Mark Pestronk
Q: Our agency has several government contractor clients with lots of employees who travel abroad to carry out their work. The Department of Government Efficiency seems to be ordering the cancellation of hundreds of government contracts every day, especially ones requiring international work. If our clients' contracts get canceled and their employees no longer travel under the contract, what are our rights as a subcontractor? If our contract is for a fixed number of years, are we entitled to recover the fees that we would've gotten for the life of our subcontract?
A: Whether you have any rights at all depends on the terms of your subcontract. For example, your subcontract may require your client to pay a guaranteed amount in transaction fees or may provide stipulated damages for early termination.
However, most subcontracts are ordinary corporate account contracts, under which the corporate account does not guarantee any minimum volume. In that case, you would have no rights at all, even if the parties anticipated that the contract would cover millions of dollars in future travel, and even if you just finished spending tens of thousands of dollars setting up the account with dedicated personnel and offices.
Under that no-guarantee scenario, your corporate client wouldn't even need to terminate your subcontract. It could remain in effect without being terminated, but you would not be doing any work or making any money under it.
Sometimes, corporate account subcontracts have more specific language that ties termination of the subcontract to termination of the prime contract. Here is a typical example of such a clause, where the travel agency is the subcontractor and the corporation is the prime contractor to the federal government:
"The term of this agreement shall run concurrently with the term of the government contract and all renewals or modifications of the government contract, unless terminated sooner. Upon expiration of the government contract, whether at the normal end of the term or otherwise, this subcontract agreement shall immediately terminate and be of no further force and effect. Any obligation of the subcontractor or prime stemming from services rendered prior to the expiration of termination of this subcontract agreement or the government contract will continue in full force and effect and will survive the expiration and termination of this subcontract agreement."
By the way, in the usual prime contract, the federal government can terminate at any time for any reason or for no reason. The government's right is called "termination for convenience."
Under this kind of contract, the travel agency has no rights once the prime contract is terminated for convenience, except for getting paid for services rendered prior to termination. Since most transaction fees are paid at point of sale, there would be typically little or nothing left to pay you once the contract ends.
For the future, you could try to require client contracts to provide for minimum guaranties or stipulated damages when the government terminates for convenience. You could also propose an amendment to existing subcontracts, as such a proposal would be timely given the current political environment.