Early termination of a contract
Early termination may be possible under two sets of circumstances:
- When it is permitted under the Terms & Conditions (T&C’s) of the contract
- Where there is clear breach of contract.
Termination in line with T&C’s
Termination clauses vary greatly. Supplier-drafted contracts often give the client no right to terminate whilst enabling the supplier to terminate with little or no notice.
Where the Council T&C’s have been used (for example, in a Corporate contract), termination or withdrawal from the agreement may be possible without penalty, in instances such as:
- failure of tests on installation of an IT supply or service
- failure to provide service for more than a specified period
- providing a service that breaches health and safety requirements
- failure to comply with a specified number of default notices etc.
Termination due to breach of contract
If the contract does not contain any specific detail on rights of termination, in order to demonstrate sufficient ‘default’ (breach of contract) to justify termination, you would for example have to clearly evidence that the service was so poor that it was effectively no service at all. Incorrect use could result in litigation so take legal advice before terminating under breach of contract.
Purchaser-drafted contracts usually enable them to terminate to their benefit, or provide them with long periods to remedy poor performance, for example:
- Liquidation or other business difficulties
- Breach of contract which is not capable of remedy
- Failure to remedy a remedial breach of contract within 14 or 30 days
It may be tempting to use the threat of termination as a lever with underperforming suppliers or to negotiate performance improvement. Robust specifications and T&C’s should have addressed these areas. Incorrect use of “breach of contract” to terminate an agreement may well lead to litigation and the resulting costs involved.
Clearly defining within the contract the performance monitoring and escalation procedures will enable a less confrontational positive relationship to develop with suppliers.