Upon entering a contract, one of the greatest risks you will face is a breach of contract. In your company, if you regularly work with a high volume of various types of contracts, it’s likely that at some point, you’ll encounter the catastrophe that is a breach of contract. There’s nothing worse than having to deal with a contract where one party doesn’t do their part on delivering on agreed-to terms. pon entering a contract, one of the greatest risks you will face is a breach of contract. In your company, if you regularly work with a high volume of various types of contracts, it’s likely that at some point, you’ll encounter the catastrophe that is a breach of contract. There’s nothing worse than having to deal with a contract where one party doesn’t do their part on delivering on agreed-to terms.
However, there’s a way to work through these types of situations. The upside is that contracts are legally-binding, meaning if a party doesn’t effectively deliver and meet the requirements of the contract, that you can state that a breach has occurred. To do this, you’ll first need to make a claim of your contracted rights. We’re going to cover some of the different types of contract breaches so you can gain a better understanding on what to look out for and how to be prepared.
Here’s an overview of 4 common types of breach of contract that you might encounter during contract management.
Breach of Contract Type #1: Material
The first type of breach we’ll be covering is called a material breach. When a material breach occurs, one party receives something completely different than what was outlined in the contract’s terms. This might mean they do not receive an amount of something described in the contract (or less), or they might receive a result that is nothing like what is outlined in the contract. Failing to fulfill contractual obligations as specified in the contract terms or failing to perform their obligations by strict deadlines as listed in the contract are also examples of a material breach of contract. Once a material breach of contract occurs, it is best for the other party to pursue damages.
Breach of Contract Type #2: Minor
When a minor breach of contract occurs, the other party receives the contractual deliverable. It is important to note that however, the party that breached the contract did not perform a part of the obligations listed out in the contract. In these scenarios, parties that were victims of the breach might be able to take legal action with proof that the breach created financial damage. A minor breach of contract is also referred to as an immaterial breach or as a partial breach of contract.
Breach of Contract Type #3: Anticipatory
In an anticipatory breach of contract, a breach does not actually have to occur in order for the party responsible to be held liable. With an anticipatory breach, you’re essentially anticipating that contract terms and obligations will not be fulfilled by a party because they have made it clear that they do not desire to execute on their obligations.
What might this look like in action?
Well, the breaching party might communicate to the other involved party of how they do not wish to fulfill contractual obligations. However, a breach might also occur if the actions of the party in question are indicative that they do not wish to or are unable to deliver upon contract terms.
Breach of Contract Type #4: Actual
The final type of breach of contract we will discuss is an actual breach of contract. In the case of an actual breach of contract, a contract breach has occurred where the breaching party does not fulfill contracted obligations by a specified deadline as stated in the contract. Or, the breaching party fails to properly fulfill contract duties.
In an actual breach of contract, the party that suffers from the breach can seek several avenues to rectify the issue. For example, the party might seek damages to compensate for financial losses that resulted from the breach of contract. Parties also will seek damages for the indirect losses that are caused by the actual breach itself.
What Might Lead To a Breach of Contract?
How to Mitigate Contractual Risk
Upon entering a contract, inherent risks will certainly be present. However, you can mitigate your risks by taking a few precautions. While you can’t prevent a breach completely because you can’t oversee exactly what the other party is up to, you can do a few things to enhance your security.
First, you can start to reduce your risk of a breach of contract by creating the most accurate legal agreements. How might you do this? By referring to achieved contracts for guidance of what worked in the past for your business.
By taking a comprehensive look at some of your company’s legacy legal agreements, you can identity trends in terms of what was successful and what unsuccessful (or perhaps didn’t deliver as hoped). In this way, you can note which clauses and legal terms are most conducive to reducing risk while drafting a legal agreement.
Let’s take a look at an example.
If you take two similar types of legal agreements that both resulted in a breach of contract, you may see a common thread in statements and terms used that you should avoid moving forward when drafting your contracts. With a dedicated centralized repository, you can easily access stored contracts to gain valuable insights from with searchable text, categorization, and document tagging. However, even with the best intentions and the most effort spent drafting the best possible contracts, you still might experience a contract breach. Take the time to reduce risks and mitigate against negative implications.
Clearly Communicate Roles and Responsibilities
Within your contract management team, it’s important for everyone to be on the same page in terms of who is responsible for specific tasks. For various actions required during the different stages of a contract’s lifecycle, oftentimes there are different teams or individuals assigned to specific roles. For example, the team involved in contract negotiations might consist of a completely different group of employees than the team who works to fulfill the contract’s terms. With intelligent contract management software and automated contract workflows, you can develop streamlined handovers during contract lifecycle management that ensures all involved in your business’s contract management arm are effectively fulfilling the terms of contracts.
Stay Informed by Monitoring Contract Performance
To ensure that all involved contract parties meet the obligations as outlined in a legal agreement, you should regularly track and monitor the performance of your contracts. By doing so, you can examine potential areas of risk and then take actions to mitigate them before they do any damage. In addition, when a contract is at risk of a breach or if it has already been in breach, time is the key that makes all the difference in terms of containing potential losses and damages to your company.
We suggest developing a standardized contract monitoring method that identifies defined milestones and metrics that determine the performance of your contracts. In this manner, you can easily pinpoint where potential risk is located and where (or when) a breach might occur. A contract management system can also help your business with automated notifications that can help remind you of specific milestones and more.
Here at Dock, we are experts in SharePoint and Office 365 and want to help business utilize their features to revolutionize and streamline contract management. Our Contract Management System is equipped with several amazing features that will help improve the quality of your contract management processes with the help of a SharePoint and Office 365-based collaborative software interface. Improve business dealings, increase contract compliance, reduce bottlenecks and turnaround times, enhance risk mitigation efforts, and completely overhaul contract management team productivity for the better with our contract management software.
Ready to get started today? Reach out to us to learn more about our Dock 365 Contract Management System.
If you would like more information, we welcome you to schedule a free demo with us today.
Written by Lindsey Paulk
Lindsey Paulk is a Content Writer in Jacksonville, Florida that specializes in digitally communicating all-things contract management.