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

Publication

Lien Waivers: Understanding the Risks in a Common Form

Lien waivers assure owners that once payment has been made to a contractor, or subcontractor, that contractor cannot obtain a mechanics' lien for that money at a later time. In this article for  Construction Executive , Kenneth...

Publication

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...

Publication

COVID-19 and Contractual Non-Performance

Managing Risk on Existing Projects In contractual relationships extreme events may occur through no fault of the impacted party, temporarily inhibiting or completely preventing performance. During this pandemic, the inability of businesses to provide...

Publication

Contractor's Guide to Mitigating Risks in the AIA A201-2017 General Conditions

The AIA A201-2017 is generally a well-understood contract document and is used in a significant number of construction projects each year. While this standard contract covers most risks, there are a number of areas...

Publication

Contractor's Guide to Mitigating COVID-19 Risks in the AIA A201-2017 General Conditions

The COVID-19 pandemic has presented new risks and challenges that will affect construction projects for years to come. This business level summary provides specific recommended edits that contractors and construction managers should consider when using...

Publication

The Moving Finish Line: Statutes of Limitation and Repose Are Not Always What They Seem

Having an end date for risk is important to construction professionals who need to know when they can close their books and destroy files relating to old projects. In this article for  Construction Executive...

Publication

Construction Alert: Gov. Baker Clarifies Massachusetts Construction Requirements and Possible Future Impacts for New Hampshire

The state of construction in Massachusetts continues to evolve as Governor Baker issued another order yesterday tightening  the list of types of construction that are allowed to proceed  as "essential services." Under the new...

Publication

Preti Flaherty COVID-19 Resources

In response to the ongoing COVID-19 pandemic, Preti Flaherty's attorneys have maintained a constant stream of the most up-to-date information and resources for our clients, business partners, and others struggling to navigate these complex...

Publication

Owner's Guide to Mitigating COVID-19 Risks in the AIA A201-2017 General Conditions

While the AIA A201-2017 is generally a well-understood contract, COVID-19 presents new logistical and economic risks that can leave owners at risk unless edits are made. This guide focuses on changes to the AIA...

Publication

NH Gov. Sununu Issues Stay-At-Home Order - Construction Considered Essential Industry

Yesterday, in response to the COVID-19 outbreak, New Hampshire Governor Chris Sununu issued an emergency order shuttering all non-essential businesses in the state effective today. This morning, the governor's office released a list of...