Vendor Contracts: The 5 Essential Elements

Vendor contracts run the gamut from goods to services and typically everything from day-to-day operations to one-time activities and events. Typical vendor contracts include:

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The buyer and seller agree to one fixed price for a &#;well-defined product&#; regardless of possible overruns, delays, market fluctuations, or other factors that might impact the cost or value of the product. Typically used for low-risk situations with well-established vendors. 

Cash Reimbursable Contract

The buyer and seller agree that in addition to a standard fee, the seller will also be reimbursed for any work associated with the contract&#;s fulfillment. Typically used when there is more risk and uncertainty associated with the product or service. 

Time and Materials Contract

The buyer and seller agree to a specific hourly rate and timeframe. Typically used with third-party vendors, consultants, freelancers, and other outside contractors. 

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Letter Subcontract

The buyer and seller agree that a percentage of work will be completed during a &#;subcontract&#; phase, usually under 40% of the total project or product. This is typically used when all the contract details cannot be finalized before the project needs to start (usually large projects with lots of variables.)

The buyer and seller agree to a flexible contract with an undefined quantity of goods, or alternatively, an undefined time of service. Instead of very specific deliverables, a range is used to identify the minimum and maximum expectations. Typically used when multiple projects are worked on simultaneously with a master agreement that defines the overall project. 

Distribution Agreement Contract

An agreement between a distributor and the vendor that includes how, when, and where a product will be distributed. Distribution Agreements give a distributor the right to sell and usually profit from the vendor&#;s products. Typically these agreements also outline if the distribution relationship is exclusive or non-exclusive.

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