Evaluation and monitoring in the supply chain to identify any breach of contract is one of the main challenges for risk prevention in supplier control, especially when it comes to key services for the operational continuity of the business.
It is a complex issue to address within companies because threats are constantly changing and evolving. Contractual omissions and breaches frequently occur, which, to a large extent, can be foreseen, mitigated in terms of their impact on the business, and even avoided.
To achieve this, the support of experts is essential, since it reduces and, in the best of cases, prevents its incidence; In addition, it improves interactions with suppliers or third parties since they are the ones who are directly related to the breach of contract that we will analyze here.
Considerations regarding breach of contract
A breach of contract is considered when a complete and irreparable breach of the contract occurs; That is when one of the parties to the negotiation stopped complying with the terms of the agreement, an issue that financially, operationally, or technologically impacts the affected party and allows it to be canceled.
Each case of non-compliance is different and specific, and this is where control automation technologies come into action in terms of contractual risk management: through analysis of the process that is carried out, based on details of the case. It can be determined if it is a serious breach, identifying in time when the terms of the contract are no longer met, as well as its hierarchy to determine if it is a situation of minor breach or one with a significant impact on the business.
When is it said that there is a breach of contract?
At the moment when the negotiation agreement date arrives or is met and it is not carried out or is carried out in a partial or defective manner.
Because in a contractual process, there are usually no partial compliance procedures, the assessment of compliance is only determined on the agreed date of said compliance, not before or after, unless both parties agree to partial or late compliance.
As companies today face increasingly globalized processes, it opens the way to having suppliers whose filters are not standardized by different geographies or, this is done without prior evaluation (many times due to the urgency of the operation); This is an aspect that generates an increase in complexity in operations, which makes it even more pertinent for companies to streamline their control processes over third parties with platforms that allow agile and real-time control mechanisms.
Types of contractual breach
A contract is the key to bringing business to fruition, as well as a backup tool in case you have to make claims and clarifications. If this is supported and organized online, that is when the advantages of automation software are enhanced.
With a control solution, an evaluation of breach of contract that causes damages to the obligations between the parties involved in said agreement can be carried out, for example:
- Late breach: This type of breach cannot be cured, because once the performance date has passed, it will not do so again.
- Partial breach: compliance with only a part or element of the agreement.
- Total non-compliance: lack of satisfaction with what has been completed, even when it has been done in its entirety.
Consequences of breach of contract
- Economic damages.
- Damage to your material interests.
- Moral damages.
In these cases, it may be possible that there is an obligation to compensate, and to calculate the damages, both the loss suffered and what has not been received must be taken into account, that is, the consequential damage and the loss of profits.
When the failure of one of the contractual parties is due to an unforeseeable or inevitable event that makes compliance impossible, the failure to fulfill obligations could be justified by the existence of a force majeure event.
Penalty in a contract
On the other hand, there are penalties, which are the options or items that can be applied for non-compliance with the contract; It is recommended that, throughout the non-compliance and penalty process, there is specialized support.
In this way, with the contract signed and agreed upon by both parties, non-compliance and penalties can be evidenced to reach the best defense and appropriate compensation.
With a control tool, you have the entire process of negotiation, evaluation, and selection of suppliers on a single platform, having a solid and transparent strategy in each of the projects.
Strategically anticipate and control breach of contract
With a comprehensive control solution you can make the prevention and resolution of risks due to breach of contract more efficient; either due to a decision or termination, or a reform or rethinking of the existing contract, and avoid any of the following specific causes:
The claim for compliance: consists of the creditor asking the debtor to comply with the obligation in the same terms in which it was created, that is, requesting compliance specifically.
Here, the creditor can also request that the obligation be executed “ at the expense of the debtor ”, he will have no other right than that granted to the usufructuary.
The resolution claim: if the debtor does not comply, there is the possibility of nullifying the exchange operation. In these cases, the creditor can terminate the sale and request restitution of the equivalent of the advance payment.
The compensation claim: request compensation for the damages caused, provided that this breach is attributable to the debtor. This remedy is compatible with the claim for compliance and with the claim for resolution.
In this case, if the creditor resolves for non-compliance, he requests a refund of the advance paid and the extra cost must be compensated so that he can search and buy elsewhere regardless of the cost. Also, if a specific performance is decided, the creditor requests compensation for damages suffered due to unsatisfactory delivery.
By digitizing and automating the continuous monitoring and evaluation of strategic suppliers, you can avoid these situations that involve time and resources.
Get the visibility your organization’s agreements need with the help of experts and solutions that facilitate the management and control of your suppliers. In this way, you visualize the entire contractual process between the parties, in addition to facilitating the cycle of approvals, audits, evaluations, and electronic signatures, among other advantages.
With InsuranceHubPortal, get the ease of creating negotiations, agreements, and contracts, along with the ability to use all the information issued from each operation to take action more strategically.
