6 things to consider before terminating a contract

When people enter into contracts they rarely think it will go wrong. They want to believe that everything is going to go well. There is a high degree of trust. That’s why experienced business people involve lawyers. Experienced lawyers have seen have contracts can go wrong. So they can advise their clients about the risks that they run.

Even so, many contracts and agreements are put together without a great deal of thought going into what might to wrong. The termination provisions are often hidden in the standard terms of the contract. Or buried at the end of a long agreement.

Knowing what needs to be delivered

Agreeing a contract usually is the last stage of a sales process. The seller has hopefully done a good job of persuading the buyer that the product or service that is being bought is the best on the market. A great deal of time will also be spent on agreeing the price.

Often though the description of the product is ill defined. The description might also change after the contract is formed. So when things go wrong, it usually because there is a dispute about what was meant to be delivered.

When the issue of termination of a contract comes up, it is usually because the contract is for the provision of goods or services over a long period of time. Over that time people move on, technology moves on, and requirements can change.

Operating the contract

It is often said that once the contract is signed, it is then tucked into a drawer and never looked at again. That is precursor to problems. Because the buyer and seller want to see the relationship work, they will adapt what they have agreed to do, or they will waive aside small failures.

So what do you do when one side has had enough and wants to terminate the contract?

1. Read the contract

It sounds obvious, but get the contract out and figure out what you have agreed. It might not be what you think it is. What you had in your mind might not match the ideas you had in your head.

Get someone else to read the contract, preferably not the lawyer who helped you draft it. A fresh pair of eyes will help pick out ambiguities that might not otherwise have been seen.

2. What has gone wrong

The fact that you are worrying about a termination notice suggests something has gone wrong. If everyone was happy then there would be nothing to worry about.

Are you clear on what the contract called for in the technical specification? Are you clear that it has, or has not, been delivered? Get someone to challenge your complaints. What you regard as a material breach of contract might in fact, when viewed objectively, be trivial. If you are too close to the project, get someone else to look at it.

3. Can it be fixed?

Most contracts will have a clause or provision that allows the party in breach an opportunity to remedy the breach. Think carefully about the nature of the breach and consider whether the breach can be remedied.

4. Think about timescales

When things go wrong it can be important that you check the contract quickly. Some contracts have terms that say that a failure or breach or complaint needs to be notified within a particular period of time. If that is the case, then write it down and send it off to the other party.

Don’t react too quickly. The contract might have a term that allows a period of time for the breach to fixed. If that is the case then, while frustrating, that opportunity should be given.

There might also be a dispute resolution process that needs to be triggered for certain kinds of problems, meaning that termination is not an option.

5. Is there is a dispute resolution process?

In many contracts where will be a dispute resolution process that should be followed before termination. This might be simple arbitration clause that doesn’t after termination rights, or it might be a complex escalation process that goes from a meeting of project managers to a meeting of the chief executives to mediation and only then arbitration.

Insisting on this process can be a useful way of getting people who had stopped speaking to get back to resolving the problems that they had.

6. Send the notice of termination to the right person

Assuming you have negotiated the contract, identified what has gone wrong, and gone through the dispute resolution process, then it’s time to send the notice. A final check is to make sure that you send it to the person or organisation identified in the notices clause.

If you have a concern about bringing a contract to an end, or have received a notice of termination, we would be happy to discuss how we can help you through the process.

Get in touch with:

John MacKenzie – john.mackenzie@shepwedd.com

Claire Stockford – claire.stockford@shepwedd.com

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