When clients receive goods and/or services from a vendor or provide goods and/or professional services to its customers/clients, it is essential that the parties enter into a written vendor contract/agreement. This document is important because it sets forth the terms and conditions of a relationship between the organization and the vendor or supplier. In addition, what is included in the vendor agreement is also significant since it needs to protect the client’s interests and avoid any potential loss or liability. This article will discuss the importance of vendor contracts and the provisions that are vital to the contract.
Vendor contracts are legal agreements that clearly set forth the provisions and conditions of the work and/or services to be provided by a vendor and/or contractor. If drafted correctly, these documents provide protection against potential liability. However, vendors often have their own agreements and such documents typically include language favorable to the vendor. We suggest including the provisions outlined below.
Relationship Clause: The contract should include a provision setting forth the relationship between the parties. This clause typically includes what the parties can expect to receive from one another and what they are entitled/not entitled to under the contract.
Contract Term and Termination Clause: Vendor contracts are often for a fixed term such as one or two years. Alternatively, the term may end upon completion or satisfaction. If the agreement is for a fixed period, it should set forth the beginning and end dates. The clause should include language on how and when to terminate the agreement before the fixed term. The portion discussing termination typically includes the amount of written notice to be provided and any information regarding refunds and/or payments owed prior to and at termination.
Services Clause: A services provision outlining the goals, expectations and services to be rendered should be included in a vendor contract. This should include specific details of the services agreed upon by the parties.
Payment Clause: A detailed payment schedule is essential. This section may set forth specific payment dates, amounts owed on each date and any other payment details agreed to between the organization and the vendor. Payment provisions can be structured in various ways. For example, payment could be set at the end of each month, when assignments are completed, or in a lump sum payment.
Insurance Clause: If applicable, this clause should set forth that the vendor agrees to obtain the appropriate insurance in a specified amount.
Indemnification Clause: An indemnity provision sets forth that one party (the vendor) contractually agrees to cover the losses of the other party (the organization) in specified terms. Typically, vendor agreements include language detailing that the vendor agrees to indemnify the organization for any losses resulting from a breach of the terms of the vendor contract, gross negligence, and willful misconduct or fraud.
Protection of Confidential Information/Non-Disclosure Clause: When sharing confidential information with a vendor, it is crucial to include a confidentiality provision in the contract to make clear that any information shared with the vendor cannot be disclosed to third parties. This provision will protect an organization’s confidential information and provides for a cause if action if there is a breach. The specific types of confidential information applicable to the business should be included and as detailed as possible. For example, such information could include: business plans, financial information, marketing information, employee information, research plans, formulas, inventions, etc. In addition, this provision should include an equitable remedies portion setting forth the remedies that the organization is entitled to should the vendor breach this clause of the contract.
Intellectual Property Clause: It is important to address the ownership of intellectual property related to the agreement. Clients may choose to specify that intellectual property created during the agreement, by one or both parties, will be owned entirely by either the client, vendor/customer, or by the party that created it.
Compliance with Laws Provision: Generally, this provision sets forth that the vendor agrees to adhere to the polices of the organization and any and all applicable federal, state, and local laws and regulations.
Choice of law/Choice of Venue Clause: This clause sets forth that any dispute arising under the contract will be determined in accordance with the law of a particular jurisdiction. Additionally, it allows the parties to agree that any disputes relating to the contract will be resolved in a specific forum.
Arbitration Clause: This provision requires that a contract dispute be resolve through an arbitration process.
As part of our practice, we are often called upon to prepare or review these agreements so that our clients’ interests are properly protected.