What Clauses Should Every Business Include in Vendor Contracts?
When you're running a business in Texas, vendor relationships are a vital part of operations, whether you’re working with suppliers, service providers, or consultants. But even the best partnerships can sour without a strong legal foundation.
That’s why having a clear, well-drafted vendor contract is essential. It helps set expectations, minimizes risk, and protects both parties in the event that things go awry.
Understanding what clauses should be included in a vendor contract is crucial for businesses with vendor relationships. At The Fixed Fee Law Firm, PLLC, located in Dallas, Texas, we’re committed to helping you structure your vendor contracts. Here, we’ll discuss what your business should include in these contracts when forming these relationships.
Clear Identification of the Parties
It might seem obvious, but you’d be surprised how often vendor contracts are challenged because the parties weren’t properly identified. Make sure your contract includes the full legal names and addresses of each party, especially if you're doing business under a different name (a "DBA" or assumed name). This confirms enforceability and clarity if disputes arise later.
Scope of Work (SOW)
The scope of work is the heart of vendor contracts. It outlines what the vendor is actually being hired to do. Is it delivering a product? Providing ongoing IT support? Managing your marketing campaign?
Be as specific as possible—list the services or deliverables, deadlines, responsibilities, and any quality standards. If something goes wrong or expectations aren't met, this section will serve as your reference point.
Payment Terms
One of the fastest ways to destroy a vendor relationship is a disagreement over money. To avoid this, your contract should clearly state:
Payment amounts
Payment schedule (e.g., net 30, net 60)
Accepted payment methods
Late payment penalties or interest
Reimbursement policies (if applicable)
Payment terms aren’t just about getting paid on time—they’re about cash flow planning and mutual respect.
Confidentiality Clause
Texas is home to some fiercely competitive industries, and many companies depend on proprietary information to stay ahead. A confidentiality (or non-disclosure) clause helps make sure that sensitive data stays protected.
This clause should define what constitutes confidential information, how it should be protected, and what happens if it’s shared without permission. Don’t assume that trust alone will protect your trade secrets—put it in writing.
Termination and Cancellation
What happens if the partnership just isn’t working out? Or if the vendor contract is breached?
A solid termination clause outlines how and when the contract can be ended. It should cover:
Notice requirements
Termination for cause (e.g., breach of contract)
Termination for convenience (either party just wants out)
Exit obligations (e.g., return of property, final payment)
In Texas, including a clear termination process can save you from lengthy and expensive legal battles down the road.
Dispute Resolution
Let’s face it—no one enters a contract expecting conflict, but disagreements happen. A dispute resolution clause outlines the approach for resolving conflicts that may arise.
Options include:
Mediation: A neutral third party helps the two sides reach a compromise.
Arbitration: A more formal process that avoids court but still results in a binding decision.
Litigation: In some cases, litigation may be necessary.
You can also specify where disputes will be resolved (such as a particular county in Texas), which helps avoid cross-jurisdiction headaches.
Indemnification Clause
This clause can save your business from significant financial fallout. Indemnification means that one party agrees to “cover” the other party in certain situations, like if a third party sues because of something the vendor did wrong.
For example, if your vendor violates someone else’s copyright and your business gets dragged into a lawsuit, an indemnification clause could protect you from paying those legal fees.
Force Majeure
The COVID-19 pandemic highlighted just how important it is to plan for the unexpected. A force majeure clause excuses parties from fulfilling contractual obligations due to extraordinary events outside of their control—think hurricanes, pandemics, war, or government shutdowns.
Texas has its fair share of natural disasters (e.g., Gulf Coast hurricanes), so including a force majeure clause is a smart way to protect against delays or non-performance that aren’t anyone’s fault.
Warranties and Representations
This section spells out what each party is promising about their products, services, or authority to enter the contract.
Warranties are guarantees (e.g., "the product will function as described for 90 days").
Representations are statements of fact (e.g., "we have the right to sell this software").
You can also outline what happens if those promises aren’t kept, such as a refund, repair, or termination of the contract.
Limitation of Liability
Even with the best intentions, mistakes happen. A limitation of liability clause sets a cap on how much either party has to pay if something goes wrong.
This is especially important for vendors providing high-risk services or software, where a mistake could cost the client a lot of money. Be sure to tailor this clause to reflect the nature and size of the transaction.
Governing Law and Jurisdiction
Your contract should state that it’s governed by Texas law—and even better, specify a particular county (like Harris County or Travis County) for legal proceedings. This avoids uncertainty if legal action becomes necessary and makes sure that your case is heard under familiar state laws.
Without this clause, you could find yourself fighting a legal battle in another state—or even another country.
Non-Compete or Non-Solicitation
Depending on your industry, you might want to prevent your vendors from directly competing with you or poaching your clients or employees. Non-compete and non-solicitation clauses can help with this.
However, Texas enforces these clauses with strict scrutiny. For them to be enforceable, they must be reasonable in terms of:
Duration (e.g., no longer than necessary)
Geographic scope (only where your business operates)
Type of activity being restricted (related to your core business)
If you’re considering one of these clauses, it’s best to consult with an attorney to confirm you’re not overreaching—and that your restrictions will stand up in a Texas court.
Vendor contracts might not be the most exciting part of running a business, but they’re absolutely essential. A well-drafted agreement not only protects your company, but it also builds a stronger, clearer, and more trustworthy relationship between you and your vendors.
In Texas, where business laws can be both unique and nuanced, having solid vendor contracts is more than just good practice—it’s risk management. By including these critical clauses, you set the stage for smoother operations, fewer legal headaches, and faster conflict resolution if something goes wrong.
If you’re not sure where to start or if you’re working on a particularly intricate deal, it’s always a good idea to consult with a Texas-based business attorney. They can make sure your contract aligns with state laws, meets your operational needs, and minimizes your exposure.
Remember, the goal of a contract isn’t just to prepare for failure—it’s to build a structure where success is more likely. When everyone knows their rights, responsibilities, and remedies, business moves faster and smarter.
Contact Us Today
Building vendor relationships is an important component of business ventures. Functioning relationships and vendor contracts are crucial for all parties to succeed. At The Fixed Fee Law Firm, PLLC, we are dedicated to helping you structure your vendor clauses appropriately. We serve clients in Houston, Texas, San Antonio, Texas, and the surrounding areas. Contact us today for a consultation.
