Introduction

Most Service Agreements are quite one-sided when it comes to termination. The Client generally wants a good deal of flexibility in how they can terminate the agreement. The Agency of course wants things locked in.

While some one-sidedness is acceptable, there are a few things you’ll want to watch out for.

Term

The term of a Service Agreement is the duration during which its terms apply. Remember that if your agreement does not contain an express term, then its provisions apply to any SOWs that you sign with the Client, whenever those are signed. If an agreement has a stated term, it only applies to SOWs signed within that term. If an agreement has a specific term, keep the following in mind:

• When A Longer Term Can Be Better. As a general matter, if the agreement contains terms that are favorable to you, you would prefer a longer term. An Agency might look for a longer term after you negotiate a favorable rate card or payment terms with a long-term Client.
• When A Shorter Term Can Be Better If the agreement contains unfavorable provisions, you’ll prefer a shorter term. Similarly, when you are dealing with a new client, a risky type of project, or difficult business environment, you’ll generally prefer a shorter term.

Generally, I prefer agreements without a stated term. I think this better sets the stage for negotiation of terms on an SOW by SOW basis.

Termination

Bigger than the issue of term is termination. These paragraphs describe when the Agency or the Client can exit a relationship. There are three categories of termination provision you’ll see: termination for convenience, termination following bankruptcy, and termination for breach.

For Convenience

Client prepared Service Agreements often contain a clause allowing the Client to terminate at any time. A typical clause reads like this:

<aside> 📑 Client may terminate this Agreement or any SOW at any time and for any or no reason upon 10 days prior written notice to Agency.

</aside>

Keep the following in mind when facing a clause like this:

• Require Advance Notice. Be sure the client is obligated to provide 10 to 30 days advance notice before terminating for convenience.
• Notice + Stop Work. Even when an agreement requires advance notice before termination, sometimes the Client will give you notice that it plans to terminate along with instructions to stop work pending the termination. This effectively makes the termination immediate. Language like the following may help to ensure the notice period is respected:

<aside> 📑 Agency may continue work during the termination notice period as necessary to facilitate an orderly wind-down of the applicable project and Client shall pay Agency for the fees incurred by Agency during such period.

</aside>

Notwithstanding any contract language, once termination is on the table, an Agency’s ability to collect on outstanding invoices and additional work is in jeopardy. Agency’s focus should be on minimizing additional receivables and collecting existing receivables.

• Be Aware of Project Type. If you work on an hourly basis, a Client being able to terminate for convenience doesn’t present you much risk. For retained work or project-based work, termination for convenience can be very disruptive. If you are operating under a retainer or fixed fee, ask to strike the clause allowing the Client to terminate for convenience. If you are unsuccessful, an Agency may need to increase its fee to compensate for the additional risk it faces in a contract that can be terminated at any time (The Negotiation Equation). Better yet, work to structure your payments in a way that minimizes receivables as discussed in Payment Terms. An Agency may also consider adding a termination fee as discussed in this book’s section about Kill Fees.