Vendor Service Agreement: Everything You Need to Know
A vendor service agreement is used whenever a business owner or an individual hires a person or company to provide services or products.3 min read
2. When Should You Use a Vendor Service Agreement?
3. Provisions of a Vendor Service Agreement
Updated November 23, 2020:
What Is a Vendor Service Agreement?
A vendor service agreement is used whenever a business owner or an individual hires a person or company to provide services or products. Vendor agreements are used in all sorts of industries, including professional services, technology, marketing, event planning, and much more. A quality vendor service agreement clearly states the product or service the vendor will provide and the expectations of the deal from the beginning. It also lowers the risk of dispute or confusion for everyone involved.
A vendor service agreement should be used for all types of events, including farmer's markets, festivals, or fairs, to ensure everyone benefits from the experience. In a vendor agreement, the conditions and expectations of the service or product are clearly laid out. Important information to include in a vendor agreement includes:
- Date of event or service
- Time the service will occur
- Location where the service will be performed
Vendor agreements should always be connected to a statement of work, or SOW. Most vendors won't work without a valid SOW. Once the customer and the vendor both sign the vendor agreement, it becomes valid and can be enforced.
When Should You Use a Vendor Service Agreement?
Vendor service agreements should be used frequently. A vendor agreement lays out the expectations event planners have for vendors and allows event planners to add clauses with specific details, such as if they require a portion of the vendor's proceeds to go towards the venue rental. A vendor agreement is helpful for assuring that vendors will arrive at the correct time, sell what they say they will, and follow the rules of the event.
Vendor agreements are helpful for vendors because they allow vendors to add stipulations in writing, such as if they need access to a certain area to set up their products. The documents protect vendor selling conditions.
Provisions of a Vendor Service Agreement
Vendor agreements should always include details about the product or service the vendor is supplying. In many cases, a statement of work is attached that includes further details. The agreement can also include how and if the terms surrounding the expected products or services can be changed by either party.
Another section should cover payment terms, including details on the cost of the product or service and when payment is due. If both parties have agreed on a payment plan, this is the place to include it, as well as the consequences of what will happen if a payment is missed. Payment terms vary depending on the type of service; some vendors require payment on delivery, while others use Net 30 payment or payment in installments.
Vendors that offer options for payment terms may be able to negotiate a higher payment price. Many vendors are willing to adjust the price for their services depending on the size and type of order. Negotiations should happen before the details are finalized in the vendor service agreement.
An important provision is around term and termination, which outlines the engagement term and how either party is allowed to terminate the agreement. Termination details can vary depending on the situation. Some vendors and customers allow for termination for any reason as long as there is a notice period, and other vendors only allow termination for a justifiable cause. For example, a customer that has paid upfront for a long-term service wouldn't want the vendor to be able to end the agreement for any reason. Those details should be stated in the agreement.
In the event of a termination of the agreement, both parties should also agree on damages. There are a number of types of damages that most states recognize, including consequential, incidental, special, indirect, and lost profits. It is up to the state to decide if damages can be recovered if they were foreseeable or if damages are consequential. There are also other kinds of non-monetary damages that may be discussed.
A common breach of vendor agreements comes by breaking confidentiality and non-disclosure clauses. In many cases, the punishment prevents the guilty party from misusing the confidential information, but it often doesn't include recovering any confidential or proprietary information that may have been copied.
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