How to write Vendor Contracts

Vendor Contracts:

With over 25 plus years in the purchasing profession we have seen Vendor Contracts take on many forms. In the early days some were pretty scary and we would be challenged to even call them a contract. They were more like a glorified hand written fax! Our profession has evolved and writing a vendor contract can mean a one pager or it can be  a 300 plus page vendor agreement. Here is to hoping you get more 1 page ones.

With the litigious environment companies are faced with today, it doesn’t matter whom you’re doing business with, it is prudent to draw up a vendor contract to clarify the duties or scope of work which will be carried out by each party involved. Spend the extra effort and make it clear.

How do you make it clear? Have a second party proof read it for you to make sure it flows and makes sense to a first time reader. To ensure there are no misunderstandings, include an example showing any cost breakdowns and final results. This works great if you are purchasing a commodity where the price is based on several pricing mechanism. An example, market cost or base price of item + bridging or freight + packaging + taxes = $Price Paid by Company for next three months. In this instance, there can be no misunderstandings by any party which will examine the agreement at any future date.

The main elements of a vendor contract are the cost, services and products to be provided, what will happen if something doesn’t go as planned (contingencies), and the applicable dates for final delivery. The objective is to be thorough, eliminate unknowns, liabilities and ensure every scenario is covered in your contract. You do not want to get burned nor do you want a vendor to suffer punitively in the process. A company which is fair to its vendors gets a solid reputation and everyone wants to deal with owners which treat suppliers fairly. If you properly solicit quotations for your requirements this process will ensure you never pay more than what the present market allows.

Okay, so a main point in developing a quality vendor contract is to spend a bulk of your efforts on the scope or explaining the responsibilities of the vendor to ensure there are no misunderstandings. Include examples, proof read document. What else or what other areas need to be addressed? Here are a few:

Step 1

Identify the two parties that are associated with the contract. The “Vendor” aka “Supplier” will obviously be the person who is providing you with the goods and services and you are the “Buyer.” Aka “Owner”, “Purchaser”

Step 2

Identify and detail the services or products that are to be provided in the vendor contract. Be specific when illustrating what will be delivered. Include quantities, part or drawing numbers or any relevant information.

Step 3

Outline the delivery terms. What date will the project begin and end if it is a service, or when is the physical product or order to be delivered. Also, outline how frequently the product will be delivered if this will be a recurring order.

Step 4

Include the price for the product or service and payment terms. Again, you need detailed information about the total price including any expenses, how the buyer will pay (purchase order, check, money order, or credit card), to where and to whom, and when the payment is due (such as 30 days from invoice date). Describe any late fees that will be assessed if the buyer fails to pay on time.

Step 5

Write in any requirements regarding privacy or non-disclosure for the business transaction. Some companies like to control the release of information which relates to their organization.

Step 6

Quote all regulatory bodies which the vendor must comply with.  Workers compensation, government rules and safety polices.

Step 7

Be clear about how disagreements will be handled regarding the contract. Most parties prefer to settle claims via arbitration to avoid an expensive and lengthy legal process. This of course is based on the value of the agreement. Do not spend $10,000 to recover $1,000.

Step 8

Include a special clause at the end of your vendor contract to clarify that if one part of the agreement is deemed unlawful or invalid, the rest of the contract stays in tact. This is called a “severability clause.”

Step 9

Outline how and when the contract can be terminated. For example, if one party is not living up to his or her side of the bargain, the other party reserves the right to cancel the agreement. Include details about who is required to pay what in the event of a breach.

Every contract is different but the above provides you with some idea as to what to include. It makes sense to flush out previous agreements used by your company or parts of contracts supplied by your vendors and other templates in the marketplace. Use clauses that apply to your business and create a new vendor contract that best fits your present requirements. Once you have completed the task of writing your vendor contract always seek legal counsel for final approvals prior to issuing.

Looking for a jump start on putting together a template. Consider the RFQPro Contract Pack available in the left hand margin which includes standing order agreements, supply contracts, commodity, consulting, equipment and many others.

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