As a business owner, you already know the important role that contracts play in your operations. However, breaches of contract occur frequently, leading to legal disputes and potential financial losses.
While you cannot always avoid contractual issues, knowing the common causes of breaches can help you navigate disputes successfully.
Failure to deliver goods or services
When one party fails to produce deliverables as specified in the contract, it constitutes a breach. This can happen due to various reasons, such as logistical issues, insufficient resources or unexpected setbacks during production or manufacturing processes.
Pay schedules are one of many important aspects included in contracts. Accordingly, failing to make payments as agreed upon is a common reason for breaches. This can happen when one party experiences financial difficulties, disputes the quality of the goods or services or simply refuses to pay.
Failure to meet deadlines
Deadlines offer assurances to businesses that they will receive goods or services in a timely manner. When one party does not meet pertinent deadlines, it can cause major disruptions and financial losses. Missed deadlines can stem from poor planning, unforeseen obstacles or a lack of resources.
Quality and performance issues
Contracts can also outline quality standards and performance expectations. If one party delivers subpar goods or services that do not meet the agreed-upon criteria, the other party may have legal recourse to formally address the breach.
Misrepresentation or fraud
Sometimes, one party may misrepresent facts or engage in fraudulent activities during contract negotiations. This can include providing false information, hiding important details or using deceptive tactics, all of which can lead to disputes between contract signatories.
As reported by the Small Business & Entrepreneurship Counsel, there are about 32.6 million businesses in the United States. These businesses use contracts to maintain standards and ensure efficient operations, so business owners must address breaches sufficiently to minimize possible fallout.