In Short
- Contract remedies address breaches, including damages, specific performance, or contract cancellation.
- The choice of remedy depends on the nature of the breach and its impact on the parties.
- Understanding the available remedies helps businesses respond effectively to contractual issues.
Tips for Businesses
Familiarise yourself with contract remedies to handle breaches appropriately. Clearly outline these remedies in your contracts to ensure all parties understand their options in case of a breach. Consulting legal professionals can provide guidance on selecting and enforcing remedies that best protect your business interests.
When your business engages new suppliers to deliver services or provide you with goods, the hope is that everything will go smoothly and as planned, and the suppliers will deliver on their contractual obligations. Unfortunately, things can go wrong in supplier relationships, and parties can face a contract dispute, so it is wise to take a proactive approach to protect your business from risk.
A robust and well-drafted contract is a vital tool that you can use to safeguard your business and agree on specific remedies if the supplier fails to meet their obligations. Although the right to claim damages is a fundamental remedy for businesses for contract breaches, exploring additional contractual rights can provide more tailored and practical solutions, saving you time and costs.
This article explores why business-to-business supplier contracts are important and how your business can seek to negotiate specific remedies and risk prevention tools in your contract terms to protect you against risk.
Why is a Supplier Contract Important?
You should enter into a legally binding contract with your suppliers to protect your business. A supplier contract is critical for protecting your business when you engage new suppliers. It can be used to clearly define the supplier's obligations and your expectations, document what has been agreed to, and create a framework of legal protection. Without a strong and clearly drafted written contract with express terms showing your agreement, your business may struggle to recover losses, enforce performance, or terminate the agreement if the supplier fails to deliver.
Different supplier relationships and projects can carry different risks, so commercial contracts must consider different considerations and risk prevention measures. Working with commercial contract solicitors can ensure that your supplier contract is tailored to the needs and risks of the particular project or engagement. Taking this step during the procurement process can give you confidence that your contract is robust, tailored to cover the specific risks, and enforceable.
What Kinds of Remedies Could You Include in Your Contract?
Legal risks are inherent in working with suppliers. For instance, a supplier might cause a data breach involving personal information. They may also misuse confidential business information or create materials that infringe on third-party intellectual property rights. A well-drafted contract can help tackle these risks by specifying remedies if the supplier breaches its obligations. Including clear and enforceable remedies in your contract can help your business manage risks effectively.
Although claiming damages is a remedy for contract breaches, this process will not always be quick, cheap or predictable. As such, including remedies such as indemnities or service credits may give you practical ways to manage risks and resolve issues more effectively (depending, of course, on the nature of the relevant breach and your goals).
Remedies
To protect your business effectively, your supplier contract could include various remedies that address a range of potential scenarios:
- service credits are commonly used in service-level agreements. These clauses compensate your business for specific performance shortfalls, such as a supplier failing to meet uptime targets. They ensure your business is compensated and incentivise suppliers to meet agreed performance standards;
- indemnity clauses require the supplier to compensate your business for specific losses caused by their actions, such as data breaches or breaches of confidentiality obligations. Precise drafting of such terms is critical, as ambiguity can lead to disputes; and
- express favourable termination clauses can allow your business to end the contract if the supplier commits a material breach or repeatedly breaches their obligations. These provisions protect your business from being locked into an underperforming relationship. This may require negotiation depending on the supplier's approach. They may be unlikely to accept termination rights for only a minor breach that can be remedied.
In addition to the above, you can negotiate various other remedies, such as provisions for liquidated damages.
Although you may want to push for specific remedies, suppliers may already have this covered. So, it is vital that you carefully review any supplier contracts to understand your rights.
For example, some supplier agreements (such as IT service level agreements) may include predefined remedies for underperformance. Therefore, reviewing these agreements to ensure they provide adequate protection for your business is vital.
Why Should Your Business Work With a Lawyer on Remedies Advice?
Seeking to agree on appropriate remedies for supplier contracts requires careful consideration. Poorly written clauses may lead to disputes or render the remedies unenforceable. Working with a lawyer can help you ensure your contract is clear, enforceable and accurate under UK law (to avoid legal challenges). They can ensure it addresses your business's specific needs and the actual remedies that will help you the most.
A lawyer will help identify risks relevant to your business and draft remedy clauses effectively. This ensures these remedies align with your objectives and protect your business from risk.
Key Takeaways
Including clear and enforceable remedies in your supplier contracts is essential in managing risks and holding suppliers accountable. Remedies such as liquidated damages, service credits, indemnities, refunds, and repeat performance ensure your business has practical options to address breaches and recover losses. Although the right to claim damages is a typical remedy, exploring other tailored options can provide faster and more effective solutions for your business. Working with a commercial lawyer helps you create enforceable remedies that protect your operations and give you confidence in managing supplier relationships effectively.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
