1. Automatic Extension Clauses
2. Risks Associated with Expired Contracts

Updated October 13, 2020: 

Reviving an expired contract is a tricky business legally. If a contract has expired, then it means there was no renewal clause built into it. The only parts of a contract that continue to exist after a contract expires are whatever the parties have agreed to continue. These elements are usually written into a survival clause in the original contract. The parties may also have various legal rights for as long as the statute of limitations lasts.

Once an agreement has expired, you can't revive it. In legal terms, it no longer exists. What you can do, however, is create a new document with a new term. If both parties agree to it, the start of the new term can be backdated so that there is no period of time in which they are not covered by the contract.

Automatic Extension Clauses

In order to stay away from situations in which contracts lapse, you can create agreements which have a clause that extends a contract automatically for increments of time that the parties have agreed to. In a situation like this, either party may inform the other that they do not want to renew the contract.

When you are writing a new contract to replace one that has expired, it is a completely separate contract from the previous one. This applies even if the new contract specifically takes on the terms and conditions stipulated in the initial contract. From that point onwards, the initial contract cannot be referred to in any dispute that may arise between the parties.

If your contract did have a clause that allowed for an extension, this option to extend must be exercised before the initial term comes to an end. You will need to get an agreement about this extension in writing. The fastest way to do this is to put together a simple document that refers to all the terms of the existing agreement. Then, as though you were writing an amendment, you change any conditions that need to be changed and make any additions or deletions that both parties agree to.

Risks Associated with Expired Contracts

If a contract has expired, you as a contractor are vulnerable to four different kinds of risks:

  • Audit risks
  • Contractual risks
  • Protest risks
  • Publicity risks

An expired contract means that there is no document to amend or extend. An auditor could, therefore, argue that the public agency has not followed the correct channels for ongoing work. If an agency were to assume that an expired contract could lead to amendments, then the agency would never be required to conduct competitive solicitation.

Rather, they could just amend contracts that have previously expired. The longer it has been since a contract expired, the more difficult it would be for a public agency to resurrect it. It would be more difficult to support resurrecting a contract that expired three months ago versus resurrecting one that expired a couple of days ago.

If a public agency extends an expired contract, then the agency needs to put the reasons why this was necessary in writing.

In terms of contractual risks, it is important to look at the language used in any amendment carried out by an agency. If the agreement does not contain the right language, the firm contracted by the agency could later argue that the original terms of the contract are null and void because the contract has expired. The language contained in any amendment to a contract needs to make note of the fact that the original contract had expired as a result of poor administration.

When it comes to the issue of protest risk, other firms may complain that they have not been given a fair opportunity to compete for work that stays with the original company thanks to an amendment to a contract that had expired. They may argue that a period of time had been laid down for the contract and that at the end of that period, they should have the right to compete to get the work in the future.

Any issue that comes up as the result of amending an expired contract, be it an audit issue, a contractual issue, or a protest issue, can lead to bad publicity if the media gets hold of the story. Public agencies need to think carefully about whether the risks associated with extending a contract are worthwhile.

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