As a business owner, you’re always trying to maximize revenue and reduce expenditure. One way to do this is by negotiating favorable terms with your vendors, or your suppliers. But how do you negotiate a vendor contract, and how do you protect yourself if things go wrong? Our attorneys explore the art of vendor contract negotiations below.
Why Negotiate Vendor Contracts?
Do you want the best prices, profit margins, and payment terms? Then get ready to negotiate! Think of it this way: The goal of any negotiation is to protect your best interests while respecting the other party’s legal rights and commercial goals. In other words, negotiations ensure that both parties to the contract are satisfied with the terms of their business relationship. So, there’s almost always room for negotiation—after all, chances are your vendor is keen to secure the agreement just as much as you are.
With all that in mind, there are four specific benefits to negotiating a vendor agreement.
- Certainty: Most importantly, the vendor contract agreement specifies each party’s rights and obligations, so everyone is on the same page in terms of what’s expected of them.
- Protection: A contract gives you clear parameters for when you can exit the agreement, or refuse to renew it, without penalty.
- Mitigation: You can reduce your exposure to risk by including suitable warranties and disclaimers.
- Clarity: Your agreement should clarify how disputes are resolved so that parties know exactly how to handle any issues.
When Should You Negotiate Vendor Contracts?
The simple answer is: always! Remember, the whole point of negotiating a contract is to secure favorable terms for your business while building a stable, positive relationship with another party. So, you should be negotiating a contract if:
- You’re partnering with a new vendor or entering a new agreement
- You want to negotiate new terms with an existing vendor (this may be done annually or as needed)
- There are market shifts affecting your current contract e.g., new regulations, rules, or market trends
Contracts ensure that everyone understands their rights and obligations. They offer clarity and certainty—both of which are critical for growing your business.
How Long Do Vendor Contract Negotiations Take?
Unfortunately, there’s no clear answer to this question! It all depends on the complexity of your contract, and how many issues are in dispute.
Typically, though, if it’s a simple contract with very few issues in contention, it might only take a few weeks to conclude your agreement. However, complex contracts can take a few months to finalize. A contract attorney will ensure you know what to expect once they’ve had an opportunity to review your situation.
How Often Should You Review Vendor Contracts?
All vendor contracts should be renewed annually at a minimum. However, it’s typical to review vendor contracts when:
- Regulatory changes emerge that directly impact your agreement
- The contract is due to expire or be renewed
- You’re concerned about performance issues
- You wish to change the contract e.g., to change the frequency of a delivery
It’s common for vendor contracts to include a clause specifying when contracts should be reviewed.
Beyond your vendor agreements, you should update business contracts like your Service Agreement and website’s Terms of Service annually, as well.
What Do Vendor Contracts Include?
Every vendor contract is completely unique. However, any vendor contract should cover, at a minimum, the following areas.
- Scope: Specify the “scope of work,” or the deliverables you expect from the vendor. You might also include deliverable deadlines or “milestones” for large projects or agreements spanning a long time.
- Duration: Be clear about how long the agreement lasts, when the contract should next be reviewed, and the criteria for renewal.
- Performance: Include specifics about what’s required of the vendor e.g., frequency of delivery or meeting certain quality standards. Set metrics for how you’ll measure and review performance.
- Intellectual Property: If there’s a chance that either party may have access to the other party’s IP, such as designs, patents, or trademarks, then include clauses for declaring and protecting copyright.
- Payment Terms: Be clear about payment terms, such as frequency of payments, billing methods, and tax considerations.
- Rights and Obligations: Outlining what rights and obligations each party has can prevent misunderstandings down the line.
- Warranty and Liability: Limit your legal responsibilities by including the appropriate warranty and limitation of liability clauses in any vendor agreement.
- Termination: Clarify the terms for ending the agreement without penalty e.g., if the vendor fails to meet a certain number of deliverable deadlines.
- Confidentiality: If the vendor can access certain trade secrets or confidential information, include non-disclosure clauses.
- Dispute Resolution: Include a clause detailing how disputes will be handled e.g., by mediation. You should also cover which state and/or national laws govern the agreement.
Do I Need a Lawyer for Contract Negotiations With Vendors?
While you don’t need a contract lawyer for vendor negotiations, consider this: A vendor contract is a legally binding agreement. It’s vital that the contract is clear, fair, and designed to protect your best interests. Just one problematic clause could seriously damage your business goals—always consider seeking legal advice before signing any vendor contract.
Tips for Successful Vendor Contract Negotiations
While an attorney can help with your specific negotiations, here are some general tips for handling vendor contracts.
- Set Goals: Know what you’re hoping to achieve from the negotiations before entering discussions. This helps to keep the negotiations moving in the right direction.
- Be Flexible: The nature of negotiations means that there will always be some give and take. Think in advance about where you’re prepared to offer concessions to secure the deal.
- Do Your Research: Researching the market can give you leverage in negotiations. You’ll know where you can drive down pricing—and where you may be required to compromise a little.
- Be Prepared to Walk Away: Sometimes, a contract is just not meant to be. Whether it means parting ways with an existing vendor, or walking away from a new prospect, it’s sometimes best to move on.
Got Questions About Negotiating Contracts With Vendors? Call Gordon Law!
Ready to negotiate a vendor contract? Give Gordon Law a call first! Our business lawyers have over a decade of experience negotiating favorable terms for our clients. Whether this is your first vendor contract, or you’re looking to secure a better deal, we can assist. Give the team a call at (847) 580-1279 to learn more.
