What Should Vendor Contracts Include?

Vol. 16 No. 8

businessmanager eletter Vol16 No8 vendorcontracts

Your school probably uses vendors in some capacity to help support your operations. This could include transportation, food service, contractors or builders, coaches, outside facilities management, medical professionals, office suppliers, and more.

While most schools engage with vendors, many do not use best-in-class contracts or agreements to solidify their working relationships. This can expose the school to significant risk and potential financial loss.

What should be included in your vendor contacts? While contracts differ depending on the service provided (your agreement with a contractor, for instance, requires different provisions than a transportation company), all should include certain core elements.

Parties to the agreement. This might seem obvious, but clarify what organizations are involved in the contract. For instance, would you allow the vendor to subcontract out any of the services covered under the agreement? If yes, clarify that it is the vendor’s responsibility to manage any subcontractors they hire.

Beginning and end dates. These are tied to your ability to renew or terminate the contract, so be clear.

How the contract can be renewed. The contract should include whether the agreement is automatically renewed if no action is taken by either party, or if either party needs to give notice of intent to renew within some specified time prior to the end date.

Payment terms. Know not only when payment is due, but the provisions and penalties for late payment.

Who is responsible for what. Establish specific actions, activities, or services you wish the vendor to perform.

Clarity for when the services will be performed. Along with activities and responsibilities, note critical delivery or performance dates. For instance, if your school hires a transportation company to take your students on a trip to New York City, include the date and time the vendor is to arrive at your school, the length of time the company is responsible for transportation, and when it will return to your school. You may also wish to clarify the type of vehicle the vendor may or may not use to perform this service.

Who is responsible for a loss. Ensure the contract states that the vendor is responsible for any loss incurred by the school due to the vendor’s negligence or lack of performance.

Indemnification or “hold harmless” clause. In support of the element above, this clause states that the vendor will indemnify the school for any loss due to the vendor’s negligence. In this instance, it is also critical to also obtain proof of insurance. This is to protect the school, should indemnification be needed and the vendor is unable to pay. Often a two-way indemnification or cross-indemnification is used.

Breach or dispute resolution. This element clarifies how a breach or dispute will be handled. It may include whether there’s a period of time during which a breach can be remedied, if and when arbitration will be required, and if the contract automatically terminates should a breach occur.

Governing law. This is a mutually agreed on jurisdiction that will interpret and enforce the contract. If possible, the school should always choose to fight any legal battles in its state versus where the vendor is located, should they differ.

Nondisclosure. This is an important clause if your agreement requires you to provide sensitive or confidential information to the vendor, or if it may stumble on it in some capacity, even if not explicitly provided.

Integration or “entire contract” clause. This states that the contract is the parties’ entire expression of the agreement between them. This can keep the parties from arguing that there was an oral side deal that was not embodied in the written agreement.

Termination provision. The last thing you’re probably thinking about when creating an agreement is how to end it. But not all relationships work out. Include provisions for ending the agreement early if the vendor doesn’t perform up to par.

Notice of termination. If you decide you want to end the agreement, include how many days prior to the end of the contract you need to provide notice, how you may provide that notice (email, certified mail, etc.), and to whom the notice must be directed.

There are three other general protocols to note.

  1. Limit the number of people who can execute a contract or agreement on behalf of the school.
  2. Vet all contracts through your school’s attorney.
  3. Be certain that all vendors perform an “all-states” criminal background check on any employees who will set foot on campus—and this is stipulated in your contracts.

A poorly executed contract can expose your school to unintended risk. Follow these steps to help ensure that your contracts and agreements are best-in-class to protect your school and community.

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Additional ISM Resources:
The Source for Private School News Vol. 15 No. 5 Reducing Risk When Hiring Vendors and Contractors
The Source for Business and Operations Vol. 6 No. 6 Reviewing Your Property Casualty Insurance Premiums

Additional ISM resources for Gold members:
I&P Vol. 41 No. 4 Risk Management Assessment: Reduce Your School’s Exposure
Vol. 41 No. 5 The Risk Management Assessment Process

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