What is Breach of contract?

Breach of contract is the legal concept for the situation where your contract partner does not do what was promised. There are three forms. The first is non-performance: the supplier does not deliver at all. The second is late performance: delivery comes too late. The third is defective performance: delivery happens, but the quality does not meet the agreed standard.

For late or defective performance, you generally must first send a notice of default. This is a written demand giving the other party a reasonable period to perform correctly. Only when that period expires without result is the other party in default, and can you claim damages or terminate the agreement.

There are exceptions. If performance is permanently impossible, no notice is required. The same applies if the debtor has declared that they will not perform, or if the contract contains a fixed deadline (fatale termijn).

For SMEs it is critical to describe exact performance obligations in the contract. The vaguer the agreements, the harder it is to prove breach. A service level agreement with measurable KPIs is far stronger than a general promise of good service.

Documenting every instance of non-performance is equally important. Emails, photos, delivery notes and timestamps form your evidence if the dispute escalates to mediation or court.

Breach of contract by suppliers is a direct source of revenue loss. When a supplier delivers late, fails to deliver or underperforms, it hits your operations and your customers. Research by World Commerce and Contracting shows that organisations lose an average of 9.2 per cent of annual revenue to poor contract management. A significant share traces directly to not enforcing contractual obligations.

The problem is that many SMEs do not actively monitor their contracts. Without a system that tracks which suppliers have which obligations and when deadlines expire, you only notice a breach after the damage is done.