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Termination clauses have grown in length and in terms of what they require. Even if none are included, there is a right in common law to terminate for fundamental breach.

There are several reasons why you may want to exit a contract: termination for convenience; termination for cause (breach); or the contract could have come to a natural conclusion at the end of its term. It is essential that your contract clearly maps out the process: if you come to an acrimonious end, it is likely that neither party will be able to agree on basic issues, let alone on matters such as co-operation with new suppliers and compensation if the contract does not spell this out.

It is vital for the customer’s business continuity that there is an orderly transition of the relevant services to either the customer or a replacement supplier without any undue disruption to such services. To achieve this, the parties need to recognise that robust and comprehensive exit plans must be put in place.

There are three parts to drafting termination clauses:

• Planning for exit;
• When exit occurs;
• Post-exit.  

Your contract should be clear as to what a termination event is and what the exit plan should contain. Since the exit plan will need to change at various stages during the life of the contract you need to ensure your supplier is maintaining and updating the plan. As the customer, if you want the right to audit the draft plan throughout the term then put this in the contract.

When exit occurs, or is about to occur, it would be good if your supplier had a dedicated exit team for this purpose. How the exit plan is implemented should not be left to chance and a process, including a governance framework, is essential.

An outgoing supplier will have concerns about IPR and confidentiality when providing documentation to a new incumbent. However, arguing about what is to be provided at exit could delay transition and affect your business. Ensure you have obligations requiring your outgoing supplier to assist you with your re-tendering process and also that they co-operate with the new incumbent.

How the outgoing supplier should be compensated during an exit period can be a source of dispute, especially if the contract is being terminated for breach. The exit process could last for some time and you need to be clear about exit rights. You could consider exit milestones to keep the process on track, helping you to frame the parties’ obligations at each step of the process.

There could be employee-related matters and TUPE to consider, with due process to follow. You need to take advice on these matters before you write the contract, not when you are contemplating exit.

The outgoing incumbent should be required to provide details of the capabilities, processes, resources, assets, documentation and other key items used in the provision of the services which will not be handed back by the supplier to the customer or the replacement supplier and/or will have to be sourced or provided by the customer or the replacement supplier to facilitate provision of the ongoing services.

Regardless of whether you have interim milestones throughout the process, you will need clear, objective exit completion criteria. This will prevent disputes and ensure both parties know exactly what is required of them.

Once the old supplier has exited and the new supplier is on board, it is likely you will still need some interaction with the previous incumbent. To avoid being held to ransom or being at the back of the queue when requiring information, make sure you include post-exit obligations in the contract. Bear in mind that you may also require post-exit use of previous supplier’s assets, such as data centres.

Terminating a contract can be costly, lead to litigation and disrupt the customer’s business. Therefore, consider whether just a part of the services could be terminated rather than the whole, and whether you would be likely to undertake any such services yourself or whether you would need a new supplier.

Either way, the previous incumbent would still be providing the remainder of the original services, so consider how this would work for you

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