With the uncertainty and volatility of current affairs at UCSF and elsewhere, and broader federal implications, campus departments are increasingly considering terminating purchase orders (POs) or contracts that are already in place. Terminating a PO or contract is not as easy as it might sound. It is important that if your department needs to terminate a PO or contract, you understand what your specific options are based on your PO or contract, and that you take the right steps.

How to Terminate a PO or Purchasing Contract: Key Steps and Considerations

Terminating a PO or contract requires careful attention to the details in your specific case. Here are a few things to consider to effectively terminate a purchasing contract -- highlighting the role of the SCM buyer in guiding your department through a compliant termination process and what to watch out for.

• Communicate with Stakeholders:
  • Inform relevant stakeholders (e.g., your SCM buyer, other users, your department’s fiscal stakeholders or budget administrators) about the proposed termination and its potential impacts. This should always include the SCM buyer (and sourcing professional, if applicable) who issued the PO or contract, and may include users in other departments who use the services and/or goods provided by the supplier.
• Review the PO/Contract Terms:
  • Consult with your SCM buyer to examine the termination clauses in your contract. They may include required notice periods and may list timelines or penalties for termination. In most cases, the contract (or PO Terms and Conditions) will give you a list of situations in which you may terminate.
• Document the Reason for Termination:
  • Clearly outline and document your reasons for terminating the contract -- especially if terminating for cause (e.g., supplier’s non-performance). Work with your SCM buyer to ensure your reasoning aligns with the permissible termination clause(s) in your contract.
  • Note that POs/contracts issued under the standard UC Terms and Conditions of Purchase may have a termination-for-convenience clause, and a clause allowing termination if your department’s funding source withdraws or does not have appropriate funds. While your department may have reasons to terminate for cause, in most cases termination-for-convenience may be the best course of action, as it avoids lengthy attempts by a supplier to fix their non-performance or other causes.
• Provide Formal Notice:
  • The SCM buyer will follow the contract’s procedure for giving notice -- ensuring all details are clear and within the specified timeframe. Your department should rely on the buyer to handle this step and avoid providing formal notice independently.
  • Consider if there are materials (e.g., data) that you want returned to UCSF and ensure that their return is requested in the termination notice or other communication.
• Negotiate Termination Terms if Necessary:
  • Be prepared to work with your SCM buyer in negotiating the termination terms with the other party – if necessary.
• Complete Required Documentation:
  • Ensure all necessary paperwork is completed and filed according to the contract terms.
  • Early termination of a PO/contract may require submitting a Change Order in BearBuy.

Things to Watch Out For

• Termination Costs:
  • Be aware of any fees or penalties associated with terminating the contract. The supplier may have incurred costs (e.g., raw materials or travel) and may ask you to pay those costs before terminating the contract. In those cases, the details of the PO or contract, and sequence of events would dictate whether your department is responsible for those costs.
  • For Facility Rentals and events, there are likely to be costs associated with termination (e.g., loss of deposits, attrition costs).
  • Be aware of any outstanding payment obligations -- including those that may come due upon termination.
  • If your department has pre-paid for any services and/or goods, be aware that getting a refund of these funds could be contentious.
• Impact on Relationships:
  • Consider the effect on your relationship with the vendor, as terminating a contract can have a broader impact on UCSF’s reputation in the supplier community and beyond. Exercising professionalism and fairness can help preserve goodwill and avoid long-term damage.
• Legal Implications:
  • Ensure compliance with all relevant laws and contract provisions to avoid potential litigation.
• Alternative Solutions:
  • Explore alternatives that may be preferable to outright termination; for example, renegotiating to reduce scope or pricing, extending timelines, suspending service, or resolving performance issues.
• Timing:
  • Pay attention to any specific windows or advance notice requirements for termination.
• Communication Clarity:
  • Ensure all communications are clear and well-documented to prevent misunderstandings. If any verbal communications take place, it is best to follow-up the conversation by sharing a written recap for documentation purposes.
• Financial Implications:
  • Assess the financial impact on your budget and commitments.

Terminating a purchasing contract requires careful legal, financial, and reputational considerations. Your SCM buyer or sourcing professional is ready to guide you through these steps to ensure compliance and strategic decision-making and consider potential costs, relationship impacts, and legal implications. If you have any questions or need assistance, please reach out to your SCM buyer or sourcing professional.