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How to End Contracts Without Ending Business Relationships

Companies with sizable contract portfolios will regularly enter into, revise, renew, and terminate their many contractual agreements. Sometimes contract terminations occur under less than ideal circumstances, but that simply comes with the territory. However, just because a contract between two parties must come to an end, for whatever reason, this does not mean that the business relationship must completely end along with it. In fact, it is always wise to maintain cordial relationships with business partners, as situations may change such that a revival of the partnership is in order. Here is how to end a contract without ending the business relationship:

State the Facts

Keeping things civil among the parties is of the utmost importance to preserve the relationship. Even if the reason for the termination is related to one party’s frustration with performance or perhaps because there were negative financial consequences, it is never a good idea to point fingers or try to pin the blame. The best course of action is to simply focus on the facts of the situation that support a termination of the agreement.

For example, the termination may be necessary because of incompatible business goals, differing interpretations of the contract’s objectives, or some other facet of the relationship that simply does not make commercial sense. There is no need to disparage the individuals involved or identify all of the shortcomings. A brief explanation that the agreement is no longer meeting one or both party’s business objectives ought to suffice.

Highlight Key Figures

In addition to sticking to the factual basis for termination, it is sometimes helpful to highlight the financial figures of the deal that are flawed and thus warrant a termination. Again, this should not become a heated discussion with regard to who failed to do what and whose bottom line suffered more. Instead, the parties must objectively analyze whether the agreement is in fact mutually beneficial financially-speaking, and when it is no longer so, they should both be willing to walk away politely.

Of course, this financial assessment also does not need to delve into every single mathematical calculation related to the contract. Instead, an overall evaluation of the contract’s economic limitations is reasonable to demonstrate to everyone involved the reasons that the arrangement is no longer financially viable.

Tie Up Loose Ends

In some instances, one or both parties will be eager to get out of the arrangement as quickly as possible. This may work in some situations, but it is not right to leave another party in an awkward or potentially costly situation. All remaining matters must be handled appropriately and professionally with all loose ends tied up as neatly and quickly as feasible.

Working with everyone to facilitate a seamless closure will ensure that all parties leave fairly unscathed, and the companies will not gain a reputation for bailing on their obligations prematurely. Thus, fulfilling all responsibilities until the very end will preserve the existing relationship, as well as the parties’ reputations within the industry.

Stay Connected

Of course, once the reasons for termination have been discussed and all of the remaining issues have been settled, there is no reason to cut off all communication going forward. As previously mentioned, the business climate or company circumstances could change such that a new round of contract negotiations will become necessary or desired.

It is no secret that a huge facet of succeeding in business results from utilizing one’s resources and professional network, as well as employing dedicated legal technology such as CLM software. Consequently, it would be foolish to just write off certain people or companies because of a less than perfect experience. The goal is to learn from such failures and take steps to ensure that these mistakes are not repeated.

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