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An “Evergreen” contract

An “Evergreen” contract

An “Evergreen” contract

An “Evergreen” contract is all to do with the duration of a contract. Many contracts come into force, do their job and then expire without anyone giving them much thought. But commercial contracts usually need a bit of thought around when they will start and how long they will last.

The clue is in the title…

With a fixed-term contract, the clue is in the title – the contract will last for a fixed number of days/months/years until a specified date or for the duration of a project. At the end of the period or project, the contract will automatically terminate.

It is possible that you will forget that the contract is going to terminate, in which case you could find yourself either without essential services or continuing to receive services but outside of the specified contract term, which leads to uncertainty.

To avoid this, many people use “evergreen” contracts – contracts that stay valid until they are terminated by one of the parties giving written notice to the other. A refinement to this is to have an evergreen contract with a minimum term so that there is a guaranteed period of service provision followed by a right to terminate on notice once that minimum term has expired.

No right or wrong answer!

There is often no right or wrong answer in any particular contracting situation. You need to carefully weigh the commercial impact of each. An impending contract termination may trigger either party to test the market, or may create a burning platform. Conversely, an evergreen contract might encourage complacency in contract governance or lack of continuous improvement.

Whichever you chose, there is no substitute for good contract management and careful drafting. Uncertainty only ever benefits the lawyers!

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About the author

Leon Daniel
Head of Legal

Leon is Head of Legal at SD Worx and also the Company Secretary. He has substantial commercial and technology law experience garnered from an extensive legal career within industry. 

Leon joined SD Worx from the FTSE top 30 company, Centrica PLC and has held Senior Counsel roles at Ascential PLC (formerly EMAP); Affinion International and JDA Software. He has considerable experience drafting and negotiating complex, high value commercial deals.