Blog December 17, 2019
Healthcare Vendor Service Agreements: 10 Key Terms and Concepts


This guidance is intended to assist anyone who has the responsibility for procuring, negotiating, approving or administrating contracts for services with third-party vendors so that they may better understand and more efficiently manage the contracting process.



1. Vendor Due Diligence: Have you looked at the credit/trustworthiness of the vendor? How long has the vendor been in business?  Has the vendor received any negative press recently?  Has the vendor been involved in any significant litigation?


2. Introduction/Recitals: The background information for the agreement; the agreement’s purpose.  Is there sufficient background information incorporated in the agreement to describe the transaction?


3. Term: Duration of the agreement, including the date the agreement starts and the date it ends.

Effective Date: The date the agreement becomes effective.

Commencement Date: The date the services are set to begin.

Renewal: Will the agreement automatically renew for a specific amount of time? Is it in the Company’s best interest for the agreement to automatically renew?


4. Termination

Termination for Convenience. This optional provision gives each party the right to terminate the agreement without cause, on notice to the other party.  It is strongly suggested, in most instances, you should retain the ability to terminate the agreement for convenience.

Termination for Cause. This gives a party the right to terminate in the event of the other’s material breach of the agreement that is either incurable or is not cured within a reasonable time after receipt of the notice.


5. Insurance: It is strongly recommended that the agreement requires the vendor to carry industry appropriate insurance policies (e.g., Commercial general liability, worker’s compensation, commercial automobile liability, and professional liability or errors and commissions).


6. Payment/Expenses/Fee Structure: The fee structure in a services agreement can vary widely but is typically structured on (a) a time and materials basis, (b) a fixed price basis, or (c) a hybrid of the two.  When paying on a time and materials basis, it is particularly important to require the vendor to maintain certain records and permit the customer to audit such records so that the customer can verify the accuracy of the charges.

Late Fees: It is important to negotiate down late fees or request them removed altogether.

Annual Increase: Be aware that vendors will sometimes build in an annual increase in price, especially when the agreement also contains an auto-renew clause.

Disputing an Invoice: The parties should seek to resolve all payment disputes expeditiously and in good faith with the vendor continuing to perform under the agreement notwithstanding any such dispute, and fees should not be assessed for any disputed amount that is disputed in good faith.


7. Indemnification: These provisions allocate the risk of losses between the parties, whether they are losses arising out of a breach of a representation, warranty or covenant, or a specific liability.  A vendor will typically agree to indemnify the customer for bodily injury and damage to tangible property but will likely resist agreeing to broadly indemnify the customer for claims arising out of any breach of representations, warranties, and obligations under the agreement or even just the specific representations and warranties. The indemnifying party should include a provision that gives it control over the defense of third party claims for which it is to indemnify the other party, and that ensures that the indemnified party give the indemnifying party prompt written notice of any claim and provides reasonable cooperation at the indemnifying party’s cost.


8. Limitation of Liability: Vendors will almost always include a limitation of liability provision in some form in the contract. Vendors will seek to limit their liability for damages related to any claims the customer might have arising out of or relating to the contract or services, including breach of contract or tort claims. Except for transactions where you have particularly strong bargaining power, most vendors will insist on some contractual limitation of liability.  You should ensure: (a) limitations of liability are mutual; (b) any limitation of liability is subject to appropriate exceptions (e.g., IP infringement, breaches of confidentiality obligations, willful misconduct or gross negligence, death or personal injury or damage to real or tangible property arising out of negligence); and, (c) any monetary caps on damages are set high enough to provide the vendor with a sufficient incentive to avoid liability.


9. Governing Law; Venue: You should negotiate to have your home state’s law as the law that governs the contract and request that your local county is the jurisdiction and venue in which a claim can be brought.


10.Business Associate Issues: If the contractual arrangement possibly involves the provision of any item or service which requires access to or use of any patient information, the vendor will, by definition, be a “Business Associate” under HIPAA.  In such a case, a “business associate agreement” is legally required and the failure to implement a “BAA” at the time the underlying service contract is consummated is a HIPAA violation.