Question

Describe the concept of "Efficient Breach." Describe when it may be used and its impact on government contracting both from the government's perspective and the contractor's persoective.

Answer 1

In law and economics, the efficient breach is described as the voluntary breach of the contract where the payment of the damages are paid by the party who concludes the same saying that they would incur greater damage of the economic loss if they would perform under the contract. This would make the person terminate the control in the middle and pay for the damages because paying for the damages is better than performing the whole contract.

This efficient breach as mentioned above is performed at those situations where the person is having benefit to breach the contract rather than complete the contract economically. The effect of the same contract on government's projects is that sometimes government doesn't want to complete certain projects because of their costs. Like construction of a building or statue etc. Thus, they pay the damages and the costs for the structure built to the contractor and then breach and terminate the same contract because according to government's perspective, that would be a cheaper and economically better option than continuing the project.