FIDIC

Termination for Convenience Under FIDIC — Compensation and Quantum

Termination for convenience allows the employer to terminate without fault by the contractor — the employer simply decides to stop the project. The contractor is compensated for work done and entitled to fair compensation for the termination itself, but does not recover full loss of profit on unexecuted work as it would for wrongful termination.

7 min read · Updated 23/05/2026

In this article

1. Termination for Convenience — Contractual Basis
2. Grounds for Termination (Non-Default)
3. Compensation Upon Termination
4. Valuation of Work Done
5. Profit on Unexecuted Work
6. Final Account and Disputes

Key takeaway

Termination for convenience is a contractual entitlement that must be expressly granted. Upon termination, the contractor receives payment for work completed and fair compensation for the termination, but the scope of the “termination compensation” is often disputed. Full loss of profit is not recoverable — the contractor is compensated for standing down, but not for profit it would have earned. This creates significant post-termination disputes about quantum.

1. Termination for Convenience — Contractual Basis

Termination for convenience is not a common law right. It exists only if the contract expressly permits it. Many contracts do not include this clause — the contract either provides termination for default only, or is silent on termination (in which case termination is available only at common law if the contractor commits a material breach).

Where the contract does provide for termination for convenience (sometimes called “termination at will” or “termination without cause”), the clause typically states that the employer may terminate the contract at any time by giving notice, and must compensate the contractor fairly.

The NEC suite of contracts and some government-issued contracts include termination for convenience clauses. Traditional FIDIC Red Book does not. Some project-specific FIDIC amendments add a termination for convenience clause as a special condition.

2. Grounds for Termination (Non-Default)

Termination for convenience is exercised without reference to contractor fault. The employer may terminate because:

• The project scope has changed (the employer no longer needs the works as originally scoped)
• Funding has been withdrawn or cut
• The project is no longer economically viable
• The project is politically or commercially no longer required
• Regulatory or zoning changes make the works impossible or undesirable

In any of these scenarios, the employer can terminate, even if the contractor is performing flawlessly. The contractor is not in breach — the contract is simply being unwound by the employer’s election.

3. Compensation Upon Termination

The contract clause should specify what the contractor is entitled to receive upon termination for convenience. The standard formula is:

Compensation = Payment for work completed + Demobilisation costs + Fair compensation for termination

The first two elements are straightforward. The third — “fair compensation for termination” — is where disputes arise.

4. Valuation of Work Done

Work completed is valued at the contract rates — the agreed prices in the bill of quantities or contract specification. If the contract includes variations or has changed scope, the work is valued based on the contract as it existed at the point of termination (including all issued variations).

Work partially completed (work begun but not finished) is typically valued on a pro-rata basis. If a concrete slab was 70% complete, the contractor receives 70% of the contract price for that slab.

5. Profit on Unexecuted Work

The critical question is whether the contractor receives profit on work not yet begun. Here, termination for convenience differs significantly from wrongful termination:

• Wrongful termination: The contractor receives full lost profit on the unexecuted remainder (because the employer has breached and is liable for all damages)
• Termination for convenience: The contractor typically does not receive lost profit on unexecuted work (because the termination was authorized and the contractor is not wrongfully deprived)

However, some contracts provide for a partial profit compensation — for example, “the contractor shall receive a percentage of the margin on unexecuted work.” This is a negotiated term and must be expressly stated in the contract.

The contractor’s best case is to argue that “fair compensation for termination” includes a reasonable profit allocation on unexecuted work, as the contractor has been deprived of that profit through no fault of its own. The employer’s position is that “fair compensation” means recovery of reasonable costs, but not profit the contractor would have earned.

6. Final Account and Disputes

After termination, a final account is prepared showing:

• The contract price for all work completed
• Demobilisation and termination costs
• Fair compensation for termination (if applicable)
• Less: retention, advance payments, and any setoff (e.g., employer claims for defects in completed work)
• Net amount due to the contractor

Disputes often arise over the quantum of “fair compensation.” The contractor will provide detailed schedules of overhead costs, profit allocations, and opportunity losses. The employer will argue these are excessive or not adequately mitigated. If the contract does not define “fair,” the dispute typically proceeds to expert valuation or arbitration.

To avoid disputes, best practice is to specify in the contract clause what compensation is payable upon termination — not just “fair compensation,” but specific items (e.g., “the contractor shall be entitled to cost-plus 10% on unexecuted work” or “the contractor shall receive compensation for demobilisation costs, standing time overhead for up to 8 weeks post-termination, and no profit on unexecuted work”).

Termination for Convenience and Fair Compensation

We advise on compensation mechanisms, profit allocation on unexecuted work, demobilisation cost recovery, and fair value assessment. Clarity of contract language is essential — post-termination disputes over quantum are extremely common and difficult to resolve.

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