Service Agreements: The Essentials

A Service Agreement is a written agreement between two parties, the service provider and the client.  The service provider is hired by a client, and agrees to complete a job, project, task, etc., in exchange for payment.  A written Service Agreement is important because if you rely on an oral agreement and you later find yourself in court, any breech of the terms of the agreement may be difficult to prove.

The Basics

Normally a Service Agreement will include details on who is party to the agreement, the service being provided, the term of the agreement, and details of costs and payment.  Additionally, the Service Agreement may contain rules on how confidential information is to be treated, and any dispute resolution processes.

The Term of Agreement

The Service Agreement should include an end date.  That is the date at which the service is no longer required or provided.  The notice period required should either party wish to terminate the agreement early should also be detailed; ordinarily independent contractors do not benefit from the protection of a minimum notice period, so detailing this in the Service Agreement may afford such service providers some comfort.

Payment

Information on the payment amounts and the schedule on which those payments are made, including deposits, should be described in the Service Agreement.  The payment details should also include the basis on which the renumeration is calculated – hourly, daily, monthly, or fixed amount, for example.  In cases where the service provider applies penalties for late payment, the terms of the penalty should be detailed.  Likewise, the client may impose penalties in circumstances where the service provider fails to deliver on time or to the required specification.

Covenants

In order to protect the client’s interests, the Service Agreement is likely to include a confidentiality clause.  This clause would prevent the client’s data, processes, and any other business information from being disclosed to a third party.

A non-solicitation clause would prevent the service provider from attempting to encourage the client’s employees leaving or affecting the client’s relationships with other employees.

In the event that it is possible for the service provider to start to offer similar products as the client, a non-competition clause can be used to prevent this.  The non-competition clause may be subject to geographical limits large enough to ensure that the client’s business is protected, but not so large as to prevent the service provider from operating in areas that would not affect the client.

Resolution of Disputes

When drawing up the dispute resolution clauses, each party must agree on which routes may be taken.  Usually the two options are to go for mediation or arbitration.  In many cases mediation would be the most agreeable option as it gives each party the ability to negotiate for an outcome that they have both be involved in concluding.  Arbitration puts the decision-making power in the hands of an independent party who would adjudicate and make a formally binding decision.  Both mediation and arbitration options should be considered before court action is taken, as they are both cheaper and can result in some sort of on-going relationship, which may be beneficial to the service provider and the client.

To discuss how Aughton Ainsworth can help with creating a Service Agreement, please contact Andy Williamson at andywilliamson@aughtonainsworth.com.