Contract termination refers to the termination of an active contract (per the terms and conditions agreed upon by both parties) before it has been completely fulfilled. Contract termination lifecycle management refers to the step-by-step management of the contract termination process.
If a contract is terminated before the parties have fulfilled their obligations, the requirement to fulfill them is null and void. But remember, you must execute contract termination carefully to avoid lawsuits, missed obligations, and other legal repercussions.
Contract Termination Lifecycle Management - A Comprehensive Process
Organizations require tools to detect underperforming contracts and develop a contract authoring process that includes templates for legal notice of termination and a dynamic clause library. In addition, you must take steps to establish a more sophisticated contract termination process that provides valuable insight to make improvements in the future. As a response, here is a three-step process that will streamline your contract termination lifecycle management.Â
Step 1: Find Contracts That Miss Performance Objectives
Organizations can monitor missed delivery and payment milestones depending on when a counterparty should have made a payment or delivered a product per the terms and conditions of a contract. This process can be improved by using a solid contract management solution that allows organizations to set up automated contract workflow updates for users if payments and deliverables are not received by the due date.
How to achieve rising levels of contract KPIs by measuring key metrics using Contract Management Analytics Dashboards?
A graphical dashboard focusing on contract KPIs can compare contract performance to the previous years. You may also compare the current year's contract and budget numbers to those of the prior year. Furthermore, you may display all the following prominently:
- The overall number of contracts in your system,
- The number of open contracts (tasks to be completed),
- The number of contracts pending,
- The contracts likely to expire within the next 30 days
Moreover, thanks to tools that display contracts by contract type, department, and contract stage, one can quickly identify how broad an organization's contract portfolio is.
Step 2: Draft a Letter of Contract Termination
Organizations can use termination templates from the template library of their contract management system. For example, they can insert essential information into a contract termination letter using contract data field placeholders. A dynamic clause library can assist organizations in putting in legal clauses (such as those describing early termination fines) as needed.
The option to email a contract termination letter as a templated email from within a software system to external users simplifies and streamlines this process even further. As a result, firms will not have to waste time honoring contractual obligations which may cost them money, harm their reputation, or divert their attention away from more profitable contracts.
In case of a breach of contract, how to write a contract termination letter? Download Sample Here>>
Step 3: Promote Financials Tracking and Proper Contract Closeout
Contract management solutions can assist firms in facilitating effective contract closeout while generating valuable data to support the wellness of future contracts at contract termination. Contract managers can also use financial tracking systems to keep track of previous transactions.
Read More: Are Your Vendor Contracts Due for Expiration?
In addition, organizations can compare the budgeted amount of a contract to the incurred cost, available budget, and the percentage of budget utilized. Contract managers can also export these financial statements to a spreadsheet for further analysis and calculation.
What next?
Things do not always go as planned. This holds true for contract termination lifecycle management as well. Perhaps an organization is unhappy with how contract obligations are met (or are not being met). Maybe they no longer require a counterparty's products or services. In any case, a contract termination notice makes it abundantly evident to all parties concerned that a contract has been terminated. However, contract termination should not be limited to a notice of termination.
Now that you've learned how to save time and money by performing comprehensive contract termination with the help of contract management solutions, it's time to seek the services of Aavenir Contractflow to get complete visibility on your contracts with a single source of truth across your entire organization.
