The Thrill Is Gone (with your subcontractor)

In part one of our series, we discussed some of the legalese that relates to our relationships with subrecipients, and how that would facilitate terminating any related subcontract.  Today, we’ll focus on the actual How To of doing the deed, as well as a handful of important things to consider throughout the process to minimize blowback as much as possible.

Once the decision has been formally made to terminate the subcontract with Epic FailCo, the first formal step would be to issue the Notice of Termination.  This document should come from your ORA to be sure it is legally effective, as it is vital that your interests are protected and that the terms are consistent with standard policy.  Upon receipt of the Notice by the Subrecipient, the two parties will work together to finalize a Termination Agreement, which will govern the actual close-out of the Epic FailCo’s work for you.  Besides the standard language concerning return of property, obligations of confidentiality  and terms of similar ilk, the Termination Agreement should identify the “final” payment amount (as agreed to by the parties), and should state that it is being paid in “full and final payment” of the Subagreement.  The Agreement should also indicate that the Subagreement has been formally terminated, and should include a release of any claims by the subrecipient.

While any substantive terms of the Termination should be memorialized in writing, that’s not to say that you cannot have conversations with Epic FailCo verbally in which you communicate your dissatisfaction with their attitude, speed, performance or work product, with the overarching reminder that you have the absolute right to terminate.  If performance issues arise, ORA should be notified early on so we can “manage” the situation with you and obtain a satisfactory result, be it full termination or some other remedy.  Regardless, the decision making team should include: Team Leader, Chief of Party, ORA, Finance, and the Dept Administrator.

One important point: Remember to always look at the language of the prime award in each possible instance of termination, as the Sponsor’s approval/notification rights vary.  It is likely that you will need to at least give the Sponsor notice that a Subagreement has been terminated early.  In some cases, you might have to actually seek approval to do so, which obviously would have an impact on the timing of any such effective date of termination.  As part of your duties to the Sponsor, you may need to prepare and submit revised budgets and revised work plans, so in these situations it is vital that you stay on top of the situation and organize all necessary information accordingly.

Sending the actual Notice to Terminate is easy, but managing the transition itself is the real challenge.  There are many strategic decisions that will have to be made during the course of the close-out period, including:

  • The timing of the Notice
  • Notifying the sponsor/seeking approval to terminate
  • Re-budgeting and revising work plans
  • How the Sub will wind down and close out the account
  • Managing the down time
  • Identifying/vetting/signing up a replacement Sub
  • Managing the ramp up with a new Sub
  • Determining impact on our deliverable schedule with the sponsor

Needless to say, this is not an exhaustive list, but just keep in mind that the earlier you involve your ORA, the better, as we will be able to review pertinent obligations and determine the best course of action.