What to Include in Vendor Contract Templates

Onboarding a new vendor can be a lengthy process, especially when you consider all the work that goes into contract management, such as negotiating the terms and reviewing service level agreements (SLAs). Many organizations choose to streamline this process by using vendor contract templates that can be customized for various third-party relationships.

Let’s cover some best practices to consider when developing your own vendor contract templates and important elements to include.

8 Vendor Contract Template Considerations

Vendor contract templates may not be appropriate for every third-party relationship, so your organization should determine for itself the criteria for using them. It’s important to think holistically about your organization’s strategic goals and objectives, in addition to your third-party risk appetite. 

Every organization will have unique risks to manage, so using your own template helps ensure your organization’s specific risks are addressed in a vendor contract. 

Consider the following questions about vendor contract templates:

• Will we use a contract template for low- or moderate-risk vendors? Developing your own contract templates can require a significant investment of time and resources. Consider whether you want to default to the vendor/supplier contract for low- and moderate-risk products and services. Keep in mind that a vendor-provided contract should still be carefully reviewed and negotiated if necessary. 
  
  If you do create a vendor contract template for low- to moderate-risk vendors, keep it basic so it can fit a broad range of third parties. This will save time and money that might be spent on preparing a more detailed contract.
• When will we use the vendor/supplier contract? Your organization has the most leverage before signing the contract, which generally allows you to begin the negotiation process with your own template. However, there may be situations in which your organization must use the vendor’s contract instead as a starting point for negotiations. Maybe the vendor’s product or service is the only option available in the market, or the vendor is essential for a time-critical project. Your organization should determine when the vendor’s contract template is acceptable to use.
• Will we create separate contract templates based on the vendor’s risk rating? Some organizations may find it helpful to create vendor contract templates based on criticality or inherent risk level. Critical and high-risk vendors will require a higher level of oversight, so their contracts should include standard provisions related to areas such as business continuity planning, service levels, and data protection. Creating a contract template for these vendors will help ensure your organization includes the most essential provisions.  
• Does the length of the vendor relationship matter? If you plan to have a long-term relationship with your vendor, it may be best to use your own template that covers all your needs.
• Will we need any customizations? If you are aware that you will need to customize a vendor contract to fit your needs, it may save time and money to use your own template. Also, not all vendor contracts allow extensive changes.
• How often should vendor contract templates be reviewed and approved? It’s important to review your contract templates on a regular basis to ensure they accurately reflect your organization’s priorities, vendor risks, and current regulatory expectations. Vendor contract templates for high-risk and critical vendors should be reviewed and approved by the board and senior management at least annually. Also, consider reviewing and editing templates as regulations change.
• What is the overall value of vendor contract templates? Consider whether a contract template will save your organization time and money. Perhaps it will ensure the deal closes in a timely manner and give you confidence in knowing your legal needs are met. These can all be benefits worth considering when deciding to create a contract template.  

10 Elements to Include in Vendor Contract Templates

Before creating your own vendor contract templates with your legal team, make sure you’re familiar with some of the baseline elements. 

The following elements should be included in all vendor contracts, regardless of criticality, risk level, or vendor type:

1. Scope of services – Description of the product/service, pricing and payment details, time frames for onboarding and implementation, and rights and responsibilities of both parties.
2. Data management – Details related to the confidentiality, integrity, and availability of data, including licensing and ownership, breach notification requirements, and data destruction. 
3. Compliance – A requirement for both parties to comply with applicable laws and regulations, including privacy and data protection.
4. Business continuity and resiliency – An obligation for the vendor to maintain operations at a pre-determined level during a business-disrupting event.
5. Subcontracting – Includes approvals for subcontracting, requirements for due diligence documentation, and vendor liability for a subcontractor’s performance.
6. Dispute resolution and remediation – Description of both parties’ responsibilities in the event of disputes, including requests for arbitration and timing for remediation.
7. Indemnification – Offers protection from vendor issues like infringement, breach of confidentiality, or willful misconduct.
8. Term, notice, and automatic renewals – Includes cause and notice for default and termination, duties and responsibilities of both parties, applicable transition services or plans, and renewal dates.
9. Insurance – Types and amounts of insurance to be carried by the vendor to protect your organization from financial liability.
10. Performance measures – Clearly defined SLAs, any penalties or remediation strategies for performance issues, and a process for ongoing SLA monitoring and reporting.

These elements are only starting points and will require more detail for higher-risk vendors. Even if the vendor is low or moderate risk, it’s important to prepare for the future when writing a contract. If your organization is unsure of how the relationship will progress, you may want more detailed provisions to ensure you don’t have to write a new contract in the future as your needs grow.

Using vendor contract templates can help drive efficiency and consistency in your third-party relationships. By collaborating with your legal team and considering all necessary provisions, you can develop a strong set of contract templates for your own third-party risk management program.