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Supplier problems


My supplier has failed to deliver a batch of components on time, as agreed in our contract. Now they are failing to respond to us. I could lose an order worth six figures. I want to avoid a dispute but I’m running out of time. What can I do?

The first thing to do is to look at the terms of the contract. If it states a date by which the goods are to be delivered and that "time is of the essence" then the supplier is legally obliged to ensure you receive the goods by the date stipulated and, subject to the other terms of the contract, could be responsible to you for your losses should the supplier fail to deliver on time and you lose your large order and suffer losses as a result.

If the contract does not state that time is of the essence then you should immediately write to the supplier and state that time is of the essence, the reasons why and identify a date by when the goods are due.

It is always sensible to look at your options from a practical as well as a legal perspective. Is the supplier now physically able to deliver within the time frame you require? Is the supplier in financial difficulties? Is there another supplier who you are confident can deliver the product to you within the time frame to allow you to meet your onward contractual obligations and not lose the large order? Is the alternative supplier more expensive? The answers to questions such as these will influence how you should proceed.

All cases are different and turn on their individual facts but assuming the contract does state that time was of the essence and the supplier is unable to meet the order on time then you would be entitled to terminate the contract and claim any damages you may suffer as a result of the supplier’s failure to deliver on time.

Subject to the precise terms of the contract with the supplier those damages could amount to the value of the profit you would have made if you lose the large order. However, you are under a legal obligation to take reasonable steps to mitigate or limit your losses. If you can source the goods from an alternative supplier, perhaps even at a higher price, in time for you to meet and not lose the large order, then that would be a reasonable mitigation of your losses and you would be entitled to recover the difference in price you have had to pay from the original supplier.

Scenarios such as the one above are common in business. If you do have a business that relies on suppliers meeting your orders on time to enable you to meet your onward obligations to your customers then you should look at your contract terms carefully and always ensure that time is of the essence. Your options and remedies will be far wider than they would otherwise be.

All answers are for general guidance only. Each case must be handled on the individual facts.

Source: Yorkshire Business Insider, Ask the Expert, November 2011

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