The software product development involves different stakeholders such as suppliers, vendors, customers,project development team, senior management and functional managers. The project manager is very much dependent on external stakeholders such as vendors. Vendor selection, contract preparation, different types of contracts, monitoring the progress, contract closure and the role of vendor in the entire project life cycle are discussed in this paper. The steps in vendor management process are clearly explained. The advantages and disadvantages of different types of contracts are discussed. The questions arise when a project manager chooses a vendor are specified. Overall the importance of vendor management and the role of vendors in software projects have been discussed based on the literature review of the project management standards and related literature. The lack of vendor support may lead to project failure. This is evident from the project management literature.