Service Contract: What is it and How to Draft a Perfect One?

The term “service agreement” refers to a written agreement between a service provider and a client. It outlines the tasks to be done as well as the roles of both parties to get the work done and paid for.

Sometimes, it is referred to as a professional service agreement, service contract, or client services contract. The service agreement contains timeframes for starting and finishing the task and additional deadlines if required, as well as other processes and details of the work.

Why Use a Written Service Agreement?

It is risky to have oral understanding. Your client can have multiple providers to consult and misinterpret the scope of work you described with that of someone else. You may forget to mention crucial details, such as situations where additional fees can be imposed. Written service agreements reduce the possibility of disputes and even lawsuits that could arise from these kinds of omissions.

Who Needs a Service Agreement?

You usually receive your purchase immediately when you purchase a vehicle, a computer, or any other appliance. Even if you order a product and then wait for delivery, you know what kind of product you’re receiving. But you can’t evaluate a service in advance like an appliance. Most services are provided over a long period of time, and clients usually pay the fee or atleast a part of it before seeing what they paid for.

For instance, a developer who develops custom software for a particular company is likely to go through a series of stages, from determining the company’s requirements to conceiving, installing, and testing the software before the software is delivered.

A written service contract is a method of managing expectations when work is being completed. It also ensures each party that they will receive the work and charges they agreed to in the expected timeframe.

There are some services that do not require an agreement. For instance, if you go to a quick oil change shop, the chances are that you and the owner can orally agree on the price, what work will be done, and when. When work is completed with time, both parties will require the security of written guidelines, objectives, pricing, and goals.

A few of the companies and professionals who depend on service contracts include:

  • Management consultants
  • Graphic designers and illustrators
  • Photographers and videographers
  • Web designers and IT service providers
  • Real estate brokers
  • General contractors and construction businesses
  • Lawyers and accountants
  • Marketing and advertising professionals, and
  • Caterers

How to Write a Service Agreement

The title of the contract must include your company’s name as well as “service agreement,” “client agreement,” “customer agreement,” or any other title that best describes your case. Real estate agents use “listing agreements,” for example, to sign contracts representing properties for sale. A tax professional might use an agreement for tax preparation, such as a “tax preparation agreement,” and the list goes on.

A variety of aspects of a service agreement can be standardized, and you can develop the so-called template that often provides the essential information you’ll need for your company. It is possible to modify the template to fit your specific arrangements with a particular client.

Certain industries and professions may require special sections; however, in general, the service agreement should contain the following sections and topics:

1. A brief description of the parties involved in the agreement

The opening of your contract should include the names and addresses of all the parties. If either or both parties are a business, then you should mention the kind of business, like an LLC or a corporation.

2. A description of the service to be provided

Be as precise as you can while keeping in mind that you will not be able to alter your price if you need to do additional work. A caterer should mention the time they’ll devote to an event, the number of servers they will need, the number of guests who will be served, and the quantity and quality of food that will be served. Ensuring that the food and ingredients are listed in detail will help ensure that the caterer can bid enough to cover these costs.

3. A description of the fees along with payment schedules

Include details such as whether the fees are monthly or weekly or if you’re charging a fixed price per project. You may also have to state whether the pricing includes any other expenses, like the cost of travel for consultants who are required to visit various company locations, or if the expenses will be charged and repaid in separate installments.

Also, you’ll need to provide a payment plan, including dates and due amounts. Certain providers, such as caterers, usually have two dates and amounts that include one date for the deposit and the other for the remaining due.

The pricing section must also include the forms of payment that you will accept, including credit cards or checks. Certain agreements contain clauses that outline what happens if payment is not received according to the scheduled date.

4. The effective date of the contract, when work will begin, and the terms under which it can be ended.

The effective date of an agreement is the date after which the terms of the agreement bind the parties. The effective date is the date when both parties have signed the agreement; however, it isn’t required to be. The next step is to include a work plan. Work done on a particular project basis should, at a minimum, have start and end dates. You may also include additional deadlines if the project is divided into multiple phases or stages.

In-continuous services, such as an IT maintenance agreement, usually last for one year or six months and have provisions for renewal of the contract at the end of that period.

The agreement must also address instances where you cannot finish a task due to something that you or the customer does or doesn’t perform. The contract must anticipate the most likely performance issues(known as defaults) and include a way to rectify the situation.

5. Provide a space for signatures. Service agreements must always be executed and signed by both parties. It is also a good idea to get the signatures notarized in order to stop anyone from later claiming that they did not sign the agreement.

Other Provisions Your Contract Might Need

Services agreements that deal with certain kinds of businesses and jobs may be required to contain clauses or provisions dealing with specifically-related circumstances. Some of the clauses include the following:

– A hold harmless clause

Hold-harmless clauses are usually utilized when a company is looking to transfer the risk associated with its services. For instance, a general contractor can have a clause called a “hold harmless” that releases the company of responsibility if it or the subcontractor causes damage to the client’s property during the work.

– An indemnification clause

An indemnification clause guarantees that you will pay the other party to compensate for the damages or losses the other party has suffered.

– Warranty clauses

Warranty clauses guarantee that the service or the product will conform to specific standards or be replaced or repaired within a certain timeframe. They are usually employed in the construction industry.

– Confidentiality clauses

Web developers, consultants, and other service providers usually utilize the confidentiality clause to prevent sensitive information from getting into the hands of a competitor. For instance, consultants who have developed an exclusive process to streamline processes use a confidentiality clause to stop any client from sharing information with a third-party consultant.

– The provisions requiring cooperation from the client

The contract should contain an obligation that outlines the client’s responsibility to provide information and support so that the provider can fulfill its obligations.