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End of contract

It’s inevitable that contracts end, but how do you effectively end a contract? Learn more here. 

How contracts terminate

Contracts are an important part of any organisation; they are legally binding agreements that set out obligations for all parties to adhere to. However, contracts do terminate. If this happens, you’ll need evidence that the contract has been completed to the satisfaction of all parties involved. This is usually carried out in two stages:

Stage 1:

Make sure that there are no outstanding matters

  • Ensure all administrative matters are completed
  • Record that all technical issues have been completed
  • Determine the extent of any liquidated damages to be deducted from the contract price
  • Record the end of the retention and guarantee periods and the date of the contract
  • Final inspection carried out
  • Record the date of release of retention and/or bank guarantees
  • Agree a statement of specific limits on continuing contractual obligations after completion of work
  • Transfer any assets, including data and intellectual property, and any loan items
  • Transfer operational systems to the successful supplier
  • Record the process of final contract payments and a summary of the financial payments and received
  • Summarise claims made against or received from the supplier

Stage 2:

Secure agreement from the suppliers that, apart from any agreed ongoing liabilities, that contract has ended.

  • The agreement requires a written signature of the parties which records the acceptance of the work or service, obligations fulfilled, and the price paid.
 

Common reasons to end a contract

There are many reasons why you may choose to end a contract, even if you do have a successful contract management process in place. Some of the common reasons are listed below.

  • Performance: This is the contract running its course. The other party completes their work and gets paid, and the contract is performed.
  • Agreement: All parties agree to the end of the contract. Sometimes, the contract may state it can be ended by giving written notice and how it can be terminated, if these things are followed, the contract is ended.
  • Breach of contract: The non-breach party has the right to terminate the contract when the other party does not deliver what was laid out in the contract.
  • Law of frustration: Contracts change which means the performance requirements do too. These can be impossible to perform, meaning the contract is terminated.
 

How to avoid a costly dispute

The best way to avoid a costly dispute, is by having an effective contract management strategy and process in place to begin with. Disputes can be expensive, especially if they end up going to court. However, here are a few tips that will prevent it from getting that far:

  • Clear written contracts: This one may seem obvious but making sure all parties understand the contract and obligations is important. It helps to minimise the risk of disputes in the first place, whilst protecting the business.
  • Dispute strategy: Disputes can be inevitable but having a strategy in place to deal with them will save time and money. You should manage your disputes by negotiating a resolution, with the end goal of maintaining a healthy working relationship. This will help to minimise any disruption within your organisation if you cannot agree.
  • Good communication: Soft skills are vital for procurement professionals to manage contracts effectively. Making sure you can communicate feedback to your suppliers if something isn’t right will help to deter a dispute.
 

CIPS Contract Management Cycle

Our Contract Management Cycle is used to create a smooth end-to-end process, ensuring optimum scoping, planning, managing, and reviewing are taken place at the right time. Find out more about the Contract Management Cycle

Contract management key themes

Contract management Contract Terms Strategy
Benefits Breach of contract Contract performance

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