This bulletin serves as notice to State agencies that absent compelling justification, OSC will no longer approve contracts that contain a provision that provides the vendor with the unilateral right to terminate a contract for convenience.

Recent audits have indicated an increasing tendency to incorporate such clauses into State contracts. While there is no legal prohibition against the use of such a clause, providing a vendor with the unilateral right to terminate a contract can create a situation wherein all vendors are not bidding on the same basis.

Exercising such a clause allows a vendor to manipulate the bidding process by controlling the period for which the service is to be provided. In short, such a clause provides the vendor with the ability to walk away from its obligations under a contract, without consequence; at any time the vendor decides the contract is no longer beneficial. Such a clause provides the vendor with an unfair advantage over other bidders who based their bids on the full term of the agreement as set forth in the solicitation issued by the State agency.

Further, such language leaves the State agency in a position where it is unable to plan a proper allocation of resources, since at any time a contractor can choose to end its contractual relationship, leaving the agency without services. Additionally, the State agency may be forced to engage in a new solicitation and incur additional costs that it had not planned on.

Since both parties may mutually agree to terminate the relationship at any time, in our view the vendor should not be provided with the ability to walk away from its contractual obligations without the consent of the contracting State agency.

As a result of the concerns outlined above, as of April 1, 2004, absent compelling justification, OSC will not approve contracts that allow the vendor the unilateral right to terminate a contract for convenience.

If a vendor decides to exercise the unilateral termination clause under an existing approved contract, the State agency will be required to re-bid the procurement, as OSC will not approve an award to the next responsive and responsible bidder.