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A shared services agreement is a contract summarizing the duties, expectations, and provisions of a shared services arrangement that can involve two or more parties. In this agreement, companies pool funds to lower expenses and enhance efficiency. In addition, the shared services agreement is a crucial document that guarantees that all parties involved are mindful of their functions and obligations. And the agreement also serves as a reference point for dispute settlement.
Advantages of a Shared Services Agreement
A shared services agreement encompasses the terms and conditions, such as the range of services, expected performance, and financial arrangements. Additionally, it specifies the duties and obligations of each party, the service level agreement (SLA), and the conflict resolution process. Keep in mind the SLA outlines the specific performance expectations and metrics for the shared services. The following are some benefits of participating in a shared services agreement:
- Cost Reduction: By pooling resources, organizations can reduce expenses associated with providing a specific service or function. Sharing IT infrastructure, for instance, can result in reduced hardware and software costs. However, the cost reduction depends on the specific arrangement and the extent the resources are shared.
- Enhanced Efficiency: Shared services arrangements can enhance efficiency by minimizing duplication of efforts and streamlining processes. By standardizing procedures, organizations can eliminate redundancies and increase productivity.
- Improved Quality: Shared services agreements can increase service quality by drawing on the expertise of multiple organizations. By sharing best practices and knowledge, organizations can improve the quality of their services while reducing costs.
Key Information in a Shared Services Agreement
A shared services agreement usually comprise the following information:
- Services: Describes the nature of the services provided along with a schedule that outlines the scope of work and deliverables involved while avoiding plagiarism detection in AI tools.
- Term: Outlines the contract's duration, either by indicating the start and end dates or the number of days, weeks, or months it will be in effect.
- Ownership: Clarifies ownership rights of physical products or intellectual property created during the project by the client or service provider.
- Compensation: Specifies the total amount or periodic payment agreed upon by the client and service provider in exchange for the work performed, which may include an attached schedule.
- Relationship: States that the service provider is an independent contractor, not an employee of the client.
- Liability: Confirms if there is limited liability for either party involved in the project.
- Insurance: Lists the required insurance coverage for the service provider, including workers' compensation, general commercial liability, professional liability, or property insurance.
- Change in the Work: Specifies the procedure for either party to change the scope of work during the project.
- Confidentiality Clause : States whether the project must be kept confidential by either party.
- Non-Compete Clause: Specifies whether the service provider can work with the client's competitors. This is determined on a case-by-case basis and isn’t relevant to every situation.
- Non-Solicitation Clause : Clarifies whether the service provider can solicit the client's customers or peers. Assignment: Clarifies whether the service provider may subcontract the project to another party.
- Termination: Outlines the days' notice required by either party to end the agreement.
Tips for Writing an Effective Shared Services Agreement
Below are some important tips to write an effective shared services agreement.
- Use Simple Language: When drafting a shared services agreement, it's important to use simple language that can be easily understood. You don't need to include verbose legal terms for the agreement to be enforceable in court. As long as the terms and clauses of the agreement are clearly stated in plain language, there's no need to overcomplicate things. In addition, Google's Terms of Service is a good example of a well-drafted shared services agreement.
- Avoid Unnecessary Constraints: When drafting the agreement, it's important to keep it flexible and versatile by avoiding unnecessary constraints. For instance, the agreement does not need to specify particular types of equipment or services. A too-specific agreement can limit your options and prevent you from sharing services not initially considered. Moreover, consider using pre-existing templates to avoid reinventing the entire content. There are many templates available for shared services agreements.
- Include Multiple Parties: Instead of limiting the shared services agreement to just two parties, you may include many parties. It can be achieved using language such as "this agreement has been reached between the undersigned parties," which allows multiple jurisdictions to join the agreement. This depends on your specific arrangement.
Steps to Draft a Shared Services Agreement
Here are seven steps to follow when writing a shared services agreement:
- Identify the Parties Involved: Include the legal names and mailing addresses of the service provider and client.
- List the Services: Provide a concise description of the services' nature in the agreement's main body. Attach a schedule to describe the scope of the work and any deliverables.
- State Compensation and Schedule: Include payment dates or frequencies in addition to the payment amount.
- Clarify Ownership: State which party will retain ownership of any physical goods or intellectual property (IP) involved in the services.
- Include Confidentiality and Competition Terms: If the client requires confidentiality or restrictions on working with competitors, specify any guidelines for the service provider to follow.
- List Indemnity and Liability Limitations: Include any necessary insurance requirements and limitations on liability.
- Execute the Agreement: The services agreement becomes legally binding once both parties agree to the terms and sign the contract as long as there is consideration and the contract meets the legal requirements of the jurisdiction you are in.
Why Hire a Lawyer for a Shared Services Agreement
While not all shared services agreements require legal assistance, when you contact an attorney to draft your document, you get several important benefits:
- Tailored Agreement: Using a pre-designed contract template may not be sufficient for your specific requirements, particularly if you need to include additional clauses. With a lawyer's assistance, you can customize every aspect of your agreement to suit your needs while ensuring that it offers legal protection to both parties.
- Negotiation Support: The negotiation process for a services contract can be complicated, requiring multiple adjustments and revisions until both parties reach an agreement. With a lawyer's help, you can benefit from expert advice throughout the negotiation process to ensure a satisfactory outcome.
- Legal Protection: It's essential to ensure that a services contract safeguards all involved parties and shields you from any liability for unforeseen circumstances. By engaging an experienced attorney, you can ensure adequate legal protection while retaining the ability to pursue any necessary recourse.
Key Terms for Shared Services Agreements
- Cost Allocation: The process of allocating expenses to different business units or departments based on their usage of shared services. It helps to ensure that each unit pays only for the services it uses.
- Governance: The set of processes and structures that define how shared services are managed and governed within an organization. It includes policies, procedures, and decision-making frameworks.
- Service Desk: The central point of contact for customers to request services and report issues. The service desk manages service requests, incidents, and problems.
- Service Management: The processes and practices used to manage shared services, including service design, operation, transition, and continuous improvement.
- Key Performance Indicators (KPIs): Metrics used to measure the performance of shared services against established targets. KPIs may incorporate response times, client satisfaction scores, and service availability.
Final Thoughts on Shared Services Agreements
In a nutshell, a shared services agreement is a formal contract between two or more companies to collaborate on a particular assistance or function. The agreement summarizes the terms of the contract, including the performance expectations, the scope of services, and financial arrangements.
The advantages of a shared services agreement include improved efficiency, cost savings, and quality. Nevertheless, key considerations, such as governance, SLA, legal considerations, and cultural differences, must be taken into account to guarantee the success of the shared services arrangement.
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