Before You Start
This checklist is for reviewing vendor/supplier contracts before signing. It is not a substitute for legal advice - for high-value contracts (> ₹10 lakh annually) or complex arrangements, have a lawyer review the final document.
Risk Rating: 🔴 High risk if missing | 🟡 Medium risk | 🟢 Standard clause
Section 1: Parties and Scope
- 🔴 Correct legal entity names for both parties (not trading names)
- 🔴 Registered addresses match company registration documents
- 🔴 Scope of services/goods is specific and unambiguous
- 🟡 Exclusivity terms - are you locked in? Can vendor serve your competitors?
- 🟢 Contract effective date and initial term clearly stated
Section 2: Payment Terms
- 🔴 Payment amount and currency clearly stated
- 🔴 Payment schedule (milestone-based, monthly, on delivery)
- 🔴 Invoice requirements (what must be on the invoice for payment to be processed)
- 🟡 Late payment interest rate - ensure it's reasonable (not > 18% p.a.)
- 🟡 Price revision clause - how much notice, how often, capped at what %?
- 🟢 GST treatment - is the quoted price inclusive or exclusive of GST?
- 🟢 TDS deduction - who bears TDS? (Typically deducted by payer)
Section 3: Delivery and Performance
- 🔴 Delivery timelines are specific (dates, not "reasonable time")
- 🔴 Acceptance criteria - how do you confirm delivery is satisfactory?
- 🔴 SLA metrics defined (uptime, [response time](/blog/customer-support-response-time), quality standards)
- 🟡 Penalties for SLA breach - are they meaningful or token amounts?
- 🟡 Force majeure clause - does it cover COVID-type events? Is it too broad?
- 🟢 Change request process - how are scope changes handled and priced?
Section 4: Intellectual Property
- 🔴 Who owns IP created under the contract? (Should be you for custom work)
- 🔴 Vendor's right to use your data for their own purposes - should be prohibited
- 🟡 Background IP - vendor's pre-existing IP used in deliverables (you get a licence, not ownership)
- 🟡 Open source components - are there any? What licences apply?
- 🟢 Confidentiality obligations on both sides
Section 5: Liability and Indemnity
- 🔴 Liability cap - is it reasonable? (Typically 12 months of fees paid)
- 🔴 Exclusion of consequential damages - standard, but check it's mutual
- 🔴 Indemnity for IP infringement - vendor should indemnify you if their work infringes third-party IP
- 🟡 Insurance requirements - does vendor carry adequate professional indemnity and public liability?
- 🟢 Limitation period for claims
Section 6: Data Protection
- 🔴 Data processing agreement (DPA) if vendor processes personal data of your customers/employees
- 🔴 Data localisation - is data stored in India? (Required for some regulated industries)
- 🔴 Data breach notification - vendor must notify you within 72 hours of a breach
- 🟡 Sub-processor restrictions - can vendor share your data with third parties?
- 🟡 Data deletion on termination - vendor must delete your data within 30 days
- 🟢 Security standards - ISO 27001, SOC 2, or equivalent
Section 7: Termination
- 🔴 Termination for convenience - can you exit without cause? What notice period?
- 🔴 Termination for cause - what constitutes material breach? What cure period?
- 🔴 Effect of termination - data return, transition assistance, outstanding payments
- 🟡 Auto-renewal clause - does the contract auto-renew? What notice to prevent renewal?
- 🟡 Termination fees - are there penalties for early exit? Are they proportionate?
- 🟢 Survival clauses - which obligations survive termination (confidentiality, IP, payment)?
Section 8: Dispute Resolution
- 🔴 Governing law - should be Indian law for Indian vendors
- 🔴 Jurisdiction - which court? Prefer your city for convenience
- 🟡 Arbitration clause - faster than courts but check arbitrator selection process
- 🟡 [Escalation](/blog/customer-support-escalation-management-system) procedure before formal dispute - saves time and cost
- 🟢 Notice requirements for disputes
Red Flags: Walk Away or Negotiate Hard
🚩 Unlimited liability on your side - you should have a liability cap
🚩 Vendor can change pricing with 7 days notice - require 90 days minimum
🚩 Vendor owns all IP created - unacceptable for custom development
🚩 No termination for convenience - you're locked in forever
🚩 Dispute resolution in vendor's city - expensive for you
🚩 Auto-renewal with 30-day notice window - easy to miss, hard to exit
🚩 No data deletion obligation - your customer data stays with vendor after termination
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