design professionals.

 - Insured’s Contractual Liability: Unlike the CGL forms, professional liability policies typically exclude coverage for liability assumed solely through a contract. This means that design professionals should avoid agreeing to broad contractual obligations that extend beyond their common law duties. Limiting liability to tort-based claims can help maximize the chances of insurance coverage.

- Indemnification Clauses: Broad indemnity clauses that require the design professional to cover all project-related claims—even those unrelated to their negligence—can create coverage gaps. Since professional liability policies only respond to claims arising from the insured’s negligence, indemnifying others for unrelated issues often falls outside of coverage.

- Elevated Standards of Care: The standard of care for design professionals refers to the ordinary and reasonable care exercised by similar design professionals working on the same type of project, at the same time, in the same place, and under similar circumstances and conditions. Contracts that impose an elevated standard of care, such as requiring “perfect” or “highest quality” services, can trigger exclusions under professional liability policies, which typically cover only the standard of care expected under common law.

- Additional Insured Coverage: While it is common to add project owners and contractors as additional insureds under a CGL policy, this is not feasible with professional liability insurance. These policies are designed to cover only the design professional’s own negligent acts, not claims brought by or against other parties.

- Primary and Non-Contributory Coverage: Contracts often attempt to require the design professional’s insurance policies to be primary and non-contributory, which dictates that a certain policy takes precedence over other policies in the event of a claim where multiple policies are triggered. Professional liability policies, however, generally do not offer this option and are often written as excess coverage.

- Waivers of Subrogation: While waivers of subrogation are standard in CGL policies, they are less common in professional liability coverage. Design professionals should carefully evaluate whether to agree to such waivers, as they may impact the ability to recover losses from other responsible parties.

One way to address some of these coverage limitations is through project-specific professional liability policies such as A&E Professional Liability, Contractors Protective Professional Indemnity (CPPI), and Owners Protective Professional Indemnity (OPPI). These policies cover multiple parties involved in a specific project and can provide broader protection. But due to recent market trends, project specific policies may be difficult to obtain depending on the project size, scope, or timing.

Maximizing Coverage for Professional Liability Claims

When it comes to construction and design projects, professional liability claims often arise between project owners and design professionals. For attorneys representing both the owner and designer side of the dispute, it is important to understand how professional liability claims are defined, when the claim needs to be made, and how to report claims to ensure insurance coverage.

What is a Claim? A professional liability policy is triggered when a claim is made, but what exactly constitutes a “claim”? Typically, it involves a demand for money or services due to some alleged wrongful act by the design professional. Many policies specify that claims must be in writing; however, some may include verbal demands. Whether a claim has been made is viewed from an objective standard—whether a reasonable person would see the communication as a demand for services or damages. If a design professional suspects that a claim might be coming—for example, after receiving a critical letter about delays or design flaws—some insurance policies allow them to report it as a “circumstance.” This proactive step can lock in coverage if the issue later escalates into a formal claim.

Timing Matters. Professional liability policies are typically claims-made policies. Thus, to secure coverage under a professional liability policy, the claim must be made during the policy period or an extended reporting period. If the claim is made after the policy expires, coverage is typically lost—even if the events triggering the claim occurred during the policy period. And if a claim is made during a policy period for events predating the policy, it may be excluded from coverage. Many policies include a prior acts exclusion which excludes from coverage claims based on incidents that the design professional was already aware of before the policy began.

Reporting Requirements. Timely reporting of a claim is crucial to coverage. Once a third-party makes a claim, the design professional must promptly notify their insurance carrier because failure to report a claim within the policy period can allow the carrier to deny coverage. Providing detailed information, including parties involved and potential disputes, strengthens the case for coverage. Late reporting can lead to denied coverage, and some courts strictly enforce policy deadlines regardless of whether the carrier was prejudiced by the delay. However, a few states, like Michigan and Maryland, have laws requiring carriers to show actual harm before denying coverage for late notice.

Defense Costs. Professional liability policies usually have "burning limits" that cover both defense costs and settlements. Every dollar spent on legal defense reduces the amount available for settlements, so aggressive litigation tactics can quickly erode policy limits. Instead, a focus on efficiently and effectively preparing a case against the design professional can help maximize recovery from the carrier.

Whether through practice-based or project-specific policies, professional liability coverage is essential for managing risks in the design and construction industry. Lawyers advising owners, developers, or design professionals should be aware of the key insurance requirements and ensure timely and comprehensive claim reporting. Ensuring that clients are well-informed about claim definitions, policy timelines, and the importance of timely reporting will protect their financial interests and can make all the difference in securing coverage and achieving favorable outcomes.

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Author Lara Yost and Editor Debrán O’Neil are members of Carrington, Coleman, Sloman & Blumenthal, L.L.P.’s construction practice group in Dallas, Texas. They primarily represent public and private owners and developers in connection with the construction of large commercial and infrastructure projects throughout Texas. They can be reached at lyost@ccsb.com and doneil@ccsb.com, respectively.