Vendor Agreement And Its Uses

Any business needs help to kick off and run successfully. Whether it is to do with getting cloud services, design services, host services, vendor procurement etc, agreements are required to keep work in check and quantify the requirement and deliverability of both parties. As a business, a lot of formal interactions happen with other business(es) in the form of getting another agency to design your website to your cloud services or internet service provider. Generally, a big agency such as Reliance would offer a standard rate that a company would have to accept. Smaller vendors would have room for negotiation as they would change their offers to make it more attractive to businesses, and in such cases, businesses need to create vendor agreements.

A vendor agreement is put in place to establish an understanding between the agreeing parties with regard to time of service, terms of payment, specifications of the service provided, the liability of the agreeing parties, among other things. A vendor agreement can also be called a supplier agreement because in each case, a vendor is supplying a good or service to a company or a third party through a website on a contractual basis. In the case of dispute, one can look at the terms and conditions of a vendor agreement to get more clarity on the defaulting party.

Vendor agreements can be customized as per the specifications of the agreement. The agreements can be registered either through the online registration model or the offline registration model. The names imply the method in which the registration is done. While drawing up a contract it is also important to mention which party will maintain the logistics (packaging and delivery of goods).

Generally, companies that employ an individual to draw up legal contracts would be able to draft a vendor agreement. In addition, a company employs vendor managers to handle vendors and assist them as and when the case may be. Vendor managers also take care of payouts, the addition of new vendors, establishing and maintaining communication between the company and vendors etc.

Websites require vendor agreements because websites like Amazon, Flipkart, (pretty much the same list every time) allow vendors to sell products on their website or suppliers to supply goods as raw materials to websites like BigBasket or Walmart. These small or large vendors are required to enter into vendor agreements before being allowed to sell on an online website. These agreements contain legal aspects of each party that the online site and the vendor have to comply with during the entire duration of the agreement. This prevents fraudulent activity by the vendors who are trying to sell on a website by authenticating the seller, supplier or whichever form the vendor may take.

Who Is A Vendor?

A vendor is a supplier who supplies goods or services to individuals and companies in exchange for payment. A vendor can be hired for services like security, taxes, insurance, advertising, utilities for a website or for the supply of goods.

Contents Of A Vendor Agreement

Services Or Goods

Companies that employ vendors generally have the requirement of a service or a good. A vendor would provide goods and/ or services to the website or a third party that visits the website. E-commerce websites use vendors to sell to third parties and some websites use vendors to avail of services that a website will directly use as an end customer.  A vendor agreement would specifically define the service or good being purchased, its quantity, quality, discounts or rebates and date of delivery for that good or service. An internet service provider cannot just state that they will provide internet facilities but must specify the package, the features and additional amenities of the good/service being provided.

Payment Terms And Remittances

Payments terms indicate how a vendor will be paid by a website in exchange for said good or service upon submitting remittance details. Payments are structured or paid out in a lump sum based on what the parties agree on the stipulated length of the contract. A website can make a payment decision based on cash flow, discount for early payments and deferred payments which are all standard norms. Websites generally make disbursements to vendors once they have received payment for that good or service from the customer.

Duration or termination

Duration implies the time period for which the agreement will be legally valid. It could be for a definitive period or until the business transaction is completed. If one party fails to oblige with the terms or any clause of the contract, either party can terminate the contract on the grounds of a breach of contract. It is implied that both parties will honor the terms of the contract but, in certain cases, a business might want to cut short an agreement because of an internal operational factor or lack of funds, then the agreement would need to include a ‘termination without cause’ clause to terminate the contract. A vendor can terminate a contract after serving a notice period as stated in the agreement if any. The option of terminating a contract endows greater flexibility to the vendor.

Confidentiality

In some cases, private and sensitive information might be shared with the vendors. A confidentiality clause would protect the site against disclosure of information to third parties or misuse of such information or technology. A company might share its software with a vendor to sell their products or a company might need a co-packer to prepare goods and services at a cheaper rate. In either case, the vendor has access to confidential information that needs to be protected with a confidentiality clause. Upon the expiration of the contract, all materials must be returned to the website or destroyed, as stated in the contract.

Warranties

Warranties are a common understanding that a vendor must comply with before entering a contract. Some general clauses under warranty are:

• Expertise and qualifications of the vendor to perform the services agreed
• The vendor should not infringe any third party or third party contracts
• The work done will not infringe on any company or third party intellectual property’

Intellectual Property

All intellectual property created by any party will belong to the business if the website does decide to include an intellectual property clause. The implied understanding is that a vendor is contracted to deliver a service or a product for the benefit of the business. Sometimes reports or studies that are done are sold to competitors after the duration of the agreement has been carried out. This is still an infringement of intellectual property rights. Companies that generally purchase or sell technology or software have to make a lot of consideration for IP rights in a vendor agreement.

Liability

The purpose of a liability clause is to limit the liability of the vendor in case of an issue. Generally, most vendors accept the liability that is limited to the cost of the service being provided. A vendor can terminate a contract if he has reasonable enough cause for termination of the agreement. A company should also include a termination clause against intentional misconduct, gross negligence or fraud by the vendor that will make the vendor liable for compensation against damages.

Indemnification

Most end-user license agreements and service level agreements require one party to assume the losses or costs of the second party. Indemnification is where one party undertakes to cover the monetary losses of another party in certain circumstances. Indemnification can take the form of reimbursements or direct payment for losses incurred.  A vendor indemnifies a business for losses that arise from gross negligence, misconduct and infringement of intellectual property rights by the vendor. From a legal standpoint, this gives clarity on who has to pay who.

How To Draft A Vendor Agreement?

With the option to purchase or lease goods and/or services along with long term business transactional relationships have given rise to vendor agreements. There is no one size/type fits all. Each document needs to be customised and tailored to the vendor relationship in question. Large companies have their own contracts that are generally standard for all customers or companies. Thus, leverage lies with the vendor when agreements are non-negotiable on such occasions.

LegalDesk.com undertakes customised vendor agreements for websites and businesses alike at the click of a button.