Construction Alert: Massachusetts SJC Issues Ruling Concerning Termination for Convenience

Preti Flaherty Construction Alert

On May 2, 2018, the Massachusetts Supreme Judicial Court issued a ruling clarifying that

(i) Massachusetts courts will apply Massachusetts law, and not federal procurement law, when evaluating a termination for convenience;
(ii) The court will enforce a termination for convenience under the specific language of the parties’ contract; and
(iii) The court will not apply the implied covenant of good faith and fair dealing to import or create rights or duties that are not already present in the parties’ contract.

In A.L. Prime Energy Consultant, Inc. v. Mass. Bay Transportation Authority (SJC 12370) (May 2, 2018), the Massachusetts Bay Transportation Authority (MBTA) and A.L. Prime Energy Consultant, Inc. (Prime) entered into a fuel procurement contract, which included a clause allowing the MBTA to terminate the contract for convenience, and stating that in that event, Prime would receive its costs and profit through termination, but would not receive any anticipated profits or overhead.  The MBTA later exercised the clause after it found that it could procure fuel at less cost from other suppliers.  Prime sued contending that the terminating the contract to obtain a better price deprived Prime of the benefit of its bargain and that the MBTA should not be permitted to terminate under such circumstances, and offered examples of federal procurement case law in support of its argument.  

The SJC rejected Prime’s approach, and held that Massachusetts law, and not federal procurement law controls, and that Massachusetts law requires a plain language construction of the contract’s language.

The Court further rejected Prime’s argument that the MBTA committed a breach of the implied covenant of good faith and fair dealing by terminating the contract "in order to undercut the [c]ontract price set through the competitive bidding process, thereby depriving Prime of the fruits of the [c]ontract." In rejecting Prime’s argument, the Court ruled that the MBTA had merely exercised the rights allowed under the contract, and that Prime could not claim that it had a “reasonable expectation” of recovery where the contract expressly included a right of termination that could prevent such a result.

Firm Highlights


Best Practices for Avoiding Cyber-Fraud on Capital Projects

The construction industry is increasingly under the threat of cyber-fraud. Criminals know that large capital projects often require significant payments, which occur regularly. It is fairly easy to identify the contractors involved in these...


Hurry Up and Wait: Dealing with Delays When the Project Still Finishes Early

While most delay claims involve situations where a delay pushes the project beyond the schedule, delay can occur even where a contractor completes work early or on time.  In this article, Kenneth E. Rubinstein...


Understanding the Contractor’s Consent: The Hidden Dangers in a Common Form

At the start of a commercial construction project, lenders frequently request the "Contractor's Consent to Assignment" or "Contractor's Consent" forms from contractors. These contracts allow the bank to assume ownership of the project in...


Construction Alert: U.S. Supreme Court Declines to Knock Down Tariffs

The United States Supreme Court announced Monday that it will not take up a steel importer group’s challenge to President Trump’s broad authority to impose tariffs and set trade restrictions. The High Court rejected...


Prefabrication in Practice: Weighing the Advantages Against the Challenges

In recent years, prefabrication and modular construction have become a more popular choice for large-scale construction projects. Proponents of prefabrication have lauded that prefabbed construction yields better, cheaper and faster construction because projects can...


ConsensusDocs vs. AIA - Which Contract Is Best for Contractors?

Choosing the right contract is essential to protecting your rights as a contractor. AIA Contracts have long been the industry standard, but Consensus Docs are fast becoming a reasonable option. In this article, Nathan...


Litigation and Arbitration Venue Provisions in Construction Contracts: When and How They Work

Venue and choice-of-law provisions are fairly standard in construction contacts, but can be overlooked due to their location within a contract. When drafted effectively, these provisions can help limit uncertainty about where and how...


Avoid the Pain Points in Trump Tariffs

New tariffs on imported materials such as steel, aluminum, solar panels, lumber and plywood have caused suppliers to increase their prices to contractors, boosting the overall cost of construction. Industry experts expect more tariffs...