Written by Roxanne Chow

No one wants to start a new supplier relationship by discussing what happens if a service contract terminates. Everyone’s busy getting the service off the ground, and no one wants to upset goodwill by talking about breaking up. However, lawyers specialize in “what ifs”, so this comment will look at how customers should tackle exit and termination assistance issues at the outset.

Before the provision of services begins, it’s difficult for a customer and supplier to know exactly how an exit will work, but it’s best practice to have agreed in the contract the high level principles as to what the termination assistance services will need to include in the future, for example:

  • The process for developing an exit plan
    • The date by which the supplier is expected to provide a draft exit plan (typically this is within weeks or months of contract signature)
    • The escalation process if the parties cannot agree the draft exit plan, including timescales for resolution
    • The process for finalisation of the draft exit plan when exit is actually triggered
  • The content of the exit plan
    • The preparatory activities to be carried out by the supplier during the term of the contract and prior to exit being triggered (such as maintaining the asset and IP registers, updating and maintaining the draft exit plan, supplier cooperation with the customer’s tendering process for a replacement supplier, etc.)
    • The activities to be carried out by the supplier once exit is triggered (such as the supplier’s provision of its operational and personnel information related to the services, procuring the assignment or novation of any third party contracts, knowledge transfer by the supplier to the customer or a replacement supplier including job shadowing, service migration activities)
    • The customer’s responsibilities which will enable the supplier to carry out termination assistance
    • The management of termination assistance; for example, will there need to be a dedicated supplier team? Who will be the main contacts for each party during exit?
    • After-care, such as the continued provision of information and assistance to the customer or replacement supplier after services have been migrated
    • Setting out a process for agreeing the exit plan on exit and expediting termination assistance in an emergency situation
    • The anticipated duration of the termination assistance activities, and what happens if termination assistance extends beyond the termination date of the contract
  • How termination assistance activities will be charged
    • Whether the charges for termination assistance activities are built into the charges for the services during the term, or whether there is a separate charge for termination assistance activities
    • Whether there are any activities that can be carried out within a fixed fee
    • Which activities will be payable on a time and materials basis
    • Whether payment for termination assistance is linked to any milestones in the exit plan

If you have a rough outline for exit from the start, it will be easier for the parties to figure out what each needs to do during the term of the contract with respect to preparing for exit and activating the exit plan, and provide more certainty as to what costs and charges for termination assistance services may be incurred in future.