What is a Vendor Agreement?
A vendor agreement is a binding contract between two parties that enables a seller of services or products to provide those services or products to the buyer. In most instances, the arrangement will be considered a business-to-business transaction. In other words, both parties in the agreement are commercial enterprises and not individuals.
Without a vendor agreement, there is little to no recourse for either party should one of the parties to the agreement fail to honor their specified requirements. In addition, especially in the United States, courts will often find against the party not in compliance unless an existing agreement specifically specifies the other party’s obligations.
Typically , a vendor agreement will include the following:
Forms of vendor agreements
There are two forms of vendor agreements: exclusive and non-exclusive. As its name implies, an exclusive vendor agreement means that the seller has an agreement with one buyer. On the other hand, a non-exclusive vendor agreement can involve any number of buyers, none of whom have the exclusive right to any services or products of the seller.
Terms of vendor agreements
Vendor agreements often contain a number of specific components, such as:
Parts of a vendor agreement
Most vendor agreements will require the following parts or sections:
Vendor agreements are binding agreement between at least two parties. Typically, a vendor agreement can be a relatively simple document or a much-arranged and comprehensive listing of all parameters of a human relationship.
Essential Elements of a Vendor Agreement
Scope of Services: This is where the vendor defines the services they agree to provide. The more detailed the description, the better for the customer. The limitations on what is being done also must be spelled out. The better the description in this section of the agreement, the less chance of a dispute over what services were agreed to.
Billing Terms: The agreement should specify when the vendor will bill you and when payment is due. Any late fees should be addressed as well. If payment is made by credit card, the credit card fees should be discussed.
Confidentiality: You should require that the vendor maintain confidentiality of your company and all information they may learn about your employees, customers, etc. If the work done requires access to sensitive personal data, it should be subject to some kind of confidentiality obligation.
Termination: The agreement should specify how either party can terminate the agreement. Cause should be defined, but either party should be able to terminate without cause on a certain number of days notice.
Liability: This is usually found in the indemnification clause of the contract. The provisions regarding what would happen if the vendor was sued for something related to the services should be described. Who can get sued, and what risks are you taking should be identified.
Advantages of Using a Vendor Agreement PDF File
When it comes to the management of your business, there are a lot of different things for you to focus on and a lot of different priorities that you have to worry about. That said, most people put a heavy emphasis on making sure that they pay their employees what they’re worth, and that they don’t miss out on complying with employment law or get sued by disgruntled workers. What many people and businesses tend to forget, however, is that they also need to make sure that their vendors are in compliance with the law, and a vendor agreement is one of the best ways to ensure that this is true. What most people search for when they’re looking to create a vendor agreement is a template that they can use as a guide to make sure that they have all of the right information included.
By using a vendor agreement PDF template, you get a lot of benefits. One of the most critical benefits is convenience. There’s no reason to reinvent the wheel over and over again, and that’s exactly why we’ve put together these templates for you. With the templates that we’ve created, you can easily and quickly create a vendor agreement without having to constantly start from scratch, makes it far more likely that you’ll get it done in a timely manner. Additionally, because our templates are so easy to customize, you won’t have to worry about recreating any basic information you want included, further reducing the time it takes you to create an agreement.
Legal compliance is another huge selling point for anybody who wants to create a document for their vendors. If you try to make your own agreements from scratch, there’s no guarantee that your agreements are even compliant with the law. When you utilize one of our PDF templates, however, you’ll be able to rest assured that your agreements are compliant and legally binding, giving you even less to worry about.
Ways to Tailor Your Vendor Agreement Template
The beauty of using a vendor agreement template is that it can easily be adapted and tailored to meet the specific needs of your business or relationship. For example, if you’re entering into a contract to purchase a heating system, your template may require certain warranties regarding the condition and energy efficiency of the unit. However, if you’re hiring a web developer, those warranties will likely relate to the ownership and coding of the website’s source code and graphics. To make sure your final agreement covers all the bases, follow the steps outlined below: This list isn’t exhaustive, and the terms you need to modify will depend on the nature of your relationship with the vendor. In addition to making sure that everything important is covered, pay close attention to how each term is stated. For example, if the template states that the vendor must provide you with "10 copies of Index A," this may not be a big deal, particularly if "Index A" simply refers to a page in the vendor’s catalog. If, however, "Index A" refers to a large stack of papers detailing the vendor’s manufacturing process and safety procedures, you should be sure to update that clause to reflect the correct number of copies. Although you’re creating a contract template rather than a contract itself, you should still make sure that your document complies with all local, state, and federal laws. Taking the time to customize your vendor agreement template ensures that you have a strong contract on hand when needed while eliminating the potential for wasted time if there’s a discrepancy in the future. In addition, instead of scrambling to find a lawyer to assist you, you’re much more likely to be able to get in touch with someone with the expertise necessary to assist you.
Typical Vendor Agreement Mistakes to Avoid
There are several common mistakes that businesses make when entering into a vendor agreement. The three most common mistakes are failing to perform due diligence on a vendor, being vague in the agreement, and not identifying dispute resolution provisions that suit the business. Another issue that I see frequently is a failure to include proper consideration in the vendors agreement.
Failure to Perform Due Diligence on Your Vendor
Before entering into a vendor agreement try to collect as much information as you can on the vendor. It’s important to verify that the vendor you are entering into an agreement with is the entity that it says it is. Look up the vendor’s business and verify its formation status with your state’s Secretary of State or other appropriate agency. If you cannot locate the entity under the name of the vendor you are trying to contract with, you may have contracted with the wrong entity. Sometimes an entity that is not properly formed will use a "doing business as" name that will lead you to believe that you are contracting with the correct entity, when you are not. Determining the entity form of the contract being entered into is also important. Is the vendor a corporation, limited liability company, or sole proprietor? The entity type will determine how your contract should be structured. For example, if you are entering into a vendor agreement with a California limited liability company, California law will require you to include certain language about the members. Failing to include this language could prevent you from successfully enforcing the agreement.
Failing to Include Consideration for Your Vendor Agreement
Even if you are contracting with a corporation or limited liability company, you will need to provide some sort of consideration in your vendor agreement for the contract to be enforceable. Usually this comes in the form of legal tender like cash, credit, and debit card payments. However, even in contracts for goods and services where it is not practical for you to pay in cash, (e.g. a service for remote computer support), you will either have to make payment in some other form, or pay nothing in exchange for the services. If you do not provide consideration in your vendor agreement , there is no guarantee that you will be able to enforce the agreement in the event of a dispute. Continued failure to provide consideration could also result in the breach of the agreement.
Not Including Dispute Resolution Provisions in Your Vendor Agreement
Always include a dispute resolution provision in your vendor agreement. The dispute resolution provision should provide for the venue (the location where a legal proceeding under the agreement may be brought), the applicable law (law of the land to be applied by the court), and provide for the involvement of the American Arbitration Association for enforcement. If your vendor agreement has a dispute resolution provision that you can live with prior to its being included in the agreement, you have a legal justification for the courts enforcing the agreement against the other party. This cannot be stressed enough to businesses looking to enter into vendor agreements. It is much easier to enforce an agreement with a dispute resolution provision that can be applied from a jurisdiction that is not your own.
Being Too Vague with Your Vendor Agreement
The vaguer your vendor agreement is, the more vulnerable you will be in the event of a breach. Make sure that you provide to the vendor as much information as you can concerning the nature of the contract. If you are contracting for the manufacture of widgets for your business, clearly spell out the process of manufacture, delivery, and acceptance. If you are contracting for consulting, clearly spell out the background on both parties and the goals of the consultancy. If you are contracting for a service with no tangible item involved, make sure to spell out as much as you can concerning the details of the consultancy. If the term of the contract requires legal formalities, a dated executed signature page will not suffice. You will need to follow the formalities of that form of contract in order for there to be a true "meeting of the minds".
You would be surprised at how many businesses enter into agreements without performing due diligence, including a dispute resolution provision, spelling out considerations, or clearly spelling out the nature of the agreement. With a well-prepared vendor agreement that includes all of these provisions, your agreement will stand a much better chance of being enforced if your business realizes a profit and must seek damages for any breach.
Legal Aspects of Vendor Agreements
In any vendor relationship, there are a number of legal considerations that should come into play when you are drafting the initial agreement. First and foremost, you have to determine what jurisdiction your vendor will be governed by. If you both live in the same state or at least the same federal district (e.g., Connecticut) or the same city (e.g., Chicago), then you will likely govern the contract by the laws of your home state and the federal judge with the longest eyes. That is to say, if one of your vendors has been sued in the past by another customer and that previous customer filed the lawsuit in another state, it’s possible that the vendor will want that lawsuit to be governed by the original court as opposed to having to deal with multiple courts.
A second consideration is whether there is an arbitration clause and how or whether it is triggered. Often an arbitration clause in your vendor agreement can be triggered by the existence of a disagreement as to any performance issues. And these disagreements are in addition to what are commonly referred to as express disagreements, which are the disagreements spelled out in the contract. While it is not industry standard, it is not uncommon for vendors to include arbitration clauses.
Another area of concern is regulatory compliance. Depending on the type of service offered by your vendor, and by extension, the product that you are trying to sell, you may well need to comply with a myriad of government regulations, from the Federal Trade Commission (FTC) to local ordinances. You will want to consider whether you can comply with all of the applicable regulations (some of which may apply to you and others may not) and, if so, how you will do so.
Best Practices for Vendor Agreement Negotiation
There are a few keys to negotiating fair terms for a Vendor Agreement. The most important is to remember the vendor is not your adversary. Some entrepreneurs on hearing the term "negotiation" get paranoid and think of negotiating as if it were a WWE SmackDown between two hairy sweaty guys battling it out over the last piece of pizza. They think of a negotiation in terms of winner-take-all.
Nothing could be further from the truth. Negotiation is a process to reach a mutually beneficial and desired agreement. There are a few types of negotiation strategies depending on human psychology: there’s the naked confrontation where I fight you tooth-and-nail and win or lose, the compromise where I share my pizza with you or the integrative model where I bring in a pizza chef to make an even better pizza you and I can both enjoy and derive maximum benefit from.
The key to helping you achieve an integrative outcome is to ask questions.
What are you trying to achieve? Is it money? Delivery? A solid long-term relationship? Something else?
Ask your vendor these questions to uncover all of his objectives. You’ll notice your vendor will have some he never even thought of himself. Once you know what everyone wants, then you can begin to align interests—perhaps you will pay a little more if you don’t have to check the materials in X-skid because the vendor has provided a certificate of authenticity. You will be willing to change the delivery date by a week in return for the vendor giving you a few more months of payment terms. Do you see how this is a win-win scenario versus a win-lose scenario?
Your goal is to reach an agreement that is beneficial to both of you, so do everything you can to help that prospect—both during the negotiation and after you’ve reached your agreement. And you will have a vendor who will do everything they can to help you too.
Sources for Trusted Vendor Agreement PDF Files
If you’re looking for reliable Vendor Agreement templates, either to download for yourself or as examples, there are some excellent resources available online. Many legal document websites provide access to a wide range of Contracts, Agreements and other business documents, either for free or with a subscription. Either way, an online document source can be very convenient and save you considerable time.
However, with that convenience does come the risk of downloading a document that is incomplete or simply inadequate for your needs. Right off the bat, it is good to recognize that 2-5% of lawyers’ time will be spent cleaning up problems arising from improper documents. That statistic is primarily the result of improper drafting and filling out existing documents, not downloading the wrong one. Nevertheless , the quality of the template does make a difference when it is used to draft the document.
Another good place to look is your State or County Bar Association. If you do not have access to an online site, only getting a subscription if you can’t find what you’re looking for or selecting a specific document for an additional fee, it may be because your State or County Bar Association provides workable templates for free. Make sure to check there as well.
Some of the other options include Internet lawyer sites where you can consult with a lawyer to help you draft a more complex document, or Complex Templates, which are customizable documents offered for download at the click of a button on many legal document websites. Another option is hiring a lawyer to draft a customized document for you.