A Brief Introduction About the Value-Added Reseller Agreement
A value-added reseller is a company that adds certain features to an existing product or service. They provide enhancements to third-party products by creating customizations, add-on features or providing consultation, training, or coaching for the use of the product. These arrangements are mainly prominent in the information technology sector. Generally, the resellers approach manufacturers with their proposed upgrades. However, a manufacturer may also choose to collaborate with a reseller from his industry from a value-added reseller directory to provide add-on services along with his products.
An agreement entered between the parties to discuss their terms, duties, and responsibilities for this arrangement is known as a value-added reseller agreement or a VAR agreement.
Who Takes the Value-Added Reseller Agreement – People Involved
The agreement is executed between a manufacturer and a value-added reseller. The reseller makes modifications to the product and helps customize it to the preferences of the end customers or provides add-on features to the product. They may also provide consulting or training for the use of the existing product. The reseller generally purchases the product from the manufacturer and then modifies it and resells it to the end customers.
Purpose of a VAR Agreement – Why Do You Need It?
The purpose of the agreement is to agree upon the terms of the modifications and resale of the product or service. The parties agree to the rights and obligations they have towards one another.
The manufacturer may set specific quality standards that the reseller must maintain since the base product is still sold with the name of the manufacturer, and any modifications that degrade the quality may adversely affect his sales.
The reseller may include clauses on the compensation to restrict the manufacturer from making profits from the services that the reseller provides.
Further, the agreement provides for the marketing of the modified product. It helps both parties as it adds beneficial features and provides value adds for the customers and makes the product more attractive to the customers.
Contents of the Value-Added Reseller Agreement – Inclusions
Since the agreement is mainly concerned with agreeing upon the terms, it must include the following:
- The details of the products included in the arrangement.
- The modifications that are proposed to the products.
- The quality standards that must be maintained by the reseller.
- Details on how the products will be marketed to maximize the benefits for both parties.
- Details of the exclusivity of the arrangement between the parties.
- The sales targets and conditions for returns of the product.
- The monetary terms, conditions, and concerns between the parties.
Additionally, the agreement must contain the general contractual clauses as mentioned below:
- Name and details of the parties involved.
- The period for which the agreement will be in place.
- The geographical locations in which the agreements will hold good.
- Measures for conflict resolutions.
- The conditions upon which the agreement may be terminated.
How to Draft the Reseller Agreements – Points to Consider While Preparing the Agreement
When preparing a value-added reseller agreement, you need to keep the following in mind:
- The terms being set out must align with the business interests of both the manufacturer and the value-added reseller.
- The parties must set out realistic expectations and conditions to avoid disputes at a later stage.
- It is essential to include the conditions to be maintained in the product when processed for modifications as it would affect the reputation of the manufacturer.
- The ownership conditions and clauses regarding any infringement of intellectual property must be discussed.
[ Also Read: Reseller Agreement ]
Negotiation Strategy
When negotiating the agreement, the parties must discuss and agree on the following items:
- Any discounts on the purchase of the products by the reseller and the purchase conditions.
- The monetary conditions are under the agreement.
- The branding of the products of the manufacturer and the add-ons to the products created by the reseller.
- Measures to resolve any conflicts of interest that may arise.
Benefits & Drawbacks of the Value-Added Reseller Agreement
There are numerous benefits of having an agreement in place.
- It allows both parties to agree on the terms of the arrangement and include points that concern them individually.
- It protects the parties in the case of any conflicts and is a legally binding document that can be presented to the court for legal action.
- It provides measures for conflict resolution.
Despite the benefits, there are some negatives to the agreement.
- It is costly and time-consuming to execute.
- In case any modification is required to the terms, it is a cumbersome process.
- It arranges the parties quite inflexible.
What Happens in Case of Violation
A value-added reseller agreement is a legally binding document. In case of any violation, it contains clauses on measures to resolve disputes. In case the parties do not agree to the resolution, they may also agree to terminate the agreement.
Further, in the case of any further issues, any of the parties may choose to take legal action and sue for damages.
The value-added reseller agreement is important since it provides the terms and conditions of the arrangement between a manufacturer of an existing product and a value-added reseller who proposes to make modifications and upgrades for the product to benefit the end customers. It provides a basis for both parties to maintain the quality and standards as they enter into a collaborative business together.
Both parties need to discuss and agree on the terms before the start of the project to have a shared understanding and to avoid any conflicts later.