Contracts generally expire due to reaching their predetermined end date or the completion of their terms.
The expiration can be caused by naturally concluding the project, fulfillment of obligations, or mutual agreement.
Read on to learn how to make sure you never get caught off guard by expired contracts.
Key takeaways
- Operating under expired contracts might lead to legal risks — always ensure your actions are authorized and under valid contractual protections.
- Don’t mistake contract expiration for termination — they have unique causes, implications, and processes.
- Use reminders, tech advancements, regular term assessments, cost evaluations, and open communication channels to manage contract expirations efficiently.
Understanding expired and terminated contracts
One of the biggest mistakes in terms of contract expiration is the usage of the term “termination” as its synonym, which is not the case.
Here’s the difference between these two notions:
1. Simply put, an expired contract means a contract that reached a preset end date and wasn’t renewed.
This case doesn’t require any specific rationale or any other document except the contract itself.
Overlooking of terms in a renewal-based contract might inadvertently trigger an automatic renewal.
Also, some parts of the contract, such as non-disclosure agreements or intellectual property rights, might stand after the contract ends.
Leaving unsettled accounts or not returning property can lead to legal issues.
2. A terminated contract, in turn, indicates a legally binding agreement actively ended before the intended date.
Often due to contract violations, termination requires specific procedures and notice periods.
An early termination usually requires you to pay contractual fees, and may require you to enter arbitration or other dispute resolution methods.
A breach of contract without the initiation of termination could lead the breaching party to compensate for lost profits or offset the replacement costs involved in recovery.
Contract expiration causing factors
There are a couple of factors that cause contract expiration.
Let’s review them and bring to light their implications and subsequent actions they trigger.
- Reached end date. Contracts expire once the stipulated end date has arrived.
- Fulfilled terms. Contracts with specific conditions or durations end upon successful completion.
- Achieving the contract performance period. The contract also expires when the number of hours, days, weeks, or months required for contract performance is met.
- Statutory limitations. Some contracts have an enforcement time limit. They end after this duration expires.
- Renewals or extensions. Contracts may include an option for renewal or extension, leading to its continuation despite reaching the expiration date.
Guidelines for handling contract expiration
Let’s take a close look at the guidelines on how to keep your expiring contracts fully under control.
1. Set up alerts
First of all, set up reminders to be aware of contract expiration dates.
This is an efficient way to take care of contracts well ahead of their ending dates.
For example, a manufacturing company holds a contract with a supplier of special assembling parts.
Programming alerts for 6 months, 3 months, and 1 month ahead of expiration provides enough time for performance review, alternatives consideration, and negotiations on renewed terms if apt.
Forgetting an expiration date could lead to a delay in supplies, negatively affecting overall performance.
2. Consider using tech solutions
Modern contract management solutions offer automated reminders, greatly minimizing the risk of overlooking crucial contract end dates.
3. Monitor contract performance and fulfillment
Manage contracts before expiration by tracking their performance against agreed-upon terms.
Understanding how well each party fulfills their obligations and commitments helps to decide which agreements deserve renewals.
Let’s set an example. An IT firm reached a service level agreement (SLA) with a cloud service provider.
With quarterly reviews of SLA terms, they can be sure that the provider maintains uptime percentages, reaction times, protocols on data security, and other enlisted service levels.
4. Always break down potential costs
Remember, inefficient handling of contract expiration could raise hidden costs, including legal bills from contractual disputes.
Other unexpected costs can come from uncontrolled auto-renewals instead of expirations.
5. Be aware of the consequences of operation under an expired contract
Continuing to provide services to a client after the contract’s expiration date could lead to several legal risks.
For instance, if the legal advisory firm continues to charge fees for its services without a renewed contract, it could (and should) be accused of unauthorized billing, which is legally actionable.
In addition, regulatory bodies could impose fines or sanctions on the firm for operating without a valid contract, affecting its reputation and financial standing.
Next steps
We hope you’re now well-informed to mitigate unplanned contract expiration, never to be surprised or unprepared for it again.
But what’s next, you ask?
A good first step is to start managing your contracts with a tool where you can add and then control their expiration dates.
Disclaimer
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