Contributed By Luther Rechtsanwaltsgesellschaft mbH (Cologne)
IT outsourcing contracts usually have a fixed initial term, due to the initial investment that the IT outsourcing provider has to make for the implementation. In the long term, an automatic extension of the contract is often provided for, unless one party terminates the contract at a certain point in time. Typical fixed terms are three to five years in duration, in larger projects five to seven years, with break options (against compensation of non-amortised investments).
However, the right to terminate for cause ('aus wichtigem Grund') cannot be excluded even during the fixed term. According to §314 of the BGB, either party may terminate for cause without observing a period of notice (extraordinary termination). According to §314 paragraph 1 S2 of the BGB, such cause only exists if the terminating party cannot reasonably be expected to continue the contract until the agreed termination. It is worthy of note that a prior warning letter is regularly mandatory and courts require a somewhat severe breach of obligations. The customer's termination rights are frequently encountered in the event of serious violations of service levels and in the event of a serious deterioration in the provider's financial situation. It is advisable to specify examples of when a termination can be considered. In addition to the severity of the breach, the significance of the service level for the course of business must also be taken into account. In any case, extraordinary termination must remain the last resort. Sanctions in the form of contractual penalties or lump-sum damages shall take precedence. With regard to an extraordinary termination by the provider, payment default by the customer should be considered in particular.