What is a service agreement?
A service agreement is an agreement (a contract) between two parties. One party provides a service (the service provider) and the other party pays for the service (the client). The types of services that can be covered under this type of agreement can be, and are, very broad. Basically the client is paying for a skill or resource rather than a tangible product.
Examples of services
Services can be anything from the work that tradespeople do, to professional advice, tutoring, therapeutic treatments (for example, a massage), providing energy or an internet connection to a home, a mobile phone plan or creating a logo or website for someone.
This means that a service agreement can also cover a broad range of relationships that span anywhere from a one-off task to a regular ongoing arrangement. Depending on the type of service being provided, the party with more power in the relationship may be the service provider or the client. This will impact on the bargaining power that each party has in negotiating the terms of the agreement.
Like all agreements, service agreements clarify the obligations of both parties. You can form an agreement verbally, but writing it down helps to avoid and resolve disputes down the track.
What should you put in your service agreement?
Services – The agreement should state the nature of the services. What is the service provider doing for the client? Include all the services being provided and think about including a list of services that will not be provided (so that the parties are 100% clear as to what is being provided and what is not being provided). The clearer the agreement is the less likely there will be for disputes to arise in the future.
Fees – You should include the fees payable. The fee could be a fixed quote that includes time, equipment, out-of-pocket expenses and GST (if payable). The fee could be an hourly rate payable, or an amount paid for each task completed. Maybe the fee paid is a retainer (a retainer is where the client pays an ongoing amount to the service provider in order to secure the availability of their services as needed, for instance a set amount paid each month). The fee, or method of calculating the fee should be written out clearly in the services agreement. Don’t forget to state whether the fees include or exclude GST!
Term – The duration of the agreement needs to be clear. Is a one-off service being provided or will this be an ongoing relationship. Include the start and end date of the agreement if applicable.
Obligations – What are the obligations on each of the parties? Who has to do what by when? When is payment due? Is the service provider allowed to subcontract to another party? Does the service provider give any warranties or guarantees as to the quality of their work?
Confidentiality – Think about confidentiality. Are there elements of the contract or the service that need to be kept confidential? Click for more information on Confidentiality Agreements.
IP – Is there any Intellectual Property that will be developed from this service agreement? If there is, who will own it? Click for more information about owning newly created IP
Insurance and Superannuation – Who pays for insurance and superannuation? Generally service providers and clients are responsible for their own insurance and superannuation because a service agreement does not create an employment relationship.
Disputes and Termination – Finally, the agreement needs to include a process for resolving disputes and for terminating the agreement if either party does not meeting their obligations or there are irreconcilable differences.
There can be a lot to think about in even simple Service Agreements. We know, as we have thought about all of these issues many times!