The zombie contract and continued performance under an expired agreement
It is a fact of commercial life that parties may continue performing under fixed term contracts after they have expired.

But what leads to this happening and what are the consequences?

In this note, I touch on a few key issues that contracting parties need to be aware of when it comes to expired contracts and continued performance after the end date (aka the zombie contract!)

I also briefly discuss some strategies business owners and contract managers may use to avoid the pitfalls of these zombie contracts.

Why are zombie contracts an issue?
The issue can be summarised in one word – uncertainty. A contract that has expired but continues to be performed will give rise to uncertainty, including:

Has a new contract been entered?
Has the expired contract simply continued on the same terms – or have those terms been varied? If so, how have they been varied?
This can lead to major issues for the contracting parties. For example:

If a new contract has been entered, will it have the same fixed term, renewal options, and pricing structures that were agreed back at the start of the arrangements? This could mean a further lock-in period that was unlikely to have been intended and potentially unfavourable commercial terms applying to one or more parties.
If the contract is continued, but on varied terms, what exactly are these varied terms? For instance, has the scope of services, performance targets, or pricing structure changed? What about the standard of performance under contract? If there are milestone dates that have now passed, what does this mean?
So, let’s talk about the most common ways expired contract may continue to be performed, and a few tips on how to avoid this situation.