|1. Need Early Termination. Because any number of reasons
can arise in which you want or need to terminate your current supplier
or vendor, make sure you negotiate an early termination provision that
allows you to terminate for any reason or no reason during the term without
having to pay a fee or penalty. Usually, a 30, 60 or 90 days notice
written notice to your supplier will be fair and sufficient to avoid such
penalties. The time period is negotiable and some vendors will
not agree to allow an early termination. Other vendors and suppliers show
confidence in their products and services by allowing an early termination
clause. Although some agreements provide a termination mechanism for nonperformance
of the parties, an early termination clause provision will allow you to
avoid the task of justifying your termination of the agreement.
2. Check Licenses and Permits. Do your homework on all
your vendors and suppliers. Ask for copies of their business and
operating licenses and permits. You need to know who you are doing
business with and that they are current on their licenses and permits.
Be particularly cautious with new vendors or suppliers with whom you have
no prior relationship or good reference. The clause in the contract
should obligate the vendor or supplier to obtain the proper licenses and
permits, keep all of them up to date and provide copies to you upon request.
Additionally, the failure to have, maintain and provide such licenses and
permits to you needs to be expressly listed as a default under the contract.
3. Obtain an Indemnification. The contract should provide
that the vendor or supplier will agree to indemnify, defend and hold you,
the owner of the property, your officers, employees and agents harmless
against any acts or omissions of the vendor or supplier (including their
employees and contractors) that directly or indirectly cause harm or damage
to your property or anyone in, on or about your property, such as employees,
guests or other vendors.
4. Obtain Current Insurance Certificates. An indemnification
from the supplier or vendor is only as good as their ability to stand by
their agreement. If the company providing the indemnification has
few assets to make good on any claim, it is essential to have a third party
to look to for relief. At a minimum, the vendor or supplier should
list your company and the property as an additional insured (or named insured,
if acceptable to the vendor) on the vendor/supplier general liability insurance
policy. The clause should obligate the vendor/supplier to provide
copies of insurance coverage via a certificate of insurance, obtain sufficient
amounts of coverage depending on the type of product or service offered
by the vendor, keep the insurance coverage current and provide that the
insurance company will give you written notice of any lapse in coverage.
Obtain copies of the certificate of insurance upon signing your agreements
with vendors and suppliers and keep them on file in your finance department
for future use. Failure to comply with these requirements needs to be a
default under the contract.
5. Provide Details of the Product or Service. Many managers
make assumptions regarding the quality of product or services they are
expecting to receive from suppliers and/or vendors. These assumptions
can be very expensive. If you are expecting first class or luxury
quality it is essential to spell it out in the agreement. The standards
of quality should be communicated and then delineated in the contract in
sufficient detail to avoid disputes later on during the term of the agreement.
6. Need to Provide the Term of the Agreement. It
is essential that the contract contain a beginning or delivery date and
an expiration date. Be clear in the contract as to your expectations
to avoid a dispute. In addition, make sure all blanks (including the blank
for the date at the beginning of the contract) are filled in prior to executing
the contract, and certainly prior to the commencement of services.
7. Define the Remedies for Nonperformance. The contract should
contain provisions that will explain the procedures or remedies for nonperformance
or poor performance. Written notice of the default, if it is to your
benefit to require such notice at all, should be delivered by certified
mail or overnight delivery in order to track receipt of the notice.
It is common to allow a certain time period to cure defaults prior to terminating
the agreement, if possible to cure under the circumstances. Make
sure your contract contains these provisions so you will know how to handle
these types of situations or that you made an informed decision to leave
them out of the contract.
8. No Automatic Renewals. Make sure your contract
does not automatically renew so your company is not obligated to accept
the products or services for another term. Some agreements provide
a certain time or window for you to terminate the contract, usually 30
or 60 days prior to the anniversary date. If you allow this type of clause
without having an early termination right as mentioned above, and you miss
this cancellation window, you will be locked into another year (assuming
it is an annual renewal term). Even with an early termination clause,
it is best to have the term of the agreement expire on the anniversary
date and a new agreement may be entered into between the parties. Over
time, too many variables can change and the best way to protect yourself
from a bad deal is to avoid committing yourself to long-term arrangements.
At the very least, if automatic renewal must be part of the deal, you should
be compensated for allowing the clause into the contract.
9. No Restrictions on Assignment. Many standard vendor
and supplier forms prohibit the customer from assigning the agreement to
another party. There may come a time when the property changes ownership
or management company and there is a need to transfer the agreement to
the new owner or manager so that the product and/or service will continue
uninterrupted. Having the flexibility of assignment built in to all
your vendor/supplier agreements will save you the time and money needed
to obtain vendor/supplier approvals of the assignments when an event occurs
that requires obtaining consents. The vendor, however, should not
be free to assign the contract without your prior approval.
10. No Personal Guarantees. Some vendor forms require the
property owner or manager to sign a personal guarantee primarily used for
securing payment in the event the property is unable to pay. I suggest
you negotiate the deletion of these clauses. Provide financial records
or bank references to the vendor or supplier to achieve the comfort level
needed to omit this requirement. If you do enter into a personal
guarantee, make sure you fully understand all of the ramifications to your