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Termination clauses

Either for convenience or for cause, include a notice to the supplier but do not set forth the structure to unwind the business relationship. In fact, these clauses may provide incentives for the supplier to “dump and run”, stripping resources from the project long before their work is transitioned to the customer. In such cases, services may be seriously disrupted, end users or customers negatively impacted, and costs significantly increased. Although dump and run generally leads to an un-referenceable account (and commensurate harm to the supplier’s reputation) it is not uncommon in situations where a relationship has soured to the point of early termination.

Best Practice

A best practice to help stave off this scenario is an SLA that places the supplier’s last month’s payment for all products and services at risk if they do not follow the exit management plan and satisfactorily meet all exit requirements. Combined with sound risk management and exit planning, this can reduce service disruptions during the transition.

A best practice would be to develop the exit management plan during contract negotiations and include the plan in the contract as an attachment or schedule. It is far easier to work through an exit management plan at the beginning of a relationship than when the parties are in heated debate and termination is imminent. However, the parties rarely, if ever, realize they will need a formalized exit plan until all other dispute resolution efforts have failed to set the relationship on the right track again. Therefore, the contract professional may be developing the plan in collaboration with her/his leadership. In that case, the contract professional would document the exit plan and facilitate the contract closeout in collaboration with the contract manager, or other related title/role.

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