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If you supply products or services, you should ensure that you have a signed contract with each customer and comply with its terms. If you breach an agreement with your customer, even innocently, your business could face several negative consequences, including disputes and claims from customers. Customers could take legal action against you and seek legal remedies, including damages. This article will explore practical steps your business can take to avoid breaching a contract.
What Can Go Wrong If You Breach a Contract?
As a supplier, you must ensure you fulfil your contractual obligations to your customers. A breach of contract happens when one or more parties to an agreement fail to perform their obligations under it.
A breach of contract allegation could be disastrous for your business. It could be time-consuming and costly, and if the customer takes legal action, you may also face an expensive damages claim.
Breach of contract disputes can happen for various reasons and arise from different types of contract breaches. For example, a customer could allege that you have failed to deliver the products or services as promised under your contract. Or, a customer could claim there are defects in those products or the services are unsatisfactory.
A customer alleging breach of contract could result in various negative consequences. For example, the customer could:
- try to terminate the agreement and stop working with you; or
- bring a breach of contract claim against your business and claim damages from you.
For these reasons, it is vital to ensure that you develop sound business practices to help you avoid breaching your contracts.
How Can You Avoid Breaching a Contract?
There are various vital steps that you can take to avoid breaching a contract.
1. Ensure You Can Fulfil Your Contractual Obligations Before Signing
You may rush to sign a contract with a customer to get a new deal over the line. However, you should ensure you are comfortable with the terms of a contract before you sign it.
If you are trading on your own standard terms and conditions, this can help reduce your legal risk. However, a savvy business customer might request you to:
- sign a separate contract prepared by them; or
- edit your standard terms and conditions to protect the customer.
Although you may feel pressured to agree to a customer’s requests, you should first ensure you are commercially comfortable with any legal terms the customer requests.
By entering into contractual terms you are happy to comply with, you will be more likely to avoid falling into breach of your obligations.
2. Understand Your Contractual Obligations
Once you sign your contract, it may run for a long term or be extended for several years. Nevertheless, you must understand your contract fully and remember your contractual terms and obligations. Once you have signed a contract, you have entered into a legally binding agreement and will be bound to comply with it.
You should ensure that you understand any legal terms in the contract and their implications. For example, your agreement may include a clause stating that time for delivery of the services is ‘of the essence’. If you fail to deliver the services on time, your customer could end the contract and potentially claim damages. Therefore, you should understand the meaning and implications of legal terms in your contract.
3. Inform Your Staff
Business owners or senior management, such as directors, will often be involved in the contract negotiation process. However, many different individuals might need to get involved in performing the contract.
Ensure that you brief all relevant parties on the contract and their obligations. Otherwise, any of those parties could fail to comply with their duties, which could result in a breach of the contract by your business.
4. Keep Evidence
It is also a good idea to keep note of your obligations and document your progress. For example, keep evidence to show which products or services you have delivered throughout the contract term.
Updating your customers about your progress can also help. For example, regular conversations and progress meetings can help address any problems or issues that arise.
Use this checklist to ensure your supplier contracts contain all necessary terms.
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Key Takeaways
A breach of contract claim could be highly damaging to your business. However, your business can take various vital steps to avoid breaching a contract. Before entering a contract, you should ensure you are comfortable with your contractual obligations. When you have signed an agreement, you should ensure you have read and understood it and know what is required of your business. Further, you should ensure that:
- all parties involved in the contract understand what they need to do;
- keep track of your contractual commitments; and
- keep your customers updated on your progress.
Taking these proactive steps will make you less likely to breach your contract.
If you need advice on avoiding breaching a contract, our experienced commercial lawyers can assist you as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions, draft and review your documents, and assist you in legal matters. Call us today on 0808 196 8584 or visit our membership page.
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