How to Set Up a Process for Reviewing Vendor Contracts

Aug 01, 2022

Working on vendor contracts can be overwhelming.

You can accelerate your review by assigning a risk category to each one at the start.

This approach will help you quickly identify the risk attributes and what terms you need to include.

You should ask these 3 questions:

1. Is it a direct or indirect purchase?

With a direct purchase, the customer is incorporating the item into what the customer sells to others. With an indirect purchase, the customer is consuming the item itself.

The risk scenarios and potential liability of buying equipment for your staff to use are very different from buying it 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 of the goods terms won't apply. And the terms you use are very different if only a license is included.

3. Does it involve a critical function, create a meaningful risk of third-party claims, or involve regulated or protected information?

You'll need to know whether it is a high or low-risk deal. If none of these are present, the risk may be smaller than if all are part of this deal.