A vendor supplier agreement is a contract between a vendor and a business, where the vendor agrees to supply specific products or services. These agreements can be beneficial for businesses because they often provide pricing stability.

Key Terms to Know

Is there a difference between "seller" and "vendor?" In certain contexts, there is a difference. For instance, in computer contracting, it's common practice to use the term “vendor” instead of “seller.”

You may use the term “vendor” in one of two ways:

  • Any member in the whole class of business entities (usually producers or manufacturers) that engages in marketing a product that a potential buyer may want
  • An individual entity that makes the sale or lease

In computer contracting, selling and vending represent two specific phases of commerce: selling is the final step in the process, or the actual sale, while vending focuses on the process of marketing or offering something for sale, not the sale itself. Therefore, you might want to use the term “vendor” for an entity that creates and markets the product and “seller” for the party that sells the product to a customer at retail.

You should use the term “supplier” for an entity that doesn't only sell widgets but contracts to supply the widgets.

Every organization faces a challenge in managing vendor and third-party contracts. Properly negotiating these agreements can have a positive influence on making business decisions and reducing risk. You can prepare for better negotiations by developing a contract negotiation playbook.

However, some obstacles limit successful negotiations. For instance, when acquiring an IT services subscriber base, you must consider how the following will affect the value or price paid:

  • Customer attrition
  • Loss of key personnel
  • Revenue projection revisions

Some sectors have very specific business rules, such as credit unions, professional services, cybersecurity, and software licensing. In addition, some entire industries have additional regulations imposed by various agencies, such as the FTC, SEC, or FCC, that control access to customer data and the use of it.

The big data, cloud, social, and mobile areas are further complicated by the addition of extra parties, such as vendors and consultants, who may have their own set of procedures, rules, and risks.

Service providers and advisers might not fully understand the unspoken, internal business rules that people inside the organization are intimately familiar with, just by being part of the team. Each set of strategies and tactics is bound to reflect a business's internal rules, but knowing key points should be part of any playbook.

Termination and Remedies

If you ever need to get out of a contract, you might wonder if it's even possible and under what circumstances you can do so. For instance, it may sound ideal to have unilateral immediate termination in the case of material breach, but if you've already pre-paid for services, this isn't a great option.

The agreement should include termination rights that honor the value of the original bargain. This isn't to say that you should allow bad conduct, however.

Contract law rights and remedies are different state to state, so you should understand the limitations in the jurisdiction where you operate. There are 47 state laws relating to data breach notification. Plus, federal requirements are in place as well.

Most states recognize various types of monetary damages, such as the following:

  • Incidental
  • Consequential
  • Punitive
  • Special
  • Indirect
  • Exemplary
  • Lost profits

States may have different rules concerning when a party may recover consequential damages and which types of damage are consequential.

Don't forget to think about non-monetary, equitable relief. Such remedies may be in the form of injunctive obligations or restructuring of the agreement, as ordered by the court. Injunctive relief is usually the remedy for non-disclosure or confidentiality breaches. However, enforcing these remedies is often confined to simply preventing continued misuse of that secret information instead of recovering the material that was copied from proprietary information.

Vendor agreements are legally binding documents, so it's very important that you fully understand the various provisions and clauses in them before signing. It's best when contracts benefit both parties equally, so know what you're agreeing to in order to gain the most benefits for your business.

If you need help with vendor agreements or contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.