6 Common Types of Vendor Contracts

Vendor contracts come in many forms, each serving different purposes depending on the nature of the goods or services being provided, the business objectives, and the relationship between the buyer and supplier. Regardless of your role within the organization—whether in procurement, finance, legal, or vendor management—becoming familiar with common types of vendor contracts can enhance your team's vendor contract management process.

A vendor agreement is a contract between a company and a vendor that lays out the terms for providing goods or services.

1. Master Service Agreement (MSA)

A master service agreement (MSA) is a contract that defines the overall terms and conditions between a company and its vendor or service provider. MSAs are often used in long-term, ongoing vendor relationships and serve as the framework for future work and transactions. The MSA outlines the broad terms, such as payment terms, dispute resolution processes, intellectual property rights, confidentiality, and general performance expectations.

Key features:

• Defines the broad terms of the relationship
• Serves as the foundation for subsequent statements of work (SOWs) or work orders
• Provides flexibility for ongoing services or products, typically covering multiple engagements over time

2. Statement of Work (SOW)

A statement of work (SOW) is a detailed, project-specific contract or section of a contract that defines the scope of work, deliverables, timelines, milestones, and responsibilities for a vendor. An SOW is often used alongside a Master Service Agreement (MSA) when a company engages a vendor for a specific project or service.

Key features:

• Details the specific scope of work or project deliverables
• Includes timelines, performance metrics, and milestones
• Defines payment schedules and terms specific to the project

3. Purchase Order (PO)

A purchase order (PO) is a formal request from a company to a vendor to supply goods or services. A PO typically outlines the quantity, pricing, delivery terms, and other logistical details for a specific order. While it may not have the same level of detail or longevity as an MSA, a PO is essential in ensuring clarity and proper tracking of purchases.

Key features:

• Contains details about specific goods or services ordered.
• Specifies pricing, payment terms, and delivery schedules.
• Often used for one-time or recurring purchases with predefined quantities and delivery dates.

4. Non-Disclosure Agreement (NDA)

A non-disclosure agreement (NDA) is a legal contract that ensures the confidentiality of sensitive business information between parties. In vendor relationships, NDAs are often used before sharing proprietary information or engaging in joint ventures. NDAs are especially critical when intellectual property, trade secrets, or customer data are involved.

Key features:

• Ensures confidentiality of sensitive information exchanged between the parties
• Establishes the duration and scope of confidentiality obligations
• Provides remedies in case of unauthorized disclosure

5. Service Level Agreement (SLA)

A service level agreement (SLA) is a contract between a service provider and a customer that outlines the expected level of service, performance metrics, and penalties for non-compliance. In vendor contracts, SLAs are particularly important for defining performance expectations and ensuring that the vendor delivers on agreed-upon standards. SLAs are critical for SaaS companies, as uptime guarantees and service credits are defined here. 

Key features:

• Defines specific service levels, performance metrics, and delivery timelines
• Sets penalties or corrective actions in case of non-performance
• Often part of a broader contract such as an MSA or SOW

6. Fixed-Price Contract

A fixed-price contract is an agreement in which the vendor agrees to provide a product or service at a pre-agreed price, regardless of actual costs incurred. These contracts are often used when the scope of work is well-defined and unlikely to change.

Key features:

• The price is fixed and agreed upon in advance.
• Typically used for specific, well-defined projects or deliverables.
• Payment terms and milestones are agreed upon upfront.

How CLM software can help the vendor management process

Contract lifecycle management (CLM) software can be an essential vendor management tool for overseeing all types of vendor contracts effectively. This type of vendor management software can help streamline the contract creation, negotiation, execution, and monitoring processes. CLM software ensures compliance, mitigates risks, and enables better visibility into vendor performance. Learn more about the LinkSquares CLM platform or check out how other businesses are leveraging it to improve their vendor contract management process.