FAQ: How Do I Terminate a Contract?

Question:

I’ve never had to terminate a contract before, and our policy really doesn’t give any guidance. As I embark on termination, what are some things I should keep in mind?

Answer:

Terminating a contract is a very serious legal step, so you should consider involving your manager and/or legal counsel.

Many procurement policies have this requirement, particularly for larger or more complex contracts.

Make sure that you have adequate documentation of the problems you have been encountering, linked directly to the contract requirements.

You can only hold a contractor to its clearly defined contractual obligations, so if your contract is very weak, you may have no legal leg to stand on.

You should be able to demonstrate that you have given the contractor ample opportunity to correct things, and that you continue to receive substandard performance.

Document in writing every step that you take and, of course, look before you leap. In other words, consider the implications of termination: are there other contractors or suppliers out there that could step in? Could termination result in disruption to users of the service or recipients of the goods?

Perhaps your internal staff can fill the void until a new contractor is hired.

Never terminate a contract without a plan B – particularly for critical services or integral components of a larger project.

Readers are cautioned not to rely upon this article as legal advice nor as an exhaustive discussion of the topic or case.  For any particular legal problem, seek advice directly from your lawyer or in-house counsel.  All dates, contact information and website addresses were current at the time of original publication.