Don't allow vendor disappearing acts

Most, if not all, vendors' standard form agreements give the vendor the unilateral right to assign at least part of the responsibilities outlined in the agreement to a third party. This gives vendors incredible performance and financial leverage, and it gives them the ability to delegate responsibilities, cash out of deals or both. Let's be clear on this issue: Never even think about giving your vendor the unilateral right to assign its rights or responsibilities to someone else. Why? There are two very ugly reasons.

The first reason is that the vendor can assign its rights to your payments to a financial institution that loans the vendor most of the value of the contract and then looks to you for the payments. In this case, the vendor has cashed out of the deal, its salespeople have received their bonuses, and you have to worry about how well the vendor will perform while you're still legally obligated to make all payments. The vendor will probably continue to perform, but probably with less motivation, since there's no longer any financial incentive. You've lost the "carrot," and you've assumed the risk of nonperformance, which should belong to the vendor.

In that same vein, never agree to an unconditional obligation to pay your vendor in a results-based deal, especially when your payment obligation is contractually disconnected from the vendor's ongoing duty to perform. Unconditional customer payment obligations are typically triggered by a monthly date or a vendor invoice and continue for a predetermined length of time. Your obligation to pay should be triggered only by the vendor's acceptable performance of the work you have contracted for.

The second ugly reason is that the vendor can assign its responsibilities under the contract to a third party. You could end up having work performed by someone with whom you didn't sign a contract. And again, you could be assuming a performance risk. Please note that this shouldn't be confused with giving the vendor the right to subcontract part of the deal. If the customer understands and agrees up front to subcontracting, there's no problem, especially if the primary vendor remains the single point of accountability. Generally, subcontracting doesn't relieve the primary vendor of its performance responsibilities.

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