Managing Your Contracts: Termination

Signing a contract
What do you do when a five-year contract doesn’t last five years? That was the question two NatRoad members recently had to ask themselves.

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What do you do when a five-year contract doesn’t last five years? That was the question two NatRoad members recently had to ask themselves when they found their contracts, with five-year term durations, were lawfully terminated without cause.

Unfortunately, both contracts had a clause which meant their contract could be ended with no cause – one with 30 days’ notice and one with 90 days’ notice.  In both cases the operators had to invest money in systems, processes and training as well as in vehicles that met the contract’s specifications. One of the operators was concerned that this is an unfair practice given the amount invested in the setting up of the contract’s requirements and the purchase of vehicles and equipment to fulfil the contract.

NatRoad will be closely scrutinising the exposure draft legislation on the expansion of unfair contracts law promised by the Federal Government in the second half of this year to make sure it encompasses these kinds of situations.

In the meantime, we urge members to look at the ways your agreements might come to an end –but do so before you sign: one-off agreements may terminate at an agreed date, you may renew an agreement, or either party may choose to terminate it on notice or for cause (breach). It is important to start thinking about the end of any contract so that you can plan ahead and assess the impact on your business before the contract comes to an end.

We advise you to evaluate whether the contract provided you with sufficient revenue and decide whether you want to renew or seek changes. You should assess whether your staff and subcontractors need to be aware of termination and renewal dates and that you have enough time to consider all the information about the way the contract has worked for your business before you get locked into any decisions about renewal.

Once a contract ends, there are still actions to take to ensure that the process is as smooth as possible, including highlighting the provisions that continue in operation even though the contract has ended (for example, we recently saw that one contract limited all claims, including those made after termination, to a period of 12 months from the date any claim arose). This process should include ensuring termination conditions have been met (e.g., return of livery items; processes in place to maintain any confidentiality requirements), issuing or paying final invoices, and ensuring you safely store the contract with the ongoing conditions highlighted. It is also useful to perform an analysis of the good or the bad that arose under a particular contract. This exercise provides valuable insights into how to improve the results of future contracts.

NatRoad helps members put in place written contracts on a fee-for-service basis.  We also assist in helping members understand the contracts that are presented to them as part of a tender process or often on a “take it or leave it basis”. We also help members where there are disputes under contracts, often helping members refer these issues to external lawyers.

For a review of your existing contract, or drafting a new contract, call one of NatRoad’s member services advisers on 1800 272 144.