Organizations operating on a business-to-business model sell services, materials or products to other companies. Businesses can be a more consistent source of revenue than retail customers, in part because it is common practice to commit to specific contractual arrangements.
Unfortunately, even when a company has thorough contracts in place, other parties may fail to fulfill their contractual obligations. A customer or client might refuse delivery or refuse to pay for goods supplied by another company. A service provider might do poor-quality work or may fail to meet the terms of the contract entirely.
A business negatively affected by the failings of another company could take legal action. But the viability of an action for breach of contract depends in part on the nature of the breach.
Minor breaches
Sometimes, one party violates the contract but only in a minor way. They may deliver the vast majority of required items but may overlook one particular requirement. Other times, they might fulfill their obligations but not by a key deadline. Minor contract reaches can cause operational delays and financial challenges but these are often insufficient to warrant bringing suit.
Material breaches
Material breaches of contract occur when one party fails to fulfill a crucial element of a contractual arrangement. For example, a vendor provides the wrong products or materials. These breaches can cause the same issues as completely failing to fulfill the contract, as the materials or services provided could be effectively useless to the other party.
Anticipatory breaches
Perhaps a vendor has notified a client of supply chain disruptions that may delay or entirely prevent the delivery of ordered materials. Maybe one company has announced that it intends to fully cease operations, leaving those with existing contracts with that organization to expect defaults in the upcoming week.
After identifying the nature of a contract breach, it is necessary to determine the impact the breach has had on the business and establish an appropriate solution. Is the appropriate solution the payment of money damages? Or the immediate termination of the contract? Or maybe compelling the recalcitrant party to perform its obligations? Understanding the nature of the breach and the types of remedies available can help organizations limit the impact of business-to-business contract disputes.