Legal Sanctity and Precautions to be taken while Executing a Vendor Agreement: Lawyers Advice

Vendor Agreement is a legal contract which specifies the necessities regarding the work done by the vendor. Vendor Agreements can be signed for many reasons like consultant, office supplies, services, technology. While making a vendor agreement one has to clearly put the goals and strategies for minimizing cost factor.

Points to Remember while Making Vendor Agreement
• There should be a date of agreement and there should be a date for delivery of goods or providing services specified in the Agreement.
• There should be a precise time of the delivery specified in the agreement.
• Location where the service has to be provided should be specified.
• Vendor Agreement is treated as inoperative without a Statement of Work.

In the Supreme Court case of Kartar Singh vs Harjinder Singh And Others (AIR 1990 SC 854), it was held that if a property that was agreed to be sold could be clearly distinguishable by the shares in the property of two respective vendors. Then, in the circumstances where the absentee vendor, for some reason or the other, refused to accept the agreement, there is no reason why the agreement cannot be imposed against the vendor who had signed it and whose property is clearly distinguishable by his specific share.

Requirement of Vendor Agreement
• Date and details like name, addresses of the parties
• Check whether the organization is permitted to deal with the product by obtaining a clarification of vending license
• Drafting a short statement of expectations of the vendor
• Imposing of tax on services and products
• Delivery details to be mentioned

Procedure to make a Vendor Agreement
A simple two-step procedure needs to be followed to make a Vendor Agreement: –
• Both parties to the agreement should draft and put all the necessary clauses to make a Vendor Agreement.
• To check and finalize the same and put the signature of both the parties once the draft is ready.

Important Clauses and Common Factors in Vendor Agreement
Relation with Parties:
An agreement should clearly lay down the relationship between parties. The vendor must be treated as an independent contractor. No person other than himself can act on his behalf.

Clear Picture:
A proper description must be given about the service or product which is required and how much of it is required.

Period of Functionality:
The term of operation should be mentioned in matters such as for how long the agreement is binding on parties. Such a time-period should be decided at the beginning and should be until the completion of the service.

Payment Terms:
There should be specific clauses detailing mode of payment, how much payment is due, terms of payment, late payment, penalties for late payment.

Confidentiality:
Clause of confidentiality should be included to protect any data from leakage in case confidential information is being provided to the vendor.

Exclusivity:
Since the product is unique and important to the business, vendors should have an exclusive relationship with the business owner.

Intellectual Property:
When providing service or product to owners, it should be ensured that vendors are only providing to their business partners, one should get an Intellectual Property license to avoid risk of falling into unknown hands.

Limited Liability:
From the perspective of a business, if something goes wrong then businesses should ask for the damages above and beyond the cost of services from their respective vendors.

Indemnity:
Indemnification clauses can also be included when one party shows the interest to bear the losses of other parties to the contract under some particular circumstances.

Important legal points to consider for the Execution of Vendor Agreements: –
• The more knowledge a business has of the market and any existing offerings and the more time it has to deliberate the performance of previously entered vendor agreements that were similar, the better it can measure the value of a vendor proposal in terms of both deliverables and costs.
• Sometimes, a secondary legal document can also be considered, known as a statement of work, which can lay out the exact details of the work to be performed.
• It is important to get everything into a legal form in order to ensure all parties to deliver as expected, it lays down a proper outline of what each party to the agreement needs to perform to meet their end of the deal.
• Vendor contracts don’t have to be restricted to preventing worst-case scenarios: businesses can consider using incentives so that work is finished early or ask the vendor for a discount if the size of the order is increased or decide on shorter payment terms.
• Once signed, the vendor agreement is an enforceable document on its own, and as such, it can itself act as a vital vendor management tool that should be easily available to key stakeholders.

In conclusion, the achievements of every LLP mostly depend on the way the partners have executed the vendor agreement in LLP. Thus, the vendor agreement in LLP must be made with the proper knowledge which ensures preparedness for the future needs of the firm and embrace a certain amount of flexibility necessary to adjust to changing trends for smooth and efficient functioning.
Authored By: Adv. Anant Sharma & Parinay Gupta