Government Contract Question Reported to Appeals Court

Judge Kaplan reported the following question to the Massachusetts Appeals Court: “May a government agency invoke a termination for convenience clause contained in a procurement contract for the purchase of goods for the sole reason that it has learned of an opportunity to purchase the same goods at a lower price from another vendor?”

The question arose in a dispute between A.L. Prime Energy Consultant, Inc. (Prime) and the MBTA. In July 2015, Prime was awarded a two-year supply contract to provide the MBTA with Ultra Low Sulfur Diesel Fuel (ULSDF) after a public bidding process. A year later, the MBTA terminated the contract under the termination-for-convenience clause.

Prime alleged that the only reason the MBTA terminated the contract was because the MBTA had learned that it could obtain ULSDF at a cheaper price from another vendor. Prime claimed that this is an insufficient basis for the MBTA to cancel the contract. The MBTA contended that it was entitled to invoke the termination-for-convenience clause for any reason—or no reason at all.

After denying the MBTA’s motion to dismiss, Judge Kaplan allowed the MBTA’s motion to report the question to the Appeals Court under Mass. R. Civ. P. 64.

Judge Kaplan noted that, although the Federal Circuit Court of Appeals has dealt with the issue, “no Massachusetts courts have ruled on the question of whether any limitations apply to a government agency’s or municipality’s right to invoke a termination for convenience clause in a procurement contract.” He further stated that because “termination for convenience clauses are frequently employed in state and municipal procurement contracts, the resolution of this question by an appellate court will be of assistance generally to government agencies and contractors.”

Update: The MBTA has subsequently withdrew its petition in the Appeals Court, leaving Judge Kaplan’s question unanswered for the moment.

A.L. Prime Energy Consultant, Inc. v. Massachusetts Bay Transportation Authority
April 20, 2017

Full decision here.

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