Establishing and maintaining successful vendor relationships is essential for the growth and success of your company. A study by Deloitte found companies that prioritize vendor relationships experience a 42 percent higher rate of supplier-driven innovation11, suggesting collaborative relationships with vendors can foster creativity and benefit both parties.
The formal foundation of this business relationship requires a solid vendor contract. To ensure these partnerships thrive, businesses must create clear, comprehensive and flexible contracts. Here are a few tips to draft vendor contracts that optimize your vendor engagements:
Tip #1: Remember YOU are the Customer
Navigating vendor contracts is challenging. Unlike customer contracts, where the aim is to include protections to avoid legal disputes with your buyers, vendor contracts require the opposite approach. Any protections typically included in customer contracts should be reversed and adapted to fit your needs as the recipient of goods and/or services. It’s important to approach vendor contracts proactively and engage legal counsel to ensure proper safeguards are included. Remember, vendor contracts can have long-term implications for your business, so take the time to review them thoroughly.
Tip #2: Prioritize Warranties
When drafting vendor contracts, prioritize warranties over disclaimers. This means focusing on what the vendor is guaranteeing rather than what they are not responsible for. Ensure that the contract is specific in terms of time, place, manner, and scope of work. Vendors often present one-sided contracts that contain disclaimers, liability limitations, and other language that make it difficult to seek relief in case of a dispute. However, do not accept language that is not in your best interest; know your legal rights and protections. Prioritize warranties and negotiate thoroughly to create a contract that protects your business and fosters a long-lasting relationship with your vendor.
Tip #3: Draft Your Own Terms and Conditions
Protect yourself when entering vendor contracts by drafting your own terms and conditions. Terms and conditions outline the rights and responsibilities of both parties and prevent misunderstandings that can lead to litigation. A clear and comprehensive contract reduces the risk of misunderstandings, ensuring both parties are on the same page from the start. Having a solid foundation in place, vendors are more likely to want to continue doing business with you, leading to cost savings and other benefits. A clear and comprehensive contract also serves as a valuable reference point if issues or disputes arise in the future, minimizing misunderstandings and preserving the relationship with your vendor.
Tip #4: Incorporate Flexibility
To establish sustainable vendor relationships, incorporate flexibility into your contracts. Include clauses for renegotiation or termination and create a tiered system of options based on the volume of orders or frequency of shipments. This approach allows for adjusting the terms of the agreement to meet changing circumstances and ensure mutual benefit. It promotes open communication and collaboration, crucial components of successful, long-term vendor relationships.
Tip #5: Communicate Openly and Regularly
Build sustainable and beneficial relationships with vendors by communicating regularly throughout the contract period. Frequent check-ins can identify and address issues before they become major problems. Establish trust and mutual understanding through open communication, which can help build a stronger, more productive partnership, improve efficiency, and produce a higher quality of work.
Establishing and maintaining strong vendor relationships is essential for businesses to thrive over time. As procurement expert Robert Delaney says, “Business relationships are the bedrock of success.” By following these tips, businesses can build long-lasting vendor relationships based on trust and mutual understanding, leading to growth and success.
For more questions regarding your vendor contracts, please contact Gertsburg Licata Business Transactions team member Randi Nine, Esq. ([email protected]; (216) 573-6000 x.7011).
1 Deloitte. (2018). The 2018 Deloitte Global Chief Procurement Officer Survey. Retrieved from https://www2.deloitte.com/global/en/pages/operations/articles/procurement/supply-chain-innovation.html
This article is for informational purposes only. It is merely intended to provide a very general overview of a certain area of the law. Nothing in this article is intended to create an attorney-client relationship or provide legal advice. You should not rely on anything in this article without first consulting with an attorney licensed to practice in your jurisdiction.
