Vendor Agreement

What is Vendor Agreement in India?

A Vendor Agreement is an agreement in which a business owner, or a company hires someone to provide products and/or services. Vendor agreement can be for any product or service like professional services, goods, marketing service and any other service you can think of.

Why should you have a correct vendor agreement in place?

Having a solid vendor agreement in place is important because,

  • It clearly delineates and defines all the details of the product or services being provided.
  • It clarifies expectations
  • Avoids conflict
  • Legally valid document incase the vendor doesn’t provide the service or products in time

What provisions should typically be included in Vendor/Service Agreement?

The following is a brief description of the typical clauses that can be found in most vendor agreements. It is always important to modify which best suits for your business deal. Things that may work for one vendor or company may not work for another. With that in mind, the main provisions to watch for are:

  •  A Clear Description of the Product or Scope of Services:
    A Vendor/Service Agreement should always contain a clear and detailed section describing the specifics of product or the services being provided or received.
  •  Payment Terms:
    The vendor/service agreement ought to contain a proviso depicting in detail how much the item or the service costs, when installments are expected, to whom they ought to be paid, on what installment terms installments ought to be made, if there are any late installment, what the penalties might be.
  • Term and Termination:
    The agreement ought to likewise characterize the commitment term (either starting or renewing or both) and how the parties can end the agreement. 
  • Intellectual Property:
    If either party is giving or will utilize Intellectual Property under the understanding, the parties ought to plainly give who claims the IP, what it is to be utilized for, regardless of whether a permit is allowed to the other party to utilize the IP and assuming this is the case, under what terms.
  • Deliverables:
    A vendor/service agreement should also describe what, if any, deliverables will be provided under the agreement. If there are any deliverables, it is important to specify who owns them
  • Representations and Warranties:
    A vendor/service agreement should state what portrayals and guarantees the vendor/service provider will give. Explicit guarantees may include: the seller has the ability to enter the understanding, the items or administrations being furnished will accommodate with any predetermined prerequisites, the items or administrations would not encroach any outsider IP right, the services will be furnished as per industry principles and additionally the merchant has the vital learning and aptitude to provide the services.
  • Confidentiality:
    Most vendor agreements cover how the disclosure of confidential information will be handled. Sometimes, the parties will opt to execute a separate non-disclosure agreement. Some key points to consider in either case are: what is included in the definition of confidential information, what are the marking requirements (if any), how long the period of protection is and what, by definition, is excluded from confidential information.
  • Indemnification:
    Most vendor agreements will benefit from an indemnification clause. Indemnification, by definition, is an obligation by which one party engages to save another from a legal consequence of the conduct of one of the parties, or of some other person. In a vendor agreement, it’s usually reasonable for a vendor to agree to indemnify for a breach of warranty under the agreement, willful or negligent acts, omissions and for infringement of a third party’s intellectual property rights
  • Limitation of Liability:
    A limitation of liability clause is very common in vendor agreements. Typically you will see a clause excluding special, indirect, incidental or consequential damages from a party’s liability as well as some sort of overall monetary cap to a party’s liability, but again, a limitation of liability clause needs to meet the specifics of the business arrangement.
  • Relationship of the Parties:
    It is important in a vendor agreement to define the relationship of the parties. It should be very clear that the vendor is to be considered an “independent contractor” and in no way has any right, power, or authority to act on behalf of the other party.

The Takeaway

The above are just some of the main components typically found in a vendor agreement. As with any agreement, the main purpose is to clearly delineate the rights and obligations of the parties. By doing so, the parties alleviate risk while avoiding confusion and conflict.

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