What is a Service Agreement?
A Service agreement, or service contract which sets out the service to be undertaken, can clearly define each persons or partys goals. It can also limit the liability of the parties, and ensure that both get the services and payments they expect.
Description of Services
It is important to clearly define the services that are to be performed, and any deadlines for work product or performance. Without clarity, each party, even in good faith, may have different ideas -- but they may not discover this until the work is completed and one party is not satisfied. The more detail about the relationship stated in the contract, the lower will be the risk of misunderstanding or unfulfilled expectations later.
Service levels that are designated for technical or other performance should be set forth in an exhibit to the agreement and stated in detail; these some times also include financial penalties or rewards. There is no set formula for determining these levels and numbers.
Payment Details
The agreement should include a provision that states:
- how much is to be paid,
- when it is to be paid,
- what is included in the payment (expenses, taxes, travel),
- procedures for invoicing, and
- penalties for late payments.
The Relationship Between Parties
The agreement should include a provision that clearly states that the relationship is not a partnership, joint venture or employer-employee. Since some of these relationships can be implied by law, this is an important provision.
Dealing with Confidential Information
The agreement should include a provision that states that:
- the parties will exchange confidential information,
- how that information will be identified and handled,
- restrictions on disclosure and misuse, and
- exceptions to what is included in confidential information.
Depending on whether the agreement is for provision of services or the hiring of a service provider, and which party drafts the agreement, the exceptions may be more broad or more narrow.
Ownership of the Work Product
The service provider will want to make sure the agreement does not include a provision stating that the customer owns the work product, so that the Provider may continue to perform similar services for other customers without the risk of legal interference or restriction.
The company that hires the service provider will want to ensure that they fully own the work product and that the agreement contains the legal language as required by copyright law.
In either case, the owner of the work product may agree to give a license to the other party to address its required uses.
Outline of Warranties and Representations
These may include the following:
- That the service provider will re-perform defective or non-conforming services for a time period indicated
- That the services will be performed at or above industry standards
- That the service provider will not infringe third party rights in performing services
- That the service provider is not violating any other agreement by performing services
Outline of Time Span and Termination
The agreement should include a provision that outlines how long the agreement will be in effect, and the options and results for termination.
Conclusion
A Service agreement or service contract will help to clearly define goals and ensure each party completely understands the duties and responsibilities. Service agreements also limit risk, and ensure both parties get what they want.