Mr Hockey noted in his budget speech that the government would be abolishing over 230 bureaucratic programs in the coming year. One side effect of a reduction in the size of government, including the abolition or merger of more than 70 government agencies, will be the need to review all contracts between industry program and service providers and the Commonwealth.

Norton Rose Fulbright partner Ben Allen said the federal government may need to rely on termination for convenience clauses in funding and procurement contracts to enable it to scrap some of its programs. These may be a cause for concern for many businesses engaged with the government, which would benefit from an urgent review of their contracts. The government must also take care not to give rise to contractual disputes for wrongful termination if it does not act in good faith or provide reasonable notice periods, among other obligations under the law.

"By their very nature, termination for convenience clauses sit uneasily with the way in which commercial parties do business," Mr Allen said. "The contractual right of the Commonwealth to terminate a contract where other parties are otherwise performing their obligations gives rise to wider policy issues that affect the way in which government and business interact.

"Where a Commonwealth agency gives notice of its intention to rely on a termination for convenience clause, legal advice should be sought in relation to the reasonableness of notice and the legal grounds on which the agency is relying," he said. "Wrongful termination constitutes repudiation of a contract which may give rise to considerable damages for an affected party.

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