People sometimes call contracts the lifeblood of a business. The contracts that you sign with your employees, service providers and vendors are what allow your business to operate.
Knowing that you can rely on certain services and supplies can be crucial to your business managing its costs and staying afloat. When someone else doesn’t fulfill all of their contractual obligations to your company, you might end up taking a loss. How should your company respond to a breach of contract?
Step 1: Review the contract
Before you do anything else, you need to make sure that your memory about the terms of the contract is accurate. It can be easy to forget a detail or conflate the terms of one contract with the terms of a completely different contract. Before you make any attempt to enforce an agreement with an employee or another business, you need to verify the contents of the contract.
Step 2: Informal and then formal communication
What seems like a significant and intentional breach of contract might be an honest mistake or oversight on the part of the other party. Sometimes, reaching out with an email or stopping by their office to ask about the issue is all that it will take to resolve things.
The other party might quickly change their behavior or follow through with their obligations to you. If asking politely and informally does nothing, you can then send a letter formally advising the other party about the breach of contract and how you hope that they will remedy the situation.
Step 3: Prepare for negotiation and possibly litigation
When official written requests to follow through with contractual obligations do not yield results, you may need to initiate litigation. Finding out about a pending lawsuit could motivate someone in a way that a simple letter may not.
The other party may be quick to change their behavior or ask to settle before the court hearing. While many businesses manage to settle outside of court, you should also prepare for the possibility of litigating the contract dispute.
You can ask the courts to enforce the contract and order specific performance from the other party. In some cases, you might even be able to request financial compensation for the losses your business suffered due to the non-performance of the other party. Preparing for either outcome will ensure you’re ready no matter how the issue develops.