A service contract is an agreement between a business and the clients or customers they serve. It outlines the terms and conditions of the services you will provide, the work done, and the payment associated with the service.
Creating a formal record of what your services include, your terms and conditions, and other legal provisions can help ensure that you avoid legal problems down the road.
Here are 12 things to include in a service contract to protect you and your business.
1. Description of Parties Involved
Like any legal agreement, a service agreement should always start with the names and descriptions of each party involved. This means the service provider and their direct client. This might also include other parties and representatives, but usually only in more complex agreements.
2. Outline of Service and Work
Next, it’s very important to define the scope of work, sometimes called the statement of work, and what is included in the contract. Again, this helps ensure that customers aren’t expecting more than was included in the quote and order.
3. Effective Date of Contract and Timeline of Services
Time frames are another important part of any service agreement. The service provider should include the date when the contract is effective and when they expect to start and finish providing the service.
Often, these service agreements also include information about what will be done in the event of a delay and what penalties, if any, will apply for late delivery or completion.
4. Fees and Payment Terms
The fees and payment terms of the service contract should all be included in the agreement. In addition, if there are any penalties or interest for late payment, these should also be included in the contract.
Many service contracts are paid in stages. For example, commencement is often subject to the provision of a deposit, and there may be several predetermined stages in which payment will be made.
5. Insurance and Compliance Terms
Service providers are often subject to regulations that stipulate what kind of insurance they must have and what kind of legal steps they must take to be legally allowed to provide this service.
Insurance and compliance terms in service agreements outline what those insurances and regulations are and what steps the service provider has taken to comply with them.
Suppose the client is responsible for any kind of regulatory requirements or insurance. In that case, this will also be included in this section.
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6. Indemnification Terms
While any business does their best to minimize risks to their clients, there’s always a chance that something might go wrong despite their best efforts, and vice versa.
Indemnification terms protect the service provider and their client from legal action related to things outside their control.
7. Warranties
Suppose a service includes warranties from the service provider. In that case, the warranty details will be provided, including when it comes into effect and expires, to whom the warranty applies, and under which circumstances it will not apply.
8. Default Terms
A work agreement or service agreement will usually include terms related to default by either party. These state what will be considered a default and the process for handling defaults by the service provider or customer.
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9. Dispute Resolution and Remedies
The dispute resolution and remedies section helps those engaging in a service contract avoid lengthy court proceedings. Many companies use mediators or arbitrators before legal action can be taken. There might also be situations where one party is automatically entitled to a particular remedy.
10. Nonsolicitation and Non-Compete Clause
Sometimes, such as in the case of an exclusive service agreement, the customer wishes to ensure that the service provider will not offer the same service to a customer in their area. Or a service provider might want to ensure that the person they provide a service to does not start offering the same service.
In this case, a noncompete agreement may be included in the contract.
11. Confidentiality Clause
Sometimes, a work agreement needs to be kept confidential. Often, this happens when the service provider has access to secret or proprietary information.
A confidentiality agreement or nondisclosure agreement helps to ensure that their information will not be made public and sets out their legal remedies if it is.
Service providers may also require confidentiality when providing detailed pricing information that could damage their business if known publicly. This could also be protected in this section.
12. Signatures of Parties Involved
Like any legal agreement, a service agreement needs to be signed by both parties. In this case, it’s important to ensure that the signatories have the legal right to act on behalf of the company they represent. The document will also have to be dated and sometimes witnessed.
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