Step-in Rights

Reference

Not Applicable

Category

Step-in Rights

Legislation/Policy

Includes reference to requirements in the Corporations Act 2001 as a result of the commencement of the Treasury Laws Amendment (2017 Enterprise Incentives No  2) Act 2017

Additional Information

Guidance

A step‑in clause allows the Customer to take over control of providing the Goods and/or Services from the Supplier.  Use of a Step-in clause may avoid terminating a Contract.

The Customer may decide to include a step‑in clause in the Contract in situations where:

the Customer needs to ensure continuity of the provision of the Goods and/or Services at all times during the term of the Contract;

a risk assessment has identified that the risk that the Supplier may not be able to provide those Goods and/or Services at some time during the term of the Contract is not able to be effectively managed in another way; and

in the event the Supplier was unable to provide the Goods and/or Services, those Goods and/or Services can be sourced from another supplier.

This is a basic step‑in clause that will allow the Customer to suspend performance of the Contract as necessary to source the Specified Goods and/or Services. 

The exercise of the right to step-in for insolvency events may be affected by provisions in the Corporations Act 2001 (Cth) relating to step-in rights.  The Customer should consider the effect of these provisions, and obtain legal advice, before seeking to exercise this right in relation to a Supplier that is covered by this legislation.

This clause provides clarity around how the process will be managed including:

  • rights to intervene
  • how the Parties are to engage with each other during step-in
  • how the clause relates to other rights under the Contract and
  • how the Customer can hand back performance of the Contract to the Supplier

Clauses

Step-in Rights

  1. If at any time:
    1. a default occurs (whether or not the Supplier has notified the Customer); and
    2. the Customer considers that it is necessary to exercise its step-in rights to ensure the provision of the Goods and/or Services; or
    3. the Supplier requests the Customer to exercise step-in-rights under this clause for a reasonable cause stated by the Supplier, the Customer may by written Notice to the Supplier suspend the obligation on the Supplier to provide some or all of the Goods and/or Services as specified in the Notice (Step‑in Notice)
  2. From the date specified in the Step‑in Notice:
    1. other than as directed by the Customer, the Supplier will cease being responsible for the provision of the Goods and/or Services as specified in the Step-in Notice;
    2. the Customer may, acting on its own behalf or through a third party, take any step to perform the Contract;
    3. the Customer’s obligation to pay the Contract Price is suspended to the extent the Supplier has ceased to be responsible for the provision of the Goods and/or Services; and
    4. the Supplier will provide all reasonable assistance and comply with any direction of the Customer to enable the Customer to exercise its rights under this clause and manage the Contract.
  3. The Customer will be entitled to recover reasonable costs from the Supplier in exercising its rights under this clause to the extent those costs are in excess of the amount by which the Contract Price has been reduced under subclause 2(c).
  4. The Customer may by written notice (Withdrawal Notice), withdraw the Step‑in Notice where, in the Customer’s reasonable opinion:
    1. the circumstances giving rise to the Step‑in Notice have ceased or are able to be appropriately managed by the Supplier; and
    2. the Supplier will otherwise be able to comply with its obligations under this Contract.
  5. The Supplier will as soon reasonably practicable and in any event by the date specified in the Withdrawal Notice, recommence performance of any obligations suspended under this clause.
  6. Nothing in this clause obliges the Customer to exercise its step-in rights and the exercise of its rights under this clause will not affect any other right of the Customer under this contract, including but not limited to any right to terminate the Contract.

Notes

While use of this clause is optional, in contracts that are high risk and/or involve a long-term arrangement, a clause of this type is regularly included to manage identified risks and to potentially avoid needing to terminate a Contract.

Standardisation of contractual text results in efficiencies for both Parties to a contract. Before deciding whether a particular clause is appropriate, procurement officials should carefully consider the context of their procurement. Capitalised terms (unless otherwise defined) are based on the definitions in the CCS Glossary.  Definitions of any relevant defined terms may need to be added.

Clause wording would generally need to be changed where more complex step in arrangements are required to meet the context of the particular Contract.

Where this clause is included, the clause wording should be used without change.

Terms that are capitalised may need to be changed to align with the Contract terminology.

Last updated: 31 July 2018