Recovery upon termination: Overview, definition, and example
What is recovery upon termination?
Recovery upon termination refers to what a party can get back—usually money or compensation—when a contract comes to an end early. In other words, if the deal ends before the work is finished, this clause outlines what someone is still owed for the time, effort, or costs they've already put in.
It doesn’t mean you get paid for everything in the contract—it means you can recover what’s fair for the work already done, approved expenses, or materials bought specifically for the project.
Why is recovery upon termination important?
Contracts can end early for all kinds of reasons—disagreements, delays, or just changing business needs. When that happens, you don’t want to be left hanging with unpaid invoices or wasted costs. A recovery upon termination clause helps protect your business by making sure you’re not out of pocket for work you've already completed or costs you've already taken on.
For example, if you’ve done 70% of a job and the other side pulls the plug, you can recover a fair portion of the fee, plus any out-of-pocket costs that were agreed upon. It helps both parties walk away fairly if the contract ends early.
Understanding recovery upon termination through an example
Let’s say you run a small manufacturing company. You sign a deal to produce 10,000 custom units for a client. You’ve made 4,000 when the client cancels the contract. If your contract includes a recovery upon termination clause, you may still be able to bill them for the 4,000 units already produced, plus the cost of raw materials you bought specifically for the rest of the order.
Without that clause, you could be stuck with unpaid inventory and no way to recover your costs.
Example of a recovery upon termination clause
Here’s an example of how a recovery upon termination clause might appear in a contract:
“In the event of termination for any reason other than breach by the Contractor, the Contractor shall be entitled to recover payment for all Services performed up to the effective date of termination, including approved expenses incurred and non-cancellable commitments made in connection with the performance of the Agreement.”
Conclusion
Recovery upon termination is about fairness. It ensures that if a contract ends early, the party doing the work isn’t left unpaid for what they’ve already done. It protects your time, your resources, and your cash flow.
If you’re signing a contract, especially as a service provider or supplier, make sure you include this type of clause. It gives you a financial safety net and helps you plan with more confidence, even if things don’t go exactly as expected.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.