5 Reasons Why Vendor Agreements are Important

Your ability to deliver your own goods or services to your clientele depends on your vendors. The quality of their deliverables enables you to satisfy your own clients, or if they are of poor quality, vendors can cost you business. One way to make sure your vendors come through is with a vendor service agreement. This type of contract outlines the expectations that a vendor must fulfill to be paid, with penalties for failing to meet those expectations. It defines the goods provided or services are being rendered, the cost, when payment is due, and the consequences of partial or non-performance. A solid vendor agreement can safeguard businesses of any size from service disagreements or potentially damaging legal action.

Act as a Failsafe

Common examples of vendor failures include vendors delivering partially, below quality expectations, tardy, or not at all. The main reason for why a vendor agreement is important is to prevent the worst case scenario by providing directions to both sides for when it happens. A good vendor agreement will assign monetary value to these failures, which will enable you to compensate for the loss due to the vendor’s non-performance. You can insist on insurance or a bond to cover losses due to non-performance, or even replacement value. “Replacement value” can mean the premium price that you have to pay for emergency delivery of goods or services when you must have them.  

Dictate Payment Arrangements

Along with the price you can establish the vehicle for payment, timing, and any applicable grace periods, and penalties. For instance, if you are hiring a vendor for a major project, you can provide for making installment payments, so you don’t have to pay all at one time and you can insist on performance by the vendor. If the vendor does not meet the benchmarks timely, you can be excused from making payment, and establish the timing of their breach.

Set Privacy Expectations

If confidentiality is important to you, a vendor service agreement is important to make sure the confidential information obtained by the vendor over the course of the business transaction will be handled carefully, not just by the vendor’s standards but by yours. Non-disclosure clauses require vendors to maintain confidential records in a certain format, set safety standards, require information to be returned or destroyed if the relationship ends.

Permit an Exit

If you want to avoid confrontation, having a clause defining the term and reasons for termination of the contract are critical. At a minimum, this section must state the beginning and the end date of the contract. It should also detail how and when a contract can be terminated, if the terminating party will face early termination penalties, and any applicable options to renew.  

Having a strong vendor service contract that lays out the expectations and consequences for each party allows both the vendor and the customer to enter into service agreements comfortably. Without one, you could face having your legitimate legal action dismissed, or at the very least, leave yourself wide open to misunderstandings and frustration.

Contact Us

Don’t run the risk of having your expectations subject to interpretation. The legal team at Phillips & Muir can help you draft and execute vendor service agreements that will protect both clients and service providers. Give us a call at 1-786-533-1100 or contact us to speak to one of our experienced contract attorneys, and to find out how we can create a custom agreement that works specifically for your business.

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