What Happens if Your Food Company Faces a Breach of Contract?

Every food and beverage company plans to fulfill its contractual obligations on time. But what happens if mitigating circumstances lead to a breach of contract? 

There are many reasons why a food company might not fulfill its contractual obligations, including natural disasters, supply chain issues, or government sanctions. To protect your company against potential litigation, you need to understand what happens if your food company cannot fulfill a contract and how to insure yourself against it.

Reasons Your Food Company May Not Be Able to Fulfill Your Contract

Many contracts are broken or not fulfilled in times of economic uncertainty. For example, recent lockdowns and closed borders may have prevented you from fulfilling your contractual obligations as a food and beverage supplier, which is problematic but not necessarily an emergency.

Emergencies are typically covered by commercial insurance policies and referred to as a “force majeure.”You may have heard this type of event referred to as an “act of God,” but what does it mean? A force majeure event occurs when an unexpected and unpredictable act happens. This could be fire or flood damage to buildings where products are being made. 

In addition to “acts of God,” supply chain issues, like delayed or limited equipment manufacturing, can prevent your food company from fulfilling its contract. Equipment, like steel and oil, is essential in food production, but they are also in high demand worldwide. Failure to get these essential materials on time can be detrimental to your food and beverage company’s productivity.

The Cost of Failing to Fulfill Your Contract

Following a breach of contract, you may be subject to litigation from your client. Since your food company failed to fulfill the contract, your client has legal grounds for a lawsuit. Failing to fulfill your contract hurts more than just your company’s relationship with the client. It can harm your public image and reputation, thus hurting your chances of growing your client base. Failing to fulfill your contract will also lead to lost revenue. Additionally, employees will be more tied up in one particular contract trying to get it filled, which may lead to failure to fulfill other contractual obligations. Luckily, there is a way to prevent these struggles.

Surety Bonds: Assurance to Consumer 

Surety bonds are the number one way to prevent a breach of contract and win more customers. Surety bonds are designed to guarantee performance despite the perceived risks. They are three-party contracts by which one party  (the surety) guarantees the performance of contractual obligations of a second party (the principal) to the third party (the obligee). This means that the surety promises to be responsible for the debt or default of your food company. The surety is the insurance company that backs the bond. 

Surety bonds guarantee your clients that your food company will fulfill your contract in one way or another. Contact Coughlin Insurance today to learn more about Surety Bonds and other essential insurance policies for your food and beverage company!

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At Coughlin Insurance Services, we believe that our customers should be valued and taken care of. We aim to provide quality service and meet the needs of our clients by providing businesses, especially those in the food industry, with the insurance they need to protect their assets. If you’re a business looking for insurance, don’t hesitate to reach out for a free insurance quote today!

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