Council entitled to end contract with under-performing provider

A court has ruled that a local council was entitled to terminate a contract with a communications company following a number of service failures.

The agreement between the two sides covered services such as health, transport communications and public safety.

The contract contained a clause entitling the local authority to waive key performance indicator scores resulting from service failures if it was satisfied that a remedial plan was in place.

There were substantial problems with the services provided and a number of key performance indicators fell consistently below target level.

A backlog of work accrued so the local authority held several meetings with the company in an attempt to solve the problems. Little progress was made, however, and so it decided to terminate the agreement on the grounds that its terms had been breached and the provider had not come up with a satisfactory remedial plan.

The provider took legal action saying that during the talks to solve the problem, the council had entered into a separate agreement about how the backlog should be cleared, and implied that minor performance failures would not be used as an excuse to terminate the contract.

The court found in favour of the council. It held that there was no written record of any agreement concerning the backlog, which the provider was obliged to clear under the terms of the contract.

The service provider had failed to provide the service it had promised to the required standard. There was no bad faith on the local council’s part in expecting it to clear the backlog. The fact that the local authority had been prepared to work collaboratively with the service provider was not to be held against it and did not signal that it would refrain from taking action under the agreement.

It was entitled to terminate the agreement due to the provider’s failures.

Please contact Simon Porter if you would like more information about the issues raised in this article or any aspect of contract law.