Exit Strategy

An exit strategy is necessary to:

  • identify possible risks;
  • define potential losses;
  • ensure service continuity.

It should be a ‘front end’ activity i.e. considered when developing your commodity/service strategy. 

Your exit strategy should be included in the Procurement Documents and contractual terms and conditions where possible. This may appear counterintuitive, but you need a strategy which is consistent with your overall sourcing strategy.  Otherwise you risk being locked into an unsatisfactory contract.  You may be forced to pay more to stop the contract to minimise operational impact.

Having an exit strategy in place at the start of a supplier relationship, means that any transfer requirements (e.g. intellectual property; systems access or handover process for delivery requirements etc.) will be included in the contract. This ensures minimum business and customer disruption if the relationship were terminated.

Please note: you cannot terminate a contract with the aim of avoiding procurement rule obligations.

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

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

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

Below suggests some factors for consideration.  This is not an exhaustive list as each contract / supplier relationship should be considered on its own merits.     

1. Continuing Service Requirements

An exit strategy should set your service requirements when the parties are transitioning out of the relationship. These requirements may include:

2. Data Security and Privacy

Data privacy and security are critical. The exit strategy should consider provision for:

3. Knowledge and Documentation Transfer

Strict documentation and knowledge transfer contract requirements will be advantageous. Be sure to:

4. Costs

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

5. Personnel

An exit strategy should cover personnel issues, such as:

Contract Termination

Your exit strategy must allow you to terminate a contract during its term where the following occur:

  • the contract has changed substantially i.e. a new procurement exercise would have been required.  This applies to existing contracts that started after 18 April 2016.
  • it is found that the successful supplier should have been excluded from the procurement procedure at contract award.  This could be for either mandatory or discretionary exclusions e.g. as a result of convictions for fraud or corruption.

Regulation 73 of the Public Contracts (Scotland) Regulations 2015 requires the above termination  grounds to be included as a contract term.  If they are not included, they are implied.


Source URL: https://procurementjourney.scot/route-3/contract-and-supplier-management/exit-strategy

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