You can terminate your contract without the tears
Even good IT deals can go awry, typically through services no longer meeting a customer’s needs, services deteriorating or prices rising over time. But if as a customer your wish to terminate a contract, be aware that this is often a whole project in itself, requiring careful assessment, planning and implementation.
Well before terminating a contract you should consider a number of issues.
First, some contracts can only be terminated for “material breach” or insolvency. If these do not apply, you may find yourself locked into a deal. Even if a contract is terminable “at will” (ie for no contractual default of the supplier), this may be subject to an early termination fee. However, careful examination of the contract (and associated documentation) may reveal other ways out.
How dependent are you?
Next, an overall assessment of the exact basis, scope and price of the goods and services provided and how much reliance you as the customer place upon the supplier is essential. However, contracts signed years ago may bear little resemblance to what is being provided now. Also, deals may have evolved over time without being properly documented.
You should always remember that if you wish to terminate, supplier co-operation is paramount, even with a comprehensive contractual exit plan in place.
You may deal with this in several ways. For example, by issuing a request for proposal to a number of suppliers for future work (including the existing supplier). This process may also reveal that the existing supplier can provide services in tune with all your new requirements. If so, it may be more time and cost effective to re-appoint the existing supplier.
Tales of the unexpected
When agreeing to a new arrangement, remember that special deals may be headline grabbing, but the contractual terms and conditions of a new supplier may contain unexpected catches. And don’t forget that if the new supplier’s deal is a “loss leader” (perhaps to win business in a new sector) then the supplier may need to claw back monies later on.
Assessment of your potential liabilities as the customer is vital. Questions to ask include:
● Will the supplier’s staff dedicated to your account transfer to you (or a new supplier) under the newly introduced staff transfer regulations?
● Will any upfront fees paid be refundable on a pro-rata basis?
● Will you still need to use supplier software after termination?
● Does the existing contract contain confidentiality and intellectual property provisions that prevent you revealing your existing supplier system to a new supplier?
● Will the existing and new supplier cooperate with each other?
So, breaking up is hard to do, especially where the relationship is long standing. However, it can be done successfully provided that you plan and implement the switch carefully.
● Jimmy Desai is a partner in the IT and outsourcing group at law firm Tarlo Lyons
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