4 Common Types of Vendor Contracts

A vendor contract (otherwise known as a vendor agreement) is a business contract between two parties covering the exchange of goods or services in return for compensation. Vendor contracts establish the business relationship conditions and include details on each party’s obligations under the contract.

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 four 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.