Drafting a contract termination letter starts with the basis for the termination and making sure that the underlying reason for the letter does not breach the contract.
The decision to terminate a contract can arise from several situations that include: employment terminations, breach of contract situations, terminating services, construction performance and other contractual obligations.
Drafting the Termination of Contract Letter
If you are the one drafting the termination letter, you should use your company letterhead only if it is the real party to the contract. Although contract terminations are not pleasant, you always want to keep a professional tone to your letters.
Prime contractor and seeking to terminate a subcontractor: Your contract termination letter should definitely refer to the termination clause of the contract itself. This lets the other party know the legal basis for the termination. Another point to consider is that you should also point out facts leading up to your decision to terminate. This can be extremely critical when the other side does not agree and then initiates litigation.
Allowance for Cure: In the event of a breach, and before actually issuing a termination of contract letter it is also good practice to give the other side an opportunity to cure the problem. Not only does it minimize litigation cost but it also allows each party to get what they each contracted for.
- If you send out a contract termination letter, you should also state your expectations in clear language. In the event of a cure notice, you may want to tell the other side when you expect any corrections to be made. Then you may warn them that if the terms as not complied with by a certain time stated, then you would be issuing a termination of contract letter on a specified date.
- A termination letter should allow the other side to clarify any of your misstated facts.
- You should never threaten the other side with litigation without giving them a chance to clarify.
- Facts are Important
- Keep Communications in Writing
Dealing With a Government Contract Termination Letter
As compared to commercial contracts, contractors are usually the ones that could receive a contract termination letter from the federal government. The Federal Acquisition Regulation allows the agency to unilaterally terminate a contract for convenience. When a business fails to comply with the terms of the contract, the government may decide to terminate the contract for default.
Termination for Convenience Letter: Under the convenience clause, the government will send out a contract termination letter that spells out your obligations and provides instruction on moving forward.
Termination for Default Letter: This type of termination letter is not so pleasant, Here, the agency is, in essence launching an adverse attack on your performance and can often seek damages from you.
Typically, you would be already aware of this because you would have received a cure letter. The contracting officer would have provided you with a short time to cure the problem.
If you receive any of the above termination of contract letters, you may want to seek the help of a contract law attorney. It is important to understand your rights and what the next steps would be. Call an Attorney at 1-866-601-5518 for immediate help. FREE INITIAL CONSULTATION.