If you have reasonably used the primary means to improve the performance of your supplier and have come to the conclusion that you have no choice but to terminate the contract with the supplier, you must prepare an exit plan. As part of this plan, you may want to consider the following delivery vendor termination letter as a starting point for your thinking: 

Any formal communication with your strategic supplier confirming termination is a very important step. You must ensure that your conduct, evidence and termination procedures conform to the written terms of the contract. If your termination procedure is not harmonized, your strategic supplier can claim that you have wrongly rejected the contract (ie failed to fulfill your obligations). This could open you up to a claim for significant financial damages. 

Protect your organization, workplace and reputation. Click here to read these very important 10 steps before terminating a supplier relationship.

Obtain appropriate legal advice. Before using this vendor termination letter template, please seek formal legal/commercial contract advice. Unless we (Best Practice Group plc – BPG) provide this advice, we (BPG) cannot accept any liability for the use of this template.

Terminate the contract following the formal process. You should follow the formal escalation termination procedures and clauses outlined in your written contract before terminating for breach. If you fail to follow these processes, the opposing party may accept your termination process and termination letter as either (a) invalid or (b) wrongful repudiation of the contract by the court. As a result, the opposing party does not consider your termination of the contract to be justified, but accepts it on the condition that you compensate them for the early termination of their services. Therefore, if you are terminating the contract on the basis of believing you are entitled to some form of compensation, or you simply want to get out of the contract without paying any further service charges, your claim is likely to fail unless you follow the appropriate process in your written contract.

• Before action, a letter. In accordance with your written contract, any termination letter must usually be preceded by a ‘letter before action’. Typically, this letter outlines:

1. An overview of the service procurement process,
2. Your material expectations,
3. When those expectations have not been met and the vendor has breached your contract,
4. In order to rectify those breaches, you would like them to:
5. What they should do to remediate the problem, and,
6. How long you will give them for each breach. Your contract should specify the timescales for remediation.

 

• Process of terminating. It is usual for contracts to include terms that define the timing and process for terminating an agreement in case of a breach. Providing legal and commercial contract advice can help you determine the timing, process, and issues that may arise as a result of early contract termination.
• Evidence of sending/receiving. Ensure you have evidence that your termination notice was both sent and received. Such a notice is often denied by the recipient. Additionally, using a third party to send the notice for you will provide you with additional proof that the notice was sent.
• Prevent surprises when the letter arrives ‘cold’. Normally, the key stakeholder in larger and more complex vendor relationships would need to be informed about the termination of the partnership before you send the confirmation letter. In contract terms, a termination letter is essential, but it can also be considered a confirmation of your conversation with the vendor.
• Describe the contractual aspects. Similarly to the example above, it is important to include specific clauses in your letter that deal with termination for breach. The BPG can assist in identifying not only the direct clauses, but any others that may have a material impact on termination.
• Cite the ‘letter before action’ correctly. As noted above, most escalation processes within written contracts recommend a ‘letter before action’ be sent to the supplier. In this letter, specific details and evidence of the breach should be provided, as well as a timeframe for remedying the breach. To avoid any misunderstandings and/or accusations that you haven’t followed the termination process you both contractually agreed to, your ‘letter before action’ must be correctly referenced within the termination letter. In this letter, BPG can answer any questions you may have regarding how to accurately describe the process and the actions you want the supplier to take.

Conclusion

Your strategic vendor will be able to understand that it will cost them more to resist the termination and exit than it will to comply, agree and support the process if you present your arguments clearly, with solid and independently validated evidence. In terms of formal termination, always seek independent and qualified advice and align your exit strategy with the written contract terms.