Watch this month’s Window to the Law video to learn about the legal considerations that you should take into account when choosing a vendor.
Download the slide presentation (PPTX: 33 MB)
Welcome to Window to the Law. I am Charlie Lee, Associate Counsel with the National Association of REALTORS®.
Your business depends on a variety of third-party vendors to provide services such as website development, IT services, accounting, and marketing. In this episode, I’ll discuss best practices for vetting vendors, and cover key contract terms to protect your business from legal risk.
Selecting the wrong vendor can be a lot like getting up in the middle of the night to make a sandwich. It’s dark, but you don’t turn on the lights. You’ve done this so often you’re confident you know what you’re picking out of the fridge. But – surprise - when you bite into the sandwich you realize that instead of making a peanut butter and jelly sandwich, you’ve made a peanut butter and siracha hot sauce sandwich.
Like this scenario, businesses may think they know who they’re working with, only to realize their mistake after it’s too late. Selecting the right vendor may mean the difference between success and exposure to monetary consequences, and legal risk.
To set your business up for success, keep these best practices in mind when vetting your next vendor:
First, review the vendor’s website. Reviewing the website can provide important information about the vendor, such as how long it has been in business, its areas of specialty, and even its business strategies.
Second, ask around. Find out what your peers think about the vendor. Ask the vendor for references, search the Better Business Bureau, and run a Google search. These methods can reveal important information about the vendor. For example, you may learn that the vendor is about to enter into a merger or you may discover that the vendor is experiencing financial struggles. Having this information enables you to either seek assurance from the vendor, or to consider alternatives before it’s too late. The last thing you want is for the vendor to go out of business, only to leave you scrambling for a suitable replacement.
After you do your due diligence on the vendor, it’s important to establish clear expectations about the relationship through a well-drafted contract. That means avoid blindly signing a vendor’s standard agreement. Keep in mind that a vendor’s standard agreement is typically drafted in the vendor’s favor, and may lack important protections for you. Reviewing the agreement enables you to negotiate terms that will better protect your business.
Keep these key contract terms at the forefront when reviewing a vendor’s agreement:
If a vendor is creating a copyrightable work like a photograph or a website, be sure that the agreement addresses ownership of the work when the relationship ends. If you desire exclusive ownership over the work, be sure to include a work-made-for-hire provision, which secures for you the exclusive copyright ownership over the work created by the vendor. Be sure to check out the sample photography agreements NAR Legal Affairs created for your use on nar.realtor.
Be sure the agreement clearly establishes that the vendor’s services must follow industry standards and be performed by trained and qualified personnel. For example, you want to ensure that a technology service provider follows industry practices when it comes to protecting the sensitive and confidential information of your business.
Indemnification is a provision that requires one party to cover the other party’s losses that results from the contract. Indemnity is especially important in protecting your business against claims of intellectual property infringement by the vendor’s service or product. At a minimum, you should seek indemnification from the vendor for any third-party claims made against your business related to the services provided by the vendor.
Be sure the vendor you choose is the party that will actually perform and fulfill the services under the contract. A well-drafted assignment clause prevents the vendor from transferring any of its obligations to another party without your prior written consent.
Always negotiate your termination rights. Circumstances may arise where termination is necessary. Therefore, consider including a termination for convenience clause, which provides you the ability to terminate the agreement for any reason, and at any time.
Thank you for watching this month’s Window to the Law.