This article is written by Lalit Chhatria, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.

Introduction

If you are a service provider with several different customers, it is possible that you have previously signed a service agreement. You can recruit service providers a great deal if you are a person or have a small company without permanent workers. You are more likely to have used Service Agreements in the past as well.

With the daily gig economy rising, more individuals are beginning freelance or service-based contract careers. To assist with their own business plans, many others use service providers and freelancers.

Service agreements are excellent ways to effectively formalise a gig-type link between parties. More unique arrangements, such as a Freelance Agreement for freelancers, may be used in some situations, but Service Agreements may usually be used for any non-employee working arrangement. Independent contracts for contractors are also a particular kind of service agreement.

However, it’s very important to ensure that the contract is completely suitable for the job and the partnership all parties want before signing either of these agreements.

There are a few clear meanings to learn about service relationships in general. The client is the group that employs someone for them to do the job. The supplier of the service is the party working to do the job. The Service Agreement is a contract detailing the work to be done and the relationship between the parties.

We will address five significant clauses in this guide that consumers should study before signing a service agreement. We will also address five essential clauses that should be reviewed by service providers. As you read this guide, bear in mind that all the mentioned provisions are applicable to all parties. In other words, just because you are a consumer doesn’t mean that the laws applicable to service providers should not also be checked carefully. It’s just that some, more than others, maybe more relevant to you as a client.

You can obtain a service agreement from the company when you enter into a deal with a service provider-from an internet provider, event caterer, to a digital marketing agency. The partnership between your business and the provider is defined in the service agreement. These deals, for the most part, have common vocabulary and clauses. While a contract with a large supplier is not likely to be negotiable, a contract with a small to medium-sized company is likely to be negotiable. The following list contains the main clauses to look for when entering into a service agreement, including: charge, scope of services, alteration, termination, insurance of liability, confidentiality, possession of IP, and option of law/ dispute resolution.

Scope of services

The reach of the services clause would be one of the most significant clauses for a customer. The customer and the service provider identify their requirements for the job within the framework of the service clause. As a consumer, you’ll want to make sure that the service scope clause perfectly encompasses the job you want to do. If it is too large, the provider of services will do more than you want them to do. If it is too narrow, the provider of services could do less. To ensure the job will be exactly what you expect, it is extremely important to review the nature of the service clause in detail.

Remedies

Usually, the provision of remedies is very necessary in any contract. In the event of the other party violating the contract, this provision will address what either party will do. The remedy provision is even more important in service-based contracts. If you are unhappy with the service provider’s job, it should have a particular section that talks about what you, as a customer, should do. Without this particular clause, if your service provider doesn’t work in the way you wanted them to, you will be left with no choices.

Client obligations

What are your unique commitments? Usually, there would be some things that you, as the customer, are expected to do in a service-based contract. The service provider may have a reason for not doing the work they promised if you don’t do these particular things. This is often the source of disagreements between parties. It would be painful to end up in a situation in which the service provider did not finish the job and blamed you for it.

To ensure that you will satisfy all of your responsibilities, study this clause carefully.

Sub-contractor permissions

Is it permissible for the use of subcontractors by your service provider? This could make sense in certain service-based contracts. It won’t make sense in some, such as more personal service-based contracts. Particularly if a prototype document is used by your service provider, they might have given themselves permission to use subcontractors if you don’t want that to be the case. Until signing, ensure that you read through this clause.

Payments and deposit

The portion that specifies the terms of payment is relevant and should include how much, where, and how compensation will be earned by the provider. In order to secure the services, the company may usually need a deposit which may involve a balloon payment or series of payments over the duration of the service. Note the payment plan, or you are likely to owe late fees or be in breach of the contract. For best practises and to ensure that you access all the requested services, ask for a clear statement describing the overall cost. This itemised statement should be included in the service agreement as an exhibit.

Scope of services

What services your company will receive is specified in the scope of services section. For example, if a clothing supplier produces a swag for your start-up, you would want to include an itemised list of items, any additional services (i.e. warehouse storage, shipping costs, etc.) in this section. This section should be exhaustive and exact.

Amendment

The amendment section describes how if the conditions (i.e. scope of services) change over the course of the partnership, the parties may change the agreement. Usually, to amend the agreement, written consent of both parties is required.

Dispute resolution

How would it be treated if you and your client fall into a disagreement? There should be a two-fold answer to this issue. Next, how are you going to deal with the initial disputes about the job? Are you going to have an amicable conversation? Do you need to get your messages written down? The contract should typically demonstrate how initial minor conflicts will be resolved. Second, how are you going to deal with a bigger conflict that’s more difficult to resolve? Sometimes, the parties will talk regarding arbitration in these arrangements. A binding, non-judicial way to settle disputes is arbitration. Be sure to read the contract, no matter what, so you comply with what is written.

Termination

This chapter explains how the parties can terminate the relationship and who is liable for such an incident. If any party commits some unlawful act, for instance, the act may constitute a violation of the agreement. Or, if the promised services are not completely executed by the service provider, they may be in violation of the agreement. Often, if the customer does not pay for the services rendered, then the customer is in violation of the contract. Or, if the parties agree to end the relationship without any strings attached, by written consent.

Exclusivity provisions

Are you allowed in the same or similar industry to work with other customers? It would be very unusual for a service agreement, which defines an independent contractor arrangement, to have an exclusivity clause so that you do not work with other customers. In fact, exclusivity clauses are only justifiable in employment relationships as a general rule, not for contractors.

If your Service Agreement includes an exclusivity clause, there should be a very good reason for it. If you are not sure about it at all, speak to the customer about why they think it is important. In a way that makes sense to you, they should be able to justify their logic. Re-negotiate this clause if they can’t.

Liability insurance

Usually, this clause would enable all parties to receive a minimum amount of insurance for liability. The cost of insuring at the minimum standard versus accessing the services is necessary to weigh. If the cost is too high, you can decide to shop or try to negotiate the minimum down to something more affordable for a different service provider.

Confidentiality

This section safeguards corporate secrets and all sensitive information gathered during and after the course of the contractual relationship.

Proprietorship of IP

This clause specifies who owns the intellectual property ( IP) created from the service. The parties usually maintain any IP they contribute. For example, the service provider keeps the IP to its process, and the client keeps its IP used to complete the service (i.e. company’s logo used to make t-shirts). In addition, during the duration of the partnership, the customer usually gets an exclusive revocable licence to use/ sell the IP. It is necessary to ensure that, by mistake, your business does not move any IP to the service provider.

Choice of law and dispute resolution

This clause describes how the conflict will be settled in the case of a dispute and what law applies. The parties will usually hold it close to home (i.e. in the state of the service providers). This provides a boost for local service providers doing business! Arbitration, mediation, and the use of common law courts are the most common forms of dispute resolution.

Conclusion 

It is evident that the arrangement between your business and the provider is defined in the service agreement. These deals, for the most part, have common vocabulary and clauses. While a contract with a large supplier is not likely to be negotiable but a contract with a small to the medium-sized company is likely to be negotiable. The above list outlines the main conditions to be looked for when entering into a service contract.

References

1. https://www.wonder.legal/us/guide/important-clauses-to-review-before-signing-service-agreement
2. http://www.rubiconlaw.com/service-agreement-provisions/

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