How to Prioritize and Triage Your Review of Vendor Contracts

Working on vendor contracts can be overwhelming. We often have to use the vendor's templates, which adds a lot of time and energy trying to figure out the deal and the terms.

I accelerate my review by quickly assessing the risk before I start my review. Doing this helps me quickly identify the risk attributes, what terms I need to include, and how much time I should spend on this deal.

I ask these four questions:

1. Is it a direct or indirect purchase?

We use direct and indirect to classify what a company buys. With a direct purchase, you are incorporating the item into what you sell to others. With an indirect purchase, you are consuming or using it in your own operations.

The risk scenarios and potential liability of buying things for your staff to use are very different from buying them for resale to your customers.

2. Is it a good, service, or license?

Be very clear on what is included. If it is a service-only contract, many goods terms won't apply. And the terms are very different if only an intellectual property license is included.

3. Does it involve a critical function?

We need to take a lot more care if the contract relates to a critical function at the company. I'll invest a lot more time to work on a contract to purchase financial transactions software than the one for watering the office plants.

4. Does it create a meaningful risk of third-party claims or involve regulated or protected information?

These factors help you understand if it is a high or low-risk deal. If the deal doesn't have these elements or any other risk markers in this list, then I classify the deal as lower risk and not needing the same level of scrutiny.

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Here's a link to the updated LinkedIn post with the added cartoon.