What is a Vendor Agreement?
A Vendor Agreement is an agreement in which a business owner, or individual, hires someone to provide products and/or services. Vendor Agreements can cover a variety of areas including software, office supplies, professional services, consultants, technology services, event planning, marketing and much, much more.
Having a solid vendor agreement in place is important because, like any agreement, it clearly delineates and defines all the details of the product or services being provided. By negotiating a clear vendor agreement, one clarifies expectations and goals while minimizing the risk of confusion and conflict.
What Provisions are Typically Included in a Vendor Agreement?
The following is a brief description of the typical clauses that can be found in most vendor agreements. It is always important to tailor clauses to the specifics of a particular business deal. Things that may work for one vendor or company may not work for another. With that in mind, the main provisions to watch for are:
- A Clear Description of the Product or Scope of Services: A Vendor Agreement should always contain a clear and detailed provision describing the specifics of product or the services being provided. Sometimes, a Statement of Work will be attached to a vendor agreement, which should provide all the details necessary for the engagement.
- Payment Terms: The vendor agreement should contain a clause describing in detail how much the product or service costs, when payments are due, to whom they should be paid, on what payment terms payments should be made, if there are any late payment penalties and what such penalties may be.
- Term and Termination: The agreement should also define the engagement term (either initial or renewal or both) and how a party can terminate the agreement. Sometimes it is agreeable to allow termination for convenience on a specific notice period and other times it is reasonable to allow termination only for cause.
- Intellectual Property: If either party is providing or will be using Intellectual Property under the agreement, the parties should clearly provide who owns the IP, what it is to be used for, whether a license is granted to the other party to use the IP and if so, under what terms.
- Deliverables: A vendor agreement should also describe what, if any, deliverables will be provided under the agreement. If there are to be deliverables, it is important to specify who owns them and whether or not they will be considered “works for hire.”
- Representations and Warranties: A vendor agreement should state what representations and warranties the vendor will provide. Specific warranties may include: the vendor has the capacity to enter the agreement, the products or services being provided will conform with any specified requirements, the products or services will not infringe any 3rd party IP right, the services will be provided in accordance with industry standards and/or the vendor has the necessary knowledge and expertise to perform the services.
- Confidentiality: Most vendor agreements cover how the disclosure of confidential information will be handled. Sometimes, the parties will opt to execute a separate non-disclosure agreement. Some key points to consider in either case are: what is included in the definition of confidential information, what are the marking requirements (if any), how long the period of protection is and what, by definition, is excluded from confidential information.
- Indemnification: Most vendor agreements will benefit from an indemnification clause. Indemnification, by definition, is an obligation by which one party engages to save another from a legal consequence of the conduct of one of the parties, or of some other person. In a vendor agreement, it’s usually reasonable for a vendor to agree to indemnify for a breach of warranty under the agreement, willful or negligent acts, omissions and for infringement of a third party’s intellectual property rights.
- Limitation of Liability: A limitation of liability clause is very common in vendor agreements. Typically you will see a clause excluding special, indirect, incidental or consequential damages from a party’s liability as well as some sort of overall monetary cap to a party’s liability, but again, a limitation of liability clause needs to meet the specifics of the business arrangement.
- Insurance: It is not uncommon to require a vendor to agree to hold specific insurance. For example, if engaging professional legal services, one would require the vendor to hold errors and omissions insurance.
- Relationship of the Parties: It is important in a vendor agreement to define the relationship of the parties. It should be very clear that the vendor is to be considered an “independent contractor” and in no way has any right, power, or authority to act on behalf of the other party.
The above are just some of the main components typically found in a vendor agreement. As with any agreement, the main purpose is to clearly delineate the rights and obligations of the parties. By doing so, the parties alleviate risk while avoiding confusion and conflict.