Business Contracts Responding to Client Interference: Shutdown System Access

[SGITNCUSA]

Jurisdiction

North Carolina

Legal Questions

• Does a client's decision to disconnect system access to a vendor, with the only notice "Please submit your letter of termination to foo@acme-company.com. We've removed your acme-company.com access.", constitute interference or any other wrongful act that could be used to pursue termination in accordance with the agreement?
  
  
• Is it recommended that I notice the client that their failure to cooperate is a material breach of the duty of good faith and fair dealing? And that disconnecting system access has essentially made it impossible for my team to perform its duty as contractually agreed upon?
  
  
• Is there any position I can take that may incentivize the client to at least pay my company what is owed? I have yet to be paid for January or February and according to our agreement, if the client terminates for cause then they are relieved of payment obligations to made good on outstanding invoices.

Summary

I am a technology consulting company that entered into a professional services agreement with a new client in January of this year. I have submitted invoices for January and February that have not yet been paid.

Dispute

• Client terminated my team's access to their systems without notice in response to what we believe to be angst around the feedback we have been providing regarding the client's security posture.
  
  
• I received the following via my company's Slack channel:

Please submit your letter of termination to foo@acme-company.com. We've removed your bar.com access.​

• Agreement specifies any material breach requires notice and then the receiving party has 10 days to cure breach
  
  
• Agreement specifies that a termination for cause will result in client no longer obligated to pay contractor
  
  
• Governing law is North Carolina

Agreements:

• Master Services Agreement
• Statement of Work
• HIPAA Business Associate Agreement

Background

• part of my contractual responsibility was to provide cybersecurity guidance to this new client (it is worthwhile mentioning that the client operates in health care, is considered a HIPAA covered entity, and as part of my agreement with them I have a BAA in place with them)
  
  
• it became evident that the client's cybersecurity posture was far worse than management had anticipated
  
  
• client, even client's management team, began becoming defensive and argumentative in response to my cybersecurity recommendations and concerns
  
  
• in some cases, client staff attempted to forbid my team from bringing specific concerns to management, saying they were not interested and it would result in a termination of my contract
  

 

[Michael Wechsler]

I'm sorry to hear about your dispute - these things can happen.

Any decent attorney will tell you that it's impossible to give you any type of useful advice without knowing the full situation, having a proper consultation to obtain essential facts, etc. I've seen many master services agreements and, to be honest, I don't have time to run through this one. I'll assume that being on github it's probably similar to most I've seen.The following is not legal advice, just some of my own thoughts that are not a substitute for a proper constulation with a lawyer.

Interference with the provision of service under a contract.
It's very commonplace for agreements to state that a client won't interfere or delay services provided by a vendor under a contract, their delays will impact milestones, etc. So it's possible that terminating access by a vendor to perform contracted services could constitute a breach of contract - but you'll probably want to make sure that this wasn't an accident even though you assume it's angst, frustration, and the series of events that led up to this. That's also why these contracts typically have notice provisions, e.g. must cure within ten days of notice, as you've mentioned.

Am I not perceiving a reason why you wouldn't notify or haven't already notified the client in writing (to the designated person(s) under the agreement) that your access has been terminated and that they should address it so that you can continue to perform your dutites and obligations under the contract? I'd want the know that the act is one to unilaterally terminate the contract and that the notice to cure has run.

Notice the client that their failure to cooperate is a material breach of the duty of good faith and fair dealing.
I can't say what is best and appropriate. When you notice them of shutting down your access and inability to perform under the contract, that's the primary issue and gets the point across. If you want to include other breaches in a letter, that's up to you. I don't know why you wouldn't address the designated contact in the agreement about the issue and get a response from them as to whether they were permanently and unilaterally terminating the contract as is stated in the slack channel message.

Is there any position I can take that may incentivize the client to at least pay my company what is owed?
I'm sure you know the position that you can take but we can't tell you these are 'legally' reliable so you can say everything with such assurance. This seems to be basic communication and a letter that shouldn't be very challenging to create, representing your opinion on your position, e.g. you believe they have no justification for terminating the agreement, you've provided services to them that (even if it's not what they wanted to hear), performed them properly, professionally and have earned the right to be compensated for services provided. If you want to imply that going to court would be far more costly for them to get to the same place, sure you can do that too. But it would probably be more effective if sent by an attorney.

Good luck with your efforts.

 

[adjusterjack]

Michael reviewed and found this not to be spam. Undeleted it and provided a response.

I reopened it in case OP wants further discussion.