Ability to perform: Overview, definition, and example
What is ability to perform?
Ability to perform refers to a party’s legal, financial, and operational capacity to fulfill its obligations under a contract. This includes having the necessary resources, authority, expertise, and financial stability to meet contractual commitments.
For example, in a construction contract, the contractor must demonstrate that they have the workforce, equipment, and permits required to complete the project on time.
Why is ability to perform important?
Ensuring a party has the ability to perform is crucial for reducing the risk of contract breaches or project failures. It provides assurance that obligations will be met as agreed, protecting both parties from financial or operational setbacks.
For businesses, including an ability to perform clause in contracts helps confirm that all parties involved are capable of delivering on their promises. This is particularly important in industries where performance failures can lead to significant losses, such as construction, finance, and procurement.
Understanding ability to perform through an example
A software development company signs a contract to build a customized application for a client. Before finalizing the agreement, the client requires the company to provide proof of technical expertise and past project success to confirm its ability to perform.
In another case, a manufacturer enters into a supply agreement with a retailer, committing to deliver 10,000 units per month. The contract includes an ability to perform clause, requiring the manufacturer to maintain sufficient production capacity and raw material supply to fulfill orders without delays.
Example of an ability to perform clause
Here’s how an ability to perform clause might appear in a contract:
“Each Party represents and warrants that it has the financial, technical, and operational ability to perform its obligations under this Agreement. If at any time a Party becomes unable to fulfill its commitments, it shall notify the other Party immediately and take all reasonable steps to remedy the situation.”
Conclusion
Ability to perform ensures that all parties in a contract have the necessary resources and qualifications to meet their obligations. Including this clause in agreements helps mitigate risks, prevent project failures, and provide legal assurance that commitments will be met. A well-drafted ability to perform clause strengthens contractual reliability and protects against unforeseen performance issues.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.