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What happens when a vendor defaults on a supply contract?

Vendor agreements are an important part of business operations for companies in many different industries. Manufacturing companies need raw materials to turn into products. Restaurants need food to cook for their guests, and retail businesses need merchandise to sell to their customers. Vendors can help to fill these needs.

Vendor agreements are one of the ways to better ensure continual operations, consistent business offerings and predictable operating expenses. Organizations rely on vendors to provide agreed-upon deliveries at certain times and for specific prices. What can a business do when one of its vendors fails to provide crucial supplies?

Documenting the issue

Maintaining internal records that detail every missed and late delivery will be important for an organization frustrated by vendor contract breaches. In situations involving routine delays in delivery, there could be major losses suffered because of those failures. When a company simply fails to deliver materials, a business might need to close temporarily or idle its production lines. The more evidence the business has affirming not only the breach of the vendor’s contract but also its impact on the company’s operations, be easier it will be to take action.

Reviewing and enforce the contract

Vendor agreements may eventually expire or may include clauses that provide some protection to the vendor in the case of a conflict. A business intending to pursue a breach of contract lawsuit related to a vendor’s failures will want to carefully review the written agreement with that vendor to determine if an actionable breach actually occurred. The contract may prescribe solutions for the breach or may even give someone grounds to seek damages from the vendor that breached the agreement. The company that does not receive the materials that it requires from the vendor can communicate directly with the vendor about the issue in an early attempt to enforce the agreement.

If that fails, then filing a lawsuit may be necessary. Taking a vendor to court over a breach of contract can potentially resolve the matter but could also damage the relationship between the two businesses. In some scenarios, it may be possible to settle outside of court. Other times, a judge’s order will be necessary to compel a party in violation of a contract to follow through on their obligations or cover damages.

Taking thoughtful steps, including seeking legal guidance, when responding to a vendor’s breach of contract may help a company mitigate any losses suffered as a result of that contract violation.


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