Understanding and resolving major contractual breaches in buyer-seller relationships: a grounded theory approach

In business-to-business relationships, sellers are often faced with instances of contractual breaches by buyers. In many cases, relationship factors preclude legal enforcement of contract terms, requiring sellers to explore alternate resolution options. Literature on contractual breaches has primarily focused on enforcement options based on terms specified in the contract. However, little is known about how companies deal with contractual breaches by their customers when legal enforcement is not a viable option. The authors use a grounded theory approach to investigate this important issue. Based on in-depth interviews with 40 supplier managers and executives in multiple industries, the authors identify: (a) types of out-of-contract alternatives for resolving breaches, (b) factors that lead to use of enforcement options outside the terms specified in the contract, (c) contextual influences, and (d) individual and firm-level consequences of outside-of-contract enforcement.