Contract Terminations and Amendments
Contract termination or amendment needs can arise from the same circumstances, usually driven by one or more changes. The need to terminate or alter an existing agreement can often hail from external forces, beyond the business owner’s control. External forces include changes in technology, changes in the marketplace itself, or social changes. Internal changes can also render existing contracts less effective in their current state. Examples of internal changes can include business expansion, increased sales, or the need to contract current business operations.
Whether or not your current contracts should be, or can be, terminated, amended, or otherwise altered, depends on the language within the contract itself. After that initial evaluation, other factors that should be examined also include both internal and external business forces.
Internal Forces Driving Contract Terminations
Internal factors that will drive change include business processes, practices, and procedures. Over time, most people will find more effective ways to accomplish similar end results. Once new processes and practices are established, they might be better served by alterations to the relevant supporting contracts. Every business has both long- and short-term plans, but the timing of those plans doesn’t always cooperate on predetermined schedules. To preserve, and better serve, your business plans, its often more effective to initiate certain alterations well in advance of needs.
External Forces Driving Contract Terminations
The first example of an external force of change is usually the marketplace. Competitors arise, new technology is developed, and a wider variety of alternate goods and services becomes available. In light of such changes, most business owners first direct their attention to customer retention, but one shouldn’t stop there. Remembering that every business is also a consumer, first and foremost, often lends better long-term results. Any change that will result in changes to your customer base will likely also impact your supplier’s customer base. They’ll want to retain you just as much as you want to retain your customers. Strategic planning and early adjustments to existing contracts may yield a more fluid response to changing customer wants and needs.
The relationships you maintain with everyone in your supply chain, both up and down, can often be improved or enhanced by strategic contract terminations and amendments. For example, a rocky history with a supplier may be set on an altogether different course with a contract change. Sometimes a mutually beneficial contract termination, replaced with an alternate arrangement between the parties, produces a more positive working arrangement. Certain histories between parties may mandate a complete contract termination to enable both parties to productively move forward. And finally, a lack of competitors in the market space should create greater incentive for preserving the party’s relationships.
The first step of any contract termination is to determine what type of contract termination you might be faced with.
Contract terminations generally fall into one of three general classifications. First, contract terminations may occur “naturally” on a pre-determined date or after a pre-determined time period has lapsed. Other contract terminations may provide an “option” to terminate the contract early with a specified written notice period. And still others allow for contract termination for “cause”, which usually means one or more provisions of the agreement have not been adhered to.
An experienced business attorney can help you determine which of the contract termination classifications your agreements fall into. Attorney assistance is critical for proper contract termination notices to ensure that all of the requirements are properly met.
When an existing contract is no longer meeting the needs of the parties involved, it might be time for a contract amendment. Typically, the need for a contract amendment arises when a change or two has occurred, but not always. Examples of internal and external changes that can drive contract terminations may also drive contract amendments and are listed above. You may need to merely modify earlier, original terms that aren’t currently functioning as originally anticipated and designed. Once your business is established, you may need to alter your supplier agreements to increase or decrease quantity set points. You may need to change billing practices, invoicing procedures, or documentation provided by your suppliers to meet your customer demands. Many business irritants can be eased by proper contract amendments and modifications, whether those contracts are internal or external.
It’s important to discuss your business ebbs and flows with an experienced business attorney to determine options available to you. Attorneys are experienced and trained in a wide variety options many business owners are not be aware of.
Should you want to explore any areas an experienced business attorney may help you solve problems, please call Susan Larsen today.