When two or more businesses engage in a contract, it is to ensure that the details of the deal go as discussed and to ensure that each party agrees to uphold their end of the bargain. Most contracts between companies include clauses that mention what could happen if one party fails to uphold their end of the bargain, also known as breach of contract. While breach of contract is never the desired outcome for either party, it sometimes happens. The company affected by the breach may decide that it is in their best interests to seek damages for the costs associated with the other company’s breach.
What kind of costs could we be talking about? Well, it really depends on the industry in which the company is. For example, if the company is in manufacturing, there could be additional costs incurred with labor or the supply chain if a company fails to meet their contractual obligations as planned. Also, there could be additional costs associated with procuring a new business agreement, often with a different company, that may include extra costs for rushing the needed component, or manufacturing in the United States versus overseas for example.
The first thing a company should do when a party in an agreement is thought to have breached contract is to look to the contract itself. The original contract will often have details about how a breach of contract should be resolved. Sometimes it will require binding arbitration of both parties, or it may have a set amount of damages for a starting point that one company should pay to the other in case of breach. However, not all clauses in an original contract may be found as valid, so it’s important to understand how the company in breach may try to wiggle out of their obligations.
These scenarios surrounding breach of contract will be entirely different for each situation and company involved. While breach of contract is not always planned for, it should be given careful consideration to how another company’s breach of contract could impact a business financially. There are often additional costs associated with breach of contract that aren’t always immediately clear. If a party is in breach of contract, consider how their actions could impact your business.