- 1. Contracting in the Public Sector
- 2. Developing the Contract
- 3. Formalising the Contract
- 4. Entity Arrangements for Managing Contracts
- 5. Managing the Contract
- 6. Ending the Contract
- Managing the contract checklist
- Example contract management plan for simple procurements
- Example contract management plan for large/complex procurements
PDF version of guide [1.4MB]
PDF version of insert [207KB]
The following is a summary of the various ways contracts can be ended.
Mutual agreement: occurs when the parties to the contract mutually agree that they no longer wish to continue with the performance of the contract. Where it is in the interests of both parties to end the contract without all obligations being complete, it is important that relevant policies, authorisation requirements and procedures are followed. In the case where a clause to allow contract termination by mutual agreement is not included in the contract, this may need to be negotiated. It must then be agreed and documented in accordance with legal and policy requirements. Ending a contract by mutual agreement may also arise as a negotiated settlement or compromise reached to settle a dispute between the parties.
Mutual discharge: occurs when both parties agree to cancel the contract while both still have unperformed obligations under the contract. In this case, the promise of one party to abandon rights under the original contract is given in consideration for a similar promise from the other party.
Release: occurs when one party has completed all their obligations under the contract but the other party has not. A release by the party that has performed all its obligations amounts to a unilateral discharge. Generally, a release will be in the form of a deed, supported by further consideration by the party still under obligation.
Accord and satisfaction: occurs where one party has performed their obligations and the other has not. The defaulting party is relieved of their obligations in return for doing something that they were not originally bound to do.
Waiver: occurs where one party leads the other to reasonably believe that while strict performance can still technically be demanded, it will not be insisted upon. The most common example of this is where a buyer or seller of goods agrees to defer the delivery date at the request of the other party.
Novation or substitution: occurs when the parties wish to continue the contractual relationship but on different terms to those in the original agreement. Generally, substitution is used where there are continuing liabilities whereas novation is used where a new contract replaces the old contract, bringing old liabilities to an end.
Frustration: occurs when the obligations of one or more of the parties become impossible to perform. This can be the result of an unforeseeable event that changes the initial position of one of the parties. The law provides a very narrow definition to the operation of frustration and the events should be so severe as to make performance of contract provisions;
- legally impossible;
- practically impossible; or
- radically different from the initial agreement.
In practice, ending a contract through frustration is rare and contracts should contain clauses to deal with unforeseen events.
Discharge by breach (default): can occur in a number of ways, including late delivery or failure to meet quality standards. An actual breach occurs when a party fails to perform all or part of the contract by the due date. An anticipatory breach occurs when the threatened non-performance would substantially deprive the innocent party of substantially the whole benefit that was intended to be obtained from the contract.
The occurrence of some breaches allows for the contract to be terminated but this is not automatic. For termination to occur the breach should be so serious that future performance of the contract becomes impossible or is so fraught with difficulty so as to warrant the ending of the contractual arrangements.
Damages are the usual remedy for terminating a contract for a breach and are made on the basis that the breach can not be adequately compensated by a single payment of money.
Repudiation: occurs where one party intimates through words or conduct that it does not intend to perform its obligations under the contract. Where the other party communicates acceptance of the repudiation, the contract is at an end and the accepting party can claim damages.
Termination for convenience: occurs in certain circumstances, after giving suitable notice, to terminate a contract for the convenience of the acquiring entity. Careful consideration should be given to exercising this clause. Whether a particular exercise of the rights under this clause is justifiable in law will depend on the circumstances of the case and the precise drafting of the clause. Termination for convenience provisions usually provide for the payment of compensation to the contractor of the costs incurred or unavoidably committed at the date of termination.
In all the above cases, an important point is that ending the contract needs to be fully documented. Normally the agreement to terminate will be given effect by provisions of the original contract, by a deed of termination or by a written settlement that sets out the basis for termination, including any payments owing, and settlement of any outstanding claims or actions.
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