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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.

Considering the rights of parties involved in a soured business relationship, Judge Kaplan reiterated that a binding contract requires an agreement on the material terms and an intent to be bound. A term sheet that does not represent an attempt to formalize an already established agreement is not an enforceable contract.

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