A breach of contract can be damaging, both financially and to your company’s reputation. Taking steps to avoid a breach in contract will help you maintain business relations while also protecting you from liability.
Avoiding a breach in contract mostly depends on clear communication from both parties of the agreement. You must also be proactive in making sure the terms are followed and act when they are not. Let’s go over some ways to solidify a good contract and then some basic steps in maintaining the contract and avoiding breach of contract!
What Constitutes a Breach?
Before going into how to prevent a breach of contract, it’s important to fully grasp what a breach is. There are several ways a contract breach can occur, so there are also multiple ways in which a party can be liable for penalties. On a basic level, a breach of contract is defined as an individual’s (or business’) failure to perform or deliver on the set terms of the contractual agreement. If a service is delivered later than agreed upon date, this is a breach of contract. Another breach of contract is if payment isn’t delivered in full at the arranged time. There are several ways to breach contract terms, but these can still be avoided.
Know Who You’re Dealing With
Before you even develop contract terms, be sure to research the potential partner. Make sure that you’re entering into an agreement with someone who is trustworthy and can deliver the terms you’re seeking. This will help you make the most of the investment and save the headache of having to work extra hard to ensure the terms are followed. Check references to establish beyond a doubt that you’re dealing with valid professionals.
Another thing to consider is how well the other party’s representatives communicate with you. If issues occur, will they be willing to speak to you upfront about it and work with you to find solutions? If an issue or breach occurs on either end, you need to be able to open up an immediate dialogue to ensure mistakes won’t happen again. Strong mutual communication will also help you amend the contract together fluidly to improve operations and delivery.
Your next step in avoiding a breach is to establish terms that are reasonable and allow room for both parties to follow. It’s important for both parties to establish expectations. You can also create addendums to account for unforeseen circumstances, such as work delays or emergency situations.
Another way to reinforce the terms would be to include damages in the contract. Damages will lock in place compensation rates for the breaching party to pay to the other party should they fail to meet the terms. This will not only ensure that business is conducted fairly in the event of a breach, but it’ll also serve as an incentive for both parties to carefully follow the contract terms to avoid breach in the first place. A contract can also contain a restitution and/or cancellation clause to dissolve the contract if the non-breaching party is unsatisfied with the breaching party.
It’s never a bad idea to take preemptive steps to ensure your business is protected. Unexpected things do occur that might put you in breach of contract beyond your control. Having contractual liability covered by your small business insurance will help you have a cushion to pay for damages while not over-expensing your resources. If you think your business could use more insurance, please reach out us at Freedom Insurance Agency. Our goal is to help you build the best policies for your individual business needs.