Your business may have critical contracts with certain vendors who provide goods or services without which the company cannot operate. If a vendor breaches a contract vital to your business’s operations, taking prompt action can help protect your company’s financial interests. Here are six steps you should take when one of your company’s vendors breaches an agreement.
Step 1: Review the Contract
Reviewing your vendor agreement can help you assess your business’s rights and options before you react to a vendor’s breach of contract. In particular, you should review the agreement’s provisions regarding breach/default, remedies, notice requirements, and dispute resolution clauses (e.g., mediation, arbitration, forum selection, and choice of law clauses). A review of the contract will help your business determine whether the vendor has made a material or minor breach of the agreement.
Step 2: Document the Breach
Your business should also begin gathering documentation of the vendor’s breach. Sometimes, a vendor may breach an agreement by repudiating it – expressly stating that they will no longer perform under the contract. Conversely, a vendor may dispute that they have violated an agreement, requiring your company to provide evidence of the breach through documents like delivery records, invoices, emails, or photographs. Establishing a timeline of events can help you prove that the vendor failed to fulfill their contractual obligations.
Step 3: Communicate with the Vendor
Your company should also formally put the vendor on notice that you consider them in breach of your agreement. A professional, written communication can notify the vendor that your company holds them in violation of the contract and outline how you want the vendor to remedy the breach – e.g., delivering replacement goods, completing performance by a specific deadline, reimbursing for replacement goods or services your company had to purchase. Maintaining a cordial and matter-of-fact communication style can help preserve your business’s relationship with the vendor, if possible.
Step 4: Explore Alternative Solutions
After the vendor rejects your company’s breach notice, you might explore alternatives to pursue a favorable resolution to the dispute. For example, your company or your legal counsel may negotiate with the vendor or its counsel to reach terms of a settlement, which may involve the vendor taking specific actions or compensating you for losses caused by their breach. Alternatively, you might propose mediation to have a neutral third party help your company and the vendor negotiate a settlement. You should also review your contract to check whether your agreement mandates alternative dispute resolution procedures like mediation or arbitration.
Step 5: Mitigate Your Losses
In many cases, a non-breaching party has a duty to make reasonable efforts to mitigate their losses from a breach of contract, such as obtaining replacement goods or services when a vendor fails to deliver or delivers non-conforming goods or services. Failing to mitigate your company’s losses after a vendor’s breach of contract may affect your right to recover compensation for specific losses, such as consequential losses like lost profits or damage to goodwill. Furthermore, proactive efforts to mitigate losses can help your business continue to run even though a key vendor fell through on delivering critical goods or services.
Step 6: Seek Legal Remedies If Necessary
When you cannot negotiate a settlement with a vendor, your business may need to pursue legal remedies in arbitration or court. In an arbitration claim or breach of contract lawsuit, you might seek various legal remedies, such as financial compensation for losses or specific performance, requiring the vendor to perform their contractual obligations.
Contact a Business Attorney Today
When a critical vendor fails to deliver on a high-value contract, the loss of goods or services can jeopardize your company’s success. Contact Brick Business Law, P.A., today for a free, confidential consultation with a business attorney to discuss the actions you can take to protect your company when a vendor breaches or backs out of a key contract.
