Contract Termination For Convenience

Termination for convenience is like having the other side pick up their football and go home. If you are the seller or service provider, a unilateral termination for convenience can bring a lucrative arrangement to a sudden halt.

Assume you have a deal to provide services to a customer. The Master Services Agreement would set out the terms and conditions and there would be a Statement of Work (SOW) for each project or portion of a project. Now, the buyer terminates either one for convenience:

  1. What were your up-front costs in preparing to perform the services? Are there set-up costs, targeted development, or just costs of deploying resources? In other words, do you incur a lot of costs in the early days in the hopes of having reduced costs when you perform the services down the road?

  2. Did you hire extra people or enter into a subcontract with them? What can you do with those people if the customer terminates early for convenience?

If the customer just cuts off the business on a corporate whim, you will suffer financially.

There are some ways to protect against damage from early termination:

  • Do not agree to termination for convenience at all.

  • Insist that the termination cannot occur before a certain amount of the work has been performed.

  • Set it up so that the buyer has to pay to terminate, perhaps on a sliding scale over time.

  • Have a long period of notice required before the termination so you have time to adjust and hopefully replace the business.

Early termination by the other party is a serious matter that should be negotiated carefully in any agreement.

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