Route 3 - Contract & Supplier Management - Exit Strategy

An exit strategy is necessary to identify possible risks, define potential losses, ensure continuity of services and should be a ‘front end’ activity, considered when developing your commodity/service strategy, included in the Procurement Documents and contractual terms and conditions where possible. This may appear counterintuitive, but without a well thought out strategy which is consistent with your overall sourcing strategy, your Organisation risks becoming locked into an unsatisfactory relationship or being forced to pay more to part ways and minimise operational impact.

With an exit strategy in hand at the outset of a supplier relationship, your Organisation’s needs will be incorporated into the contract, ensuring minimum business and customer disruption in the event that the relationship is terminated.

Exit strategies should be reviewed annually, or when significant change occurs.

There are several considerations to be made when developing an exit plan, including:

  1. Continuing Service Requirements
  2. Data Security and Privacy
  3. Knowledge and Documentation Transfer
  4. Costs
  5. People

The detail below suggests some factors for consideration, but is not conclusive. Each contract / supplier relationship should be considered on its own merits.

1. Continuing Service Requirements

An exit strategy should set forth the Organisation’s service requirements for the period during which the parties are transitioning out of the relationship. These requirements may include:

  • An obligation by the supplier to continue performing the services at the same level of quality for the transition period and to continue to comply with all the obligations in the contract.

  • Requirements for the provision of parallel services for a certain period, with the right to extend the term as necessary to resolve issues before the final cutover.

  • An obligation by the supplier to keep the same supplier team performing services during the transition period.

  • Confidentiality on any communications regarding the termination of the relationship.

2. Data Security and Privacy

Data privacy and security are critical and the Exit Strategy should consider provision for factors such as:

  • Providing for the transfer of all data belonging to your Organisation, including any customer information

  • Determining an acceptable method by which the supplier will destroy and remove your Organisation’s proprietary information

  • How the supplier will destroy and remove this sensitive information from all media, ensuring it is not disclosed to other individuals or organisations.

  • The return or transfer back of each party’s assets

3. Knowledge and Documentation Transfer

Rigorous documentation and knowledge transfer requirements in the contract will pay dividends. Be sure to:

  • Require the supplier to give you access to everything your Organisation will need to maintain the service
  • Clearly delineate which party owns the work performed by the supplier and which party is responsible for solidifying the transfer of ownership.

  • Fully document the service description for any additional services required from the supplier during the transition period e.g. training your employees or training new supplier personnel

  • Require the supplier to provide your Organisation with copies of data, procedures, access logs, error logs, documentation and other information that the supplier generates as a part of providing the contract services. The supplier should also grant your Organisation the right to provide this information to potential successor suppliers.

4. Costs

Transition, termination and timing are a key part of the financial aspects of an exit strategy. Be sure the contract:

  • Will not penalise your Organisation for an early exit, especially if the termination is due to the supplier’s failure to perform the contract adequately.

  • Specifies when compensation should be paid and how much, including compensation for any continuing base services and transition activities.

  • Specifies the return of any pre-paid fees for services which have not been supplied

5. Personnel

An exit strategy should cover personnel issues, such as:

  • Ensuring that supplier personnel and key resources with relevant knowledge and expertise remain on the project and committed during the transition.

  • Defining the exit-strategy team and its roles

  • The treatment of employees and any obligations to inform or consult under TUPE


Contract Termination

For an organisation to terminate a contract during its term where the following circumstances occur:

  • the contract has changed substantially, which would have required a new procurement exercise to be undertaken

  • it is found that the successful supplier should have been excluded from the procurement procedure on mandatory or optional exclusions at the time of contract award. For example as a result of convictions for fraud or corruption.

  • the contract should not have been awarded to the supplier where the Court of Justice of the EU has declared there has been a serious infringement of the organisation’s obligations.

Regulation 73 of the Public Contracts (Scotland) Regulations 2015 requires termination on such grounds to be included as a contract term and  if such provision is not included it is implied.  The first bullet point concerning amended contracts applies to existing contract as well as those awarded following procurements commenced after 18th April 2016.


Lessons Learned/Evaluating Procurement Activity

The conclusion of any contract is the ideal time to review how well the contract performed and to explore lessons learned which can be carried forward to inform future contract terms or strategies. The Organisation should  determine what worked well and areas which could be improved in future procurement exercises. Its evaluation could consider, for example:

  • What worked and what didn’t work?

  • Were any innovations implemented and if so, what value-add did they deliver?

  • the total of the contract, including staffcosts, and costs which were not anticipated at the planning stage

  • the total savings achieved on contract value;

  • any impact of the exercise on the market.

[For Care and Support Services, please read the Care and Support Services Lessons Learned Guidance.]





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