What is Vendor Agreement
Vendor Agreement is a legal document which stipulates the provisions regarding the work performed by the vendor. It is a contract which specifies the conditions regarding the performance of certain work.
The key points to cover in a Vendors Agreement are details such as date, time & location of service. A Vendor Agreement should get along with the Statement of Work (SoW). A vendor agreement should not come into operation without Statement of Work (SoW). It only becomes enforceable after both the parties sign the agreement.
Applicable Law
The principles of contract under Contract Act, 1872 would govern these agreements. Further, the Consumer Protection Act, 1986, also applies to all goods and services, excluding goods for resale or for commercial purpose and services rendered free of charge and under a contract for personal service. It protects rights of customers such as right to be informed, right to safety etc.
Goods and Services Tax (GST) is applicable on supply of services at different rates for different categories of services other than a few services which are exempt.
Advantages of Vendor Agreement
- Increase in Efficiency
- With a Vendor Agreement, a person can clearly determine the security policies, financials, and other important which helps in increasing efficiency and also develops an effective supplier and vendor relationship.
- Minimizes Liabilities
- A well-defined consultancy contract will also minimize the risk of future lawsuits, as it defines the rights and responsibilities of involved parties.
- Exercise Legal Rights
- In case of deficiency in goods and services provided the customer can sue the vendor.
Key Elements in Vendor Agreement
- Details of the business and vendor
- The details of the business and vendor, like the names, address and office address must be in the vendor contract.
- Details of goods and services
- Furthermore, the complete description of the goods or services bought from the vendor. These details include the quality of the goods and services, the number of goods, the variants of goods-like colours, shapes, etc.
- Payment terms
- There should be proper costing regarding payment how much payment is due, mode of payment, late payment, terms of payment, penalties for late payment.
- Period of functionality
- You must mention the term of operation. The period is fixed at the beginning of time until the completion of the service.
- Confidentiality
- If you are providing confidential information to the vendor then clause of confidentiality plays a very pivotal role as it protects the data from leakage.
- Exclusivity
- Additionally, all the vendors should have an exclusive relationship with the business owner as the product is unique & important to the business.
- Intellectual Property
- There should not be any other owner of the IP. In order to avoid the risk one should get the grant of Intellectual property license.
- Indemnity
- This clause states that in case of breach of contract, the party will compensate the other for causing the loss resulting out of such breach.
- Law applicable
- The vendor agreement must include the law that would be applicable in case some dispute arises between the business and vendor.
FAQs
It basically acts as a composite insurance made by two parties with mutual consent. It is made when you are dealing on the small-scale business, but now by seeing the benefits, the operativity had increased immensely.
There is no such requirement for registration simply singing the agreement is enough to make it functional.
Statement of work is basically a document which depicts all the details like activities, time period, cost, duties. It is basically done for project purpose to keep the track of work.
Hey @HarshitShah
Yes. Any time the terms of the agreement change, this should be documented in a new contract. The new contract should also make clear this contract replaces the old contract.