Businesses Beware: Vendor Agreements with Arbitration Clauses, Liquidated Damages and Attorneys’ Fees Provisions
Please be sure to read the fine print of a vendor or supplier agreement your are asked to sign on behalf of your business before you can receive products or services from a vendor. Oftentimes, the need for the vendor’s products or services is immediate and business managers do not read the fine print of agreements presented to them by vendors and suppliers. These agreements govern the business-vendor relationship and how any disputes between them are resolved. Usually included in these agreements are terms favorable to the vendor and potentially prejudicial to the business customer. An example of a provision recently encountered was a binding arbitration provision contained in a vendor agreement. These clauses leave the business customer in the position of having to submit to an arbitration process of a private arbitration forum that charges fees for an arbitrator’s time and other administrative costs. These costs can be significant depending on the type of dispute. These costs are mandatory and are required to be paid by the business to an arbitration forum selected by the vendor in the agreement signed by the business. Also, the business customer cannot seek redress in the court system after agreeing to binding arbitration. From a cost standpoint, resolution of a problem in court can be much less expensive than the arbitration process. Other minefields for businesses that can be found in vendor agreements are liquidated damages clauses and attorneys’ fees provisions. These can make it a contractual requirement that the vendor receives money damages in an amount set by a formula and attorneys’ fees in certain amounts if a dispute arises and the vendor prevails in the matter. These terms can provide a contractual right to the vendor to receive liquidated damages and attorneys’ fees that the vendor otherwise would not be entitled to if the business had not signed the vendor agreement. Beware, and read the fine print of what you sign. It may turn out be an expensive mistake.