Cancelling a Contract: When All Else Fails


Cancelling a contract is a drastic step, but sometimes it has to be done. The agency has expended time and money with the vendor for a particular product and things just are not working out. Remedial steps of having regular status meetings with the vendor, amending the contract and making specific work plans to address the deficiencies on the part of the vendor have all failed to rectify the problems. The contract must be terminated.

Agency contracts all contain standard termination language which outlines the specific steps that must be taken to end an agreement. In cases where the vendor behavior is outrageous and clearly falls into the category of immediate termination, it is relatively simple to work with legal counsel to end the contract. These cases usually require quick action on the part of the agency, close consultation with the agency’s legal counsel and at times, work with the agency’s communications or public relations department to explain the contract termination to the public. These situations, while extremely serious, are very clear cut reasons to terminate a contract and the termination is not as challenging as contract terminations with notice.

Terminating a contract with notice for reasons that are more subjective is more difficult. In this situation, there is more room for the vendor to complain about or to challenge your decision. Others at your agency, including senior management and elected officials may also challenge the decision. Due to the subjectivity involved in terminating contracts with notice, documentation from the regular status meetings and the work plans designed to address the vendor’s deficiencies, as well as buy-in from senior management and other stakeholders are key.

During the term of any contact, documentation is very important. It becomes even more important when difficulties arise with a contract. From the first inkling of serious problems, begin documenting every issue with the vendor in a separate electronic or hard copy file. Be sure to document issues tied to specific requirements in the scope of the contract and for which the agency has requested specific remediation in a well defined timetable. In the communications, agency expectations should be very clearly spelled out. Emotion and subjectivity should be kept to a minimum. While these are human reactions to the upheaval created by a failing contract, they can be used by the vendor to negate or refute substantiated claims of poor performance.

Ultimately, be sure to have senior management and elected officials briefed about any decision to cancel and on board with the decision. Angry vendors often begin making phone calls to senior leaders as soon as a contract termination notice is received.  In order for the agency to receive the most possible support, it is important that all officials who may be involved in the fallout be briefed. A pre-termination meeting with agency staff and senior managers or a clear email explaining the situation is advisable. The agency is best served by having a united front in the case of a contract termination.

Following a contract termination for any reason, it is important for agency staff to debrief. This debriefing allows the agency to glean the maximum amount of knowledge and benefit from a bad situation. Debriefings usually take place in the form of a single meeting where all issues and failure points of the contract are discussed. There is a lot for agency staff to learn from a contract termination, including how best to write specifications in a new RFP, what to look for in RFP responses and interviews, more efficient contract management techniques and when and how to involve legal counsel. This learning helps to make the most of an unsuccessful contract.

Carolyn Ninedorf is part of the GovLoop Featured Blogger program, where we feature blog posts by government voices from all across the country (and world!). To see more Featured Blogger posts, click here.

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Eva Fulton

excellent points! the devil is in the details. I used to be a contract specialist with other agencies and once had to terminate for convenience of the government (office closure). Contractor swore it could charge the agency for removal of equipment and ran it up through their legal chain only to find out I was right. If they had only listened and read then they would have saved themselves some time and effort. Basically, I learned to know what is in the contract wording and how to get out of it if need be no matter what the reason.

Mindy Giberstone

Terminating for Cause is a dance – many times we end up with Terminating for Convenience once the lawyers are done. Were are notices proper? Reasonable? Is there a negotiated outcome less severe that benefits both parties…..