This article has been written by Ansari Qamar Zarfishan, pursuing the Diploma Programme in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.

Introduction

For a business to be successful requires a good vendor with quality of services. whether it is event management services, cloud service, delivery service, design service, host services, software service, office supplies, consultants, marketing, technology services, professional services, vendor procurement, etc. Vendor agreements cover a wide variety of areas. For this purpose, a vendor agreement is entered to quantify the deliverable and check the work of both parties. To know more about the vendor agreement, we will discuss in this article who is a vendor, what is a vendor agreement about, what are the essential clauses of the vendor agreement and how to draft a vendor agreement. So, let’s proceed.

What is a Vendor Agreement?

A Vendor Agreement is an agreement entered into a business owner and the vendor or a service provider for the supply of goods and services. This agreement covers the scope of the services to be provided, the time or duration of services, the payment or cost for the service being provided, and the liability of both parties. It also lays down the terms and conditions to be followed by both parties. It is also known as the supplier’s agreement.

Different businesses will have different types of vendor agreements. For example, an e-commerce website (such as Amazon, Grofers, Flipkart, Bigbasket, etc.) would require logistic services, vendors to sell goods and services such as products or raw materials on their websites so they enter into a vendor agreement before selling or providing any services to these websites. A vendor agreement creates a legally binding contract between the parties and thereby reducing the risk of fraudulent activities by the vendor and preventing the business from any loss due to the unlawful activities of the parties.

Who is a vendor?

A vendor is a person or supplier who supplies goods and services to the individual or the owner of the business to carry out its business activities for consideration. 

What are the important clauses in a Vendor Agreement?

Having discussed what is a vendor agreement, it is very essential to know about what are the important or key clauses in a vendor agreement. 

The essential clause that the Vendor Agreement should state are:

Scope of services

The Vendor agreement should clearly specify what kind of goods and services the vendor or the supplier is supposed to deliver, the quality and quantity of goods that are purchased from the vendor.

Sample Clause

The Owner has engaged the Service Provider to collect the Product from the Owner’s warehouse and deliver Products to its customer for the purpose of order fulfilment through its website. The Service Provider will be responsible for picking, packaging, labelling and shipping or delivering the products directly to the Owner’s customers.

Payment or consideration clause

The payment clause in the vendor agreement should specify the payment method and modes of payment (invoice, UPI, bank transfer, etc.), how the payment will be made (in milestones or bulk) and the time period within which the payment will be made. If there is any delay in payment, whether there is any interest charged for the non -payment of consideration should also be mentioned in the clause.

Sample Clause

The Owner agrees to pay the Service Provider for the Services rendered, a monthly amount of INR _____ with the details of the order, returns and the associated charges or corresponding charges, unless otherwise agreed by the Parties in writing.

The Service Provider shall raise an invoice to the Owner for the order fulfilment services and any due amount payable to the Service Provider by sending an e-mail.

Any dispute related to the invoice shall be resolved promptly through the internal officers of each party.

If the Service Provider fails to receive payment within fifteen (15) days after the date of raising an invoice, the Owner shall pay interest at a rate of 1% per month for all non-payment.

Duration and termination clause

The Vendor Agreement should mention the term of the agreement i.e. the duration of the contract, in the course of which the vendor shall provide goods and service to the business. Mostly, the agreement is for a fixed period of time, but the same can be renewed after the expiry of the duration of the agreement. 

The agreement should also contain a provision for termination, where the contract can be terminated by the vendor or the owner of the business, before the expiration of the term. The termination provision should specify the grounds of termination (breach of contract, non-performance of the contract, etc.), consequences of termination (E.g. If any payment is due at the time of termination, the business owner should clear all the dues) and what survives after termination (clauses like indemnity, confidentiality, limitation of liability). 

Sample Clause

The term of this Agreement shall be in full force and effect from the date of signing this Agreement for a period of five years Agreement (“Term”).

The Term of this Agreement can be renewed for an additional period of one (1) year or as may be mutually agreed between the Parties.

In consideration of the terms of this Agreement, this Agreement stands terminated on the occurrence of the following event:

• Either party undergoes bankruptcy, composition, reorganization or any other insolvency proceeding opened against it by a court or another public authority or has voluntarily filed a respective petition or has involuntarily filed against it a respective petition which is not dismissed within sixty (60) day;
• breach of terms of this Agreement on the occurrence of Force Majeure Events; 
• Non-payment of fulfilment charges.

Provided that the other party gives notice to the breaching Party, a period of thirty days (“Cure Period”) to cure the breach. If the breaching Party fails to cure the breach within the Cure Period, the Agreement shall stand terminated.

Consequences of termination:

• All the activities shall stop immediately;
• All the Products received during the Term of this Agreement will be returned to the respective Party;
• Survival.

In the event of termination, the following Clause including but not limited to confidentiality, representation and warranty, indemnity and dispute resolution shall survive.

Confidentiality clause

Keeping a confidentiality clause is very important. At the beginning of the contract, the owner can state what aspect of the relationship between the parties needs to be kept confidential. The confidential information should be protected and used only in accordance with the terms and conditions of the agreement and the duration to keep the information confidential. A non-disclosure agreement can also be signed by the parties if the business owner deems fit.

Sample Clause

From time to time during the Term, either Party (“Discloser”) may disclose or make available to the other Party (“Recipient”) Confidential Information, whether orally or in writing, electronic or other forms, whether or not marked, designated or otherwise identified as confidential. For the purpose of this Agreement, “Confidential Information” includes the terms of this Agreement. It is mutually agreed between the Parties that either Party would not disclose the terms of this Agreement to the third party. In the event of a breach of Confidential Information, the Agreement stands terminated.

Representation and warranty

The representation and warranty clause should contain a provision that the vendor agrees to provide the goods and services at the stipulated time and the quality of the goods and services would be as required. The vendor should guarantee that the service would not infringe any third party right or warranty that the vendor has the ability to provide the goods or service, etc.

Sample Clause

The Owner represents and warrants the Service Provider that:

• The Supplier is the sole and authorised owner of the Products manufactured.
• The Supplier warrants that the Products are of good quality.
• Products do not violate any third-party rights.
• It has full right, power and authority to enter into this Agreement and perform its obligations.

The Service Provider represents and warrants the Owner that:

• It is the owner of the logistic company and is duly authorised to deliver the goods to the desired customers.
• It has full right, power and authority to enter into this Agreement and perform its obligations under this Agreement.
• It shall operate in compliance with the terms of this Agreement.
• It warrants to carefully handle and deliver all the products on time.

Indemnity and disclaimer

The Vendor Agreement should have a disclaimer clause that clearly states the facts which involve risks and thereby limit the liability for the same. Under the Indemnity clause, both the parties agree to make good or pay damages for the losses incurred by either party due to the actions of the other party (breach of warranty, omission, negligent acts or breach of infringement of a third party’s intellectual property rights). 

Sample Clause

Each party shall indemnify, defend and hold harmless other Party and its representatives, directors, employees, agents, affiliates, successors and permitted assigns (collectively, “Indemnified Party”) against any and all losses, damages, liabilities, deficiencies, claims, actions, judgements, settlements, interest, awards, penalties, fines, costs, or expenses of whatever kind, including attorney’s fees, fees and the costs of investigation and enforcing any rights to indemnification under this Agreement and the cost of pursuing any insurance providers, incurred by Indemnified Party (collectively, “Losses”), arising out, relating to or resulting from either Party’s breach of its obligations to the other Party under this Agreement as well as any claim of a third party whatsoever, including but not limited to matters arising from or alleging:

• Breach or non-fulfilment of any representation and warranty or covenant set forth under this Agreement.
• Any negligent or more culpable act or omission of either Party (including gross negligence, recklessness or willful misconduct) in connection with the performance of its obligations under this Agreement.
• Any bodily injury, death of any person or damage to real or tangible personal property caused by acts or omissions of either Party.
• The acts or omissions (including, without limitation, any negligence or willful misconduct) of any third party whether or not selected by or retained by either Party.
• Any failure by either Party to substantially comply with applicable law.

Limitation of liability

The limitation of liability clause limits the liability of the vendor and the business owner, in the event of any breach of payment (delay or non-payment) or deliverables (late delivery) due to the vendor’s negligence or fraud. If the vendor’s action causes any loss to the business, the vendor will be liable to pay for the damages so incurred.

Sample Clause

The Owner acknowledges and agrees that the Service Provider will not be responsible for loss or damages to any of the Products, except where the loss or damages is caused by the negligence of the Service Provider.

The Service Provider shall not be liable to the Owner under contract or tort or otherwise, for any indirect or consequential losses arising with this Agreement.

The extent of the Owner’s liability to the Service Provider under this Agreement for any loss, damages, claims or expenses whether due to the Owner’s negligence or otherwise is limited to the payment amount only.

Independent contractor

The vendor agreement should most importantly state that the vendor is an “independent contractor” and not an employee of the business owner. Thus, a vendor does not have any right, authority or power to act on behalf of the business owner.

Sample Clause

The Parties agree that the Service Provider shall be an independent contractor and that the relationship between the Parties shall not constitute an employer-employee relationship. The Service Provider shall not have any authority or right to make any statements, representations or take any actions on behalf of the Owner, without prior permission of the Owner. 

Dispute resolution

In the event of any breach caused by the parties, how can one enforce the terms of the agreement? In such a situation, the parties can through a Dispute Resolution clause show the method through which any dispute can be resolved between the parties. This clause must state who will resolve the dispute, whether a sole arbitrator or a panel of arbitrators, seat or venue of arbitration, language in which arbitration proceedings will be conducted and the applicable laws and the jurisdiction of the court which will conduct the proceedings.

Conclusion

Every agreement has its own requirements, the vendor agreement should be tailored keeping in mind the requirement of the goods and services, rights and obligations of both parties. In this way, the parties can easily elevate the risk involved and thereby keeping away from any conflict or confusion among the parties. Other clauses that are added to the abovementioned clauses are force majeure clause, waiver, severability, assignability these clauses are called boilerplate clauses, which also forms part of the agreement.

Reference

• https://tremblylaw.com/4-things-vendor-agreements-contain
• https://legaldesk.com/vendor-agreement-and-its-uses
• https://www.myadvo.in/blog/important-clauses-of-a-vendor-agreement/
• https://www.upcounsel.com/blog/everything-need-know-vendor-agreements

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