Outsourcing company functions can be a smart business decision. Every new hire at an organization significantly increases operating expenses. The company has to make payroll tax contributions in addition to covering wages and benefits. That employee is also a source of vicarious liability for the organization. The business could be liable for any negligent conduct of that worker or any inappropriate behavior that they engage in toward coworkers or clients.
Many companies benefit from outsourcing certain services and tasks to outside professionals or other organizations. Service providers and independent contractors can fill the gaps in a company’s employee roster. They can handle payroll processing, send invoices to clients, manage the company’s social media and perform physical maintenance tasks at a facility. Unfortunately, even with a clear contract outlining the expectations for a service provider or contractor, that outside party may not fulfill all contractual responsibilities.
What happens when a service provider defaults on contractual obligations?
Immediate communication is necessary
Especially in cases involving an independent contractor working as a self-employed professional or a small company, confusion about obligations or scheduling may be to blame for non-performance. Organizations can often preserve important relationships with service providers by extending a little grace initially after a breach of contract occurs.
Sending a letter or email referencing the terms of the contract and inquiring as to the expected fulfillment of the agreement can sometimes remedy the issue. If miscommunication or scheduling oversights are to blame for the breach, the other party may immediately take steps to correct the issue. If the issue resulted from organizational setbacks or intentional contract violations, then additional enforcement might be necessary.
A lawsuit can lead to contract fulfillment or compensation
If there is a written agreement or even a clear chain of communication agreeing to certain arrangements, it is possible to enforce that agreement through the courts. Initiating a breach of contract lawsuit can sometimes push the other party to fulfill their obligations or may at least inspire them to sit down and negotiate a way to resolve the issue.
If the matter does end up going to court, a judge can enforce the contract by ordering specific performance. They can require that a service provider fulfill certain contractual obligations, including re-doing work that didn’t meet client standards.
A judge can also terminate contractual obligations and or damages to the plaintiff. They can enforce penalty clauses integrated into the initial contract related to delays in project completion or non-performance. In theory, a judge can take the necessary steps to resolve the dispute and minimize the harm that the breach of the agreement has on the business.
Documenting and acting promptly after uncovering service provider contract defaults can be of the utmost importance for the protection of a business. The defaults of an outside party can damage a company’s operating budget and/or its reputation. Litigation is often the swiftest means of resolving a contract dispute with a service provider who has not followed through on their promises.
