A contract is a critical document that governs your relationship with a vendor. If any mistakes or important clauses are missing in the contract, you may end up paying a price for it. Therefore, it is crucial you obtain professional help before you negotiate and agree to any deal. This investment may save you both money and stress in the future.
Vendor contracts are even more important during this time of inflationary pressures and supply chain issues. The protections you have in these kinds of agreements are vital to your business, and they can help you control costs and ensure adequate supplies.
Below we discuss some things you need to consider when you are handling vendor contracts and dealing with any disputes that arise under them.
Perform Due Diligence Before Agreeing to Any Deal
Before you agree to do business with someone, you should have a complete understanding of who they are. Before you even begin to negotiate, you should perform due diligence on any party with whom you may do business. Not knowing business partners can lead to unpleasant surprises in the future. Your ultimate goal is to find vendors who can provide quality products and/or services reliably. You should consider a formalized process for selecting vendors, complete with written criteria.
In selecting vendors, you should be looking for some of the following qualities:
- Commitment
- Competency
- Corporate values
- Dependability
- Integrity
- Reputation
In some cases, lower prices are really too good to be true. There is far more to a business than just what it supplies and what it charges. Doing business solely on the basis of saving money could lead you to incur far more costs in the future. As the saying goes, you often “get what you pay for.”
Review the Exact Language of the Contract
Your contract is your legal protection when you are doing business with a vendor. Pay close attention to its exact language and terms before you sign it. Once you agree to the terms, you cannot change them. However, the vendor must also follow the terms of the contract, and you can sue them for breach of contract when they do not. Unfortunately, if an obligation is not in the contract, you cannot enforce it. Each word and punctuation mark is critical to a contract. There is no such thing as a meaningless or boilerplate word. And, a misplaced comma could change the entire scope of your legal rights. A business attorney can help with both the drafting and review of the contract, as well as any enforcement actions that may arise.
Be Definite About Key Terms of the Deal
When you specify each party’s obligations, make sure the language is abundantly clear. This can help you avoid any uncertainty in the future. If there are any disputes between you and the vendor, a court would first look to the clear language of the contract to resolve them. If the contract language does not cover your dispute, a court may be forced to fill the vacuum by interpreting the ambiguity. Then, you would lose the certainty the contract is intended to provide you in the first place.
Vendor contracts should have definitive terms regarding:
- Price and quantity
- Payment terms
- Standards for performance
- Consequences of a breach
- How each party may terminate the contract
- The timing of the contract
- Consideration (what each party must do under the contract)
- When each party may have a right to negotiate the deal
Resolving Contractual Disputes and Filing Lawsuits
Every contract should have a dispute resolution mechanism as one of its many terms. This kind of clause specifies how any disagreements between you and the vendor will be resolved. In this regard, one of the crucial terms is the damages provision. Your contract should make it clear what damages the vendor must pay if it fails to perform in accordance with the terms of the contract. The vendor may do everything it can to limit its own liability in the event of a breach. Be careful about incorporating contract language that easily lets the vendor off the hook for breaching the contract.
In order to sue a vendor for breach of contract, that breach must be material. A material breach is one that involves a key term of the contract. It must be one that affects the essence of the bargain between the two parties. A non-material breach is one that does not endanger the purpose of the contract. In other words, you may not be able to sue the vendor simply for not strictly following every single word in the contract 100% of the time.
It is up to you to enforce your contractual rights. If the other party continuously breaches the contract, and you do not do anything about it, you may be deemed to have waived your rights to sue them for a breach. You should put the other party on notice soon after it has committed a breach.
You should, however, be careful about unilaterally terminating a contract. You may have a clause built into the agreement that allows you to terminate the deal when certain things occur. Nevertheless, you should be absolutely certain before you decide to break a contract. You could end up in trouble yourself if you misinterpret the clause or improperly repudiate the contract. If you have any doubt about whether there has been a material breach, you should consult an experienced business attorney to review the facts of your situation.
Contact a Houston Breach of Contract Attorney Today
The breach of contract attorneys at Feldman & Feldman will work with your business to understand your needs and goals. Your lawyer must know your goals in order to provide effective legal assistance. We work with businesses to review vendor contracts and resolve disputes that arise under them. We are here to both help you ensure agreements you want to enter into work for you and to help you when existing contracts are not working out as planned.