Understanding the 4 Common Vendor Contracts
Vendor contracts run the gamut from goods to services and typically everything from day-to-day operations to one-time activities and events. This post explains five of the most common types of vendor contracts.
1. Fixed Price Contract
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.
2. 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.
3. Indefinite Delivery Contract
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.
4. Distribution Agreement
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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