I’m often asked about termination clauses in contracts. Unfortunately, if you’re in the middle of an existing contract and decide you “want out”, your options may be limited, depending on how much thought was given to the termination language when the contract was constructed. Let’s look at what sort of things you should consider when entering into a contract.
The 5 Vendor Contract Items to Consider
If you’ve been reading our information for the past year or so, you know that I often say that it’s not easy to enter into a new contract looking for a way out.
But, I always use the analogy of the safety briefing you get on an airplane – the chances of needing to execute the safety procedures are infinitesimal but absolutely vital to know. You need to know how to quickly exit if needed.
The same thing is true when contemplating a contract.
- Make sure that both your institution and the third party have a solid understanding of what each other’s responsibilities are from a contractual standpoint. Include termination steps and what happens to your confidential information after the contract ends. Don’t just accept the off-the-shelf, or “we have everyone sign this” contract.
- Define carefully what the notification period will be if you choose not to renew the contract.
- Define what steps may be in order if you need to quickly exit the contract. A couple of common example situations are in the case of some sort of contractual breach by the third party, such as a failure to live up to the standards in the contract, or an imminent financial failure of the third party.
- A well-written and negotiated contract is a “win/win” for both parties with mutual responsibilities and protections. Neither party should feel trapped by the contract. At the same time, if things go poorly or if you simply don’t want to renew, you should have clearly articulated the steps that need to be taken, in what order they should occur, the appropriate time frames established and the costs associated (if any) with terminating the agreement.
- Get a contract expert (e.g., attorney, paralegal, expert contract administrator, whomever you can call upon) to review all elements of the contract to make sure that it is accurate and enforceable.
Done well, contract management can be a real advantage to your institution by carefully crafting agreements that protect you and your vendor from both a regulatory and a business standpoint.
For more contract help, download our 5 biggest vendor contract management mistakes infographic.