The termination process is used to end a legally binding contract between two (or more) parties. (Unless one party has the right to unilaterally terminate,) it is akin to signing another contract to indicate all parties are in agreement to end the current contract ahead of its expiry date. As such, most of the processes involved in drafting and executing a contract applies to drafting and executing Amendments.
Terminations tend to be an exceptional process as no party enters into an agreement thinking they will want to end it early. Normally it will be due to one of the parties being in breach of their obligations and can often escalate to legal action being taken against that party to cover damages incurred.
- Has the company terminated any contracts? Is the process fairly standard or would it benefit from being managed on the platform?
The first design option is whether the system will be used to generate the termination document, or simply to capture termination agreements/notices created off-platform. (This will determine whether a “creation template” is required for termination documents).
The second design option is whether off-platform created termination agreements/notices will be loaded onto the platform post execution or as a draft. If as a draft, then the same processes as for a contract will apply (i.e. negotiation > approval > signature > final capture > activation).
Finally there is the decision on whether to store termination documents on the platform at all. It is possible to simply change the contract status to ‘Terminated’ to affect a termination.
- When Terminating/Expiring a Master contract, all active Order contracts under that Master will also terminate/expire (unless using the status “Terminated with Active Orders”).
- It is possible to change the status of an expired/terminated Master contract back to ‘Active’, however this will not automatically change the status of any Order contracts under the Master contract. If any Order contracts need to be set back to ‘Active’ as well, then the user needs to do so manually
- It is possible to terminate en masse (where this may be required). The use case is typically when multiple contracts need to be superseded with a new version. There is a Mass Action to enable the creation of the replacement contracts in bulk, and then an option to terminate the original contracts in bulk.
Things to avoid
As this process is exceptional, do not spend a disproportionate amount of effort in designing this process / template. There are also minimal reporting requirements around terminated contracts, so avoid over-engineering.