The Importance of a Vendor Contract Termination Letter

Written by Posted On Friday, 21 February 2020 07:44


If you were expecting this article to detail how to fire a vendor, you may be disappointed. It’s true that sometimes you need to remove a vendor from your list but I contend it’s more like a Dear John letter and less like firing. 

Firing implies letting an employee go. As vendors are contractors (either a business or an independent contractor) you technically can’t fire them. Instead, you would simply end your working relationship and contract with another vendor. 

Even with the best vendor screening, situations can change and it may be time for a breakup. Ending a vendor relationship shouldn’t be done by phone or text. And it certainly shouldn’t be an in-person affair as those can escalate quickly. None-of-the-above are professional and all leave you vulnerable to legal issues. Instead, take the time to draft a vendor contract termination letter with care. 

The Importance of a vendor contract termination letter

No one wants a verbal conflict nor an ugly court battle. A termination letter is important to help avoid those situations while presenting your reasonings in a professional manner. 

If you find it necessary to move on, it’s time to pull out your documentation for review. At the beginning of the relationship, after you completed your vendor screening, you likely signed an agreement for services. The service agreement should outline the responsibilities of the vendor, breach of contract stipulations, and the steps you may take to end a relationship when they have not complied with the agreement. 

Secondly, during the relationship, you’ll have kept good notes, pictures, and documentation on each project or service provided. Documentation is important information to validate your perspective of the vendor’s behavior that leads you to end the contract without penalty. 

With the above documentation in hand, it’s time to draft a termination letter. 

Elements of a Contract Termination Letter:

  • Use your company letterhead
  • Use proper business letter etiquette 
  • State the intent and effective date of termination
  • Include reason(s) for termination - clearly outline specific clauses from the original contract or service agreement and/or any supporting documentation to back up your reasoning for the termination. They might have their attorney review this letter to determine if you are the party in breach of contract - siting your reasons clearly may help avoid legal action against you. 
  • Set expectations regarding any unfinished work, removal of equipment, etc.
  • Outline outstanding billing and invoice issues
  • Ask for a confirmation of receipt of the letter

Use your discretion before hastily sending a termination letter. Be introspective to see if you have approached this calmly and professionally. It's always good advice to consider having an attorney review any correspondence or contract before sending or signing if a situation could potentially become litigious. 

Reasons to End a Vendor Relationship

There are many reasons why you are seeking to end the relationship with an essential contractor and search for a replacement contractor for your vendor list

Some reasons will compel you to not only draft and serve a contract termination letter but also seek out legal counsel and make claim against a surety bond or insurance; especially if you are seeking restitution or attempting to be released from a termed contract. Reasons may include: 

  • Poor quality work
  • Taking too long to complete
  • They underbid and are over budget
  • The contractor abandoned the project
  • Behaved poorly damaging tenant relations
  • Damaged property

Sometimes the situation is minor, first offense, or guided by miscommunication. If you can clearly state your case, negotiate, and set clear expectations going forward - sometimes you can save that relationship and avoid a termination altogether. Another reason may just simply be you've found a better service provider with better terms or quality of service. 

Fresh Perspective on Changing Contractors

As a landlord or property manager, you are tasked to protect the investment, assets, and tenants under your care. For some personalities, dealing with conflict is difficult. For those, it may help to reframe your thinking. 

Instead of labeling a needed change as conflict, focus on putting your portfolio and tenant needs in the forefront of your decision. Reframing your decision will make it easier to communicate and take action moving forward on a contractor change without an emotional burden.

As a vendor is a contractor and not an employee, the term ‘firing’ isn’t accurate; it’s more akin to ‘releasing’. A kind Dear John letter to your vendor could be the best action for your properties and residents by deciding to go another direction.

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