When you negotiate a contract with a client, a service provider or a new employee, you expect them to follow through with your written agreement. Putting the details in writing help ensure that both parties understand their obligations to each other and can face consequences if they don’t fulfill their part of the agreement.
Unfortunately, contract breaches are a common business issue. If someone does not uphold their contract with your company, there could be operational and financial consequences for your business. What are some of the practical ways in which a breach of contract could affect your company?
It can affect the continuity of operations
If you hire a service provider to repair a machine or contract with a vendor for the supply of certain materials, you may not be able to move forward with daily business operations if they fail to fulfill their obligation to your company.
You may find yourself in a difficult position where you have to hire someone else or arrange for a different supplier to provide you with certain goods, which may drastically increase what you paid for those products or services. You may have to choose between temporarily ceasing operations, overpaying or changing your process to work around the goods or services you didn’t receive.
It can affect your reputation
A breach of contract can prevent your company from fulfilling its obligations to others. You can’t deliver goods when you don’t have the materials to manufacture the products, and you can’t provide services if a rental company does not deliver the tools that you need or erect scaffolding outside of a building.
The failure of another person or business to uphold the contract could result in real damage to your company and possibly negative online reviews. You could lose future projects or see a drop in brand loyalty because of a contract issue.
When you take someone else to court for breaching a contract with your company, you can ask to invalidate the contract or have the judge order specific performance to force the other party into compliance. You also have the option of requesting compensation for provable damages.
If you can show that your company lost money because of the breach, you can potentially ask for reimbursement for those losses in addition to whatever other resolution is necessary for the contract issue. Protecting your company when you experienced a serious breach of contract may require litigation, but taking the other party to court may prove worthwhile.