Termination for convenience is like having the other side pick up their football and go home. If you are the seller or service provider, a unilateral termination for convenience can bring a lucrative arrangement to a sudden halt.
Assume you have a deal to provide services to a customer. The Master Services Agreement would set out the terms and conditions and there would be a Statement of Work (SOW) for each project or portion of a project. Now, the buyer terminates either one for convenience:
What were your up-front costs in preparing to perform the services? Are there set-up costs, targeted development, or just costs of deploying resources? In other words, do you incur a lot of costs in the early days in the hopes of having reduced costs when you perform the services down the road?
Did you hire extra people or enter into a subcontract with them? What can you do with those people if the customer terminates early for convenience?
If the customer just cuts off the business on a corporate whim, you will suffer financially.
There are some ways to protect against damage from early termination:
Do not agree to termination for convenience at all.
Insist that the termination cannot occur before a certain amount of the work has been performed.
Set it up so that the buyer has to pay to terminate, perhaps on a sliding scale over time.
Have a long period of notice required before the termination so you have time to adjust and hopefully replace the business.
Early termination by the other party is a serious matter that should be negotiated carefully in any agreement.