Phase 3 What activities should I do in contract closure?
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| What activities should I do in contract closure? |
The table below lists activities that may be relevant during contract closure. Your categorisation of your contract based on the complexity and risk profile will determine which activities you should complete.
| Activities during contract start-up phase include: | Transactional Contract | Routine Contract | Complex Contract | Strategic Contract | |
| Consider and manage contract transition issues (page 42) | |||||
| Complete contract closure activities (page 42) | |||||
| Conduct final contract review (with supplier) (page 44) | |||||
| Consider lessons learnt (page 44) | |||||
Most contracts close because they have been satisfactorily completed, where both parties have completed all their obligations under the contract and/or the end of the term of the contract has been reached. This is often called 'expiration'.
Sometimes you will end a contract before it has been completed. This is called termination of a contract. Terminating a contract early can carry risks - including reputational, business, financial and legal risk. If you are thinking of terminating or ending a contract early, you should seek legal advice before discussing the possibility with the supplier or taking any actions.
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| How can contracts end? Mutual agreement: A contract is the result of an agreement. The parties to a contract can terminate a contract at any time if they all agree on the termination, even if the contract has not been completed. You should keep a detailed record of the exact terms of the agreement to terminate and the rights and obligations of everyone involved. You will need to get legal advice in this situation. Novation: This occurs when a party's rights under a contract are transferred to a third party. This means the original contract is terminated and a new one is put in place with the third party on the same terms. An example of novation might be where a supplier sells its business to a third party during the life of a contract and requests a novation of the contract to the new business owner. In this case, the original contract is transferred to the new business owner (this ends the original contract and creates a new one with the new business owner). You will need to get legal advice before novating a contract. Termination by breach (default): In some circumstances, you may have a right to terminate the contract due to a breach of the contract by the supplier. You should never consider termination as the first or only option when a problem arises in a contract. Termination has consequences - not all of them favourable to the terminating party. You will need to get legal advice in this situation before considering terminating by breach. Termination for convenience: Many Australian Government contracts include a right for the Australian Government to terminate the contract for convenience, after providing notice to the supplier. When this occurs, it is often balanced by provisions that provide compensation to the supplier for costs incurred or costs unavoidably committed at the date of termination. This is a complex area of law and the outcome depends on the circumstances of the case as well as the contract provisions. You will need to get legal advice in this situation before considering terminating a contract for convenience. |
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| Tip - Ending a contract for any reason other than successful completion You should seek legal advice before considering ending a contract through termination. The contract will likely include specific termination clauses, which will set out the circumstances when each party can terminate the contract, the process to be followed, and the result of the termination. Where the termination is due to a default by the other party, many contracts require the parties to follow the dispute resolution and other procedures before exercising a right to terminate the contract. Following those procedures is extremely important. If you do not follow them before exercising a right to terminate, it can result in the Australian Government being obliged to pay damages to the supplier. |
