Quick Tip #8: Termination rights and damages awards are not the only remedies available
Most contracts will include rights for the worst-case scenario. These are normally a blanket right to terminate the contract and/or claim damages should there be a material breach by the other party. However, looking over the case law in the last 50 years, claiming damages is a remedy that few parties resort to and termination is not always the best remedy for the customer if it does not want to walk away from the contract. Walking away from the contract means the customer needs to go through a new procurement process to find a new supplier or take the services in-house which can be a costly process. If the customer decides not to terminate a contract, it sits with a less than satisfactory supplier and no remedies to improve the supplier’s performance or claim back costs for the supplier’s poor performance.
In light of the above, it’s helpful to also include some practical options to get the relationship back on track or to cater for situations where the parties do not want to resort to termination or a damages claim. Effective alternatives will drastically increase the value and business efficacy of the contract. Often these solutions need to take into account the business and the commercial workings of the deal but some examples worth considering are audit, service level and service credit systems, step-in rights for the customer, repair, replacement or return rights for any defective goods, governance processes to manage the relationship, executive assessment processes, benchmarking or payment withholding mechanisms. These remedies can be both pre-emptive as well as reactive, allowing the customer to exercise prevention rather than just cure. If a lawyer approaches the negotiations with this mindset, the result will more likely be a commercial contract which is far more useful and fit for purpose.
We’ll point out one quick tip in relation to some of these remedies in the Quick Tips to follow.