The terms of a vendor contract can help to protect businesses. When companies rely on other organizations for supplies, vendor contracts are critical for smooth company operations and reasonably controlled operational expenses.
Vendors provide supplies on a recurring basis so that restaurants can offer the same dishes every day and manufacturers don’t have to worry about downtime on production lines. Businesses can include a variety of terms that protect the company in a vendor contract. When vendors violate the agreements that they arranged with client organizations, their actions or defaults can have significant implications for the client organization.
Exposing private information
Frequently, businesses include non-disclosure agreements in vendor contracts. A company supplying a manufacturer or restaurant with raw goods could provide consumers or competitors with information that could undermine the organization’s competitive advantages. Including restrictive covenants in vendor contracts is a common practice to protect trade secrets. Violations of confidentiality clauses can lead to competitors reverse engineering production processes or consumers finding ways to duplicate secret recipes.
Disrupting operations
Failing to deliver materials on time is a common vendor contract breach. Missed deliveries and delayed shipments can result in a company idling a production line. They may have to cover worker wages and facility expenses despite having multiple productive days while waiting for a delivery. Businesses can seek damages for delayed or unmade deliveries, or they can ask the courts to enforce penalty clauses for a failure to communicate or provide deliveries on time.
Diminishing profit margins
Another common way that vendors breach their contracts with clients is by making last-minute adjustments to pricing. When vendors lock in price arrangements, they should uphold those terms for the duration of the contract or until they can modify the agreement with the client. When a vendor suddenly increases prices in a manner that does not align with the contract, the client organization may end up paying so much that its products are no longer profitable. The company may also have to look for replacement vendors, which can also diminish operational profits.
Understanding how vendor contract breaches can harm an organization may inspire leadership at companies to draft thorough vendor agreements and be proactive about their enforcement. Those establishing vendor agreements or dealing with a vendor contract breach may need help to optimize the protection of the organization. Seeking legal guidance is a good way to get start.
