Terminating Information Technology Service Agreements

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Many businesses contract with Information Technology Service companies (“ITS”) to help manage their business internally and to also help manage the business with their external customers. ITS companies assist with the design, build, delivery, operation, and control of information technology. Unfortunately, we have found it is often the case that businesses will contract with an ITS company without carefully reviewing the terms and conditions of their service agreements. Further, businesses do not know what they should be looking for or how to redline (revise) such agreements before they execute them. And if these business relationships go sour, businesses are stuck with an agreement that makes it difficult and costly for them to terminate their ITS contract.

How can we help minimize this situation?

The answer, in part, is to insist that an ITS contain bidirectional exit clauses (meaning both you and the ITS provider can terminate the contract). (Too often, alas, ITS contracts contain unidirectional exit clauses—and that too in the ITS’s favor.) To that end, we propose the following sort of revisions, which are shown in red, to common clauses that are found in ITS contracts:

“Termination. Without prejudice to any other remedies: 

(1) For convenience. ContractorBoth Parties may terminate this Agreement, or any SOW, at any time without cause by giving ten (10) calendar days’ written notice. If Contractoreither Party terminates for convenience, its only obligation is to pay for: (i) Services or Deliverables it acceptsaccepted by Contractor before the effective date of termination or (ii) Services performed, where Contractor retains the benefit after the effective date of termination. 

(2) Immediate termination. ContractorBoth Parties may terminate this Agreement, or any SOW effective immediately upon written notice if Customereither Party breaches the sections of the Agreement (and then list those sections). 

(3) Notice to cure. ContractorEither Party in its sole discretion may provide written notice upon either Party’s breach of this Agreement or an applicable SOW. CustomerEach Party will have ten (10) days to cure such breach or rework Deliverables to make them non-breaching. In the event that breach is not cured within this period, or Deliverables are not reworked to the Contractor’sNon-Breaching Party’s reasonable satisfaction, ContractorNon-Breaching Party may at its discretion: (i) Extend the period to cure such breach or further rework the Deliverables; or (ii) Terminate the Agreement or SOW with immediate effect.

The above are easy and simple revisions that can protect your rights under an ITS agreement. It is incredibly important to have your counsel review these agreements for you before you sign anything so that we can protect and advocate for your best interests.

If you need assistance reviewing and revising ITS Agreements, please contact us at info@mnklawyers.com.

This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.