What to include in a service agreement
Despite everyone’s best intentions, sometimes in business, it’s difficult for all parties to understand precisely what the others want. This is often a source of tension and dissatisfaction. Creating a service agreement sidesteps this problem in two key ways: firstly it allows for all parties to clearly define in writing their exact expectations for a relationship; secondly, if something were to go wrong, it provides recourse and a clear template for action.
Many small business owners prefer to operate based on ‘handshake agreements,’ believing that introducing a service agreement implies distrust or suspicion. However, creating a service agreement (or any other contract) actually makes for a more harmonious relationship – since all parties know what to expect and what to do, there is less room for dissatisfaction. Many a long-term relationship starts with a service agreement.
When drafting a service agreement (or asking a legal professional to do so), there are certain provisions that are critical to include. This post will walk you through some of the most important ones so that you can have an honest, frank, and transparent discussion with your prospective clients to ensure your professional relationship is as smooth and productive as possible.
The first thing to consider is precisely who is signing this agreement, and in what capacity. If you have an LLC, you may sign on behalf of the corporation, but may not be absolutely liable for all of the terms. Similarly, you must make sure that your counterpart has the right to sign on behalf of your client. Think carefully about the named parties in both cases.
Terms of Agreement
Although you may envisage the relationship being an ongoing, long-term one, you should outline clearly a shorter term of the agreement (usually six to twelve months) with an option to renew. This will allow you to renegotiate and will set clear expectations about the length of the project.
You should also include the steps (and notice period) both parties should give in order to terminate the contract. Here, it’s a case of planning for the worst and hoping for the best.
Terms of Payment
Payment is obviously the key issue for any small business, particularly because of cash-flow issues when starting up. Make clear not just the final total, but when the payments should be made (and to which bank account). In particular, pay attention to:
- How you calculate charges (i.e. whether they are calculated in minutes based on time worked, and rounded up).
- The currency you will charge/invoice in and what time zone should be used for the invoice calculations (particularly important with international contracts).
- How either party can renegotiate pay during the course of the contract?
- The billing period and the deadline for payments (i.e. net-15, net-30, or net-90 days)
- When you will provide invoices (and how you will provide them – by email, by mail, etc., and whether tax should be included on those invoices). You should also consider whether there is a minimum threshold for invoices, under which invoices will be ‘rolled over’ into the next pay period.
- Extension of credit (and how to change this mid-contract).
You should outline very clear expectations of how to address dissatisfaction (for both parties), including the timeframe in which both parties can bring disputes.
Again, it’s important to state clearly what happens if a client is not forthcoming with payments, even if you don’t expect it to happen. You should set clear interest on late payments, or a per diem fee (and outline the payment details for all the above).
In case the relationship truly deteriorates, you should set a very clear path for both parties to extricate themselves from the agreement. Generally, this should be in writing, and with clear grounds for terminating (i.e. failure to pay, breach of obligations, and so on).
Finally, in case of the need for further arbitration, you should clearly set the jurisdiction under which the service agreement is to be honored. If both parties are in the same country, this is fairly straightforward, although if both parties are international, it is best to pick a governing law for the contract (with named courts of arbitration).
Ultimately, writing a successful service agreement will decrease your likelihood of needing any arbitration services, or experiencing any disputes. However, by writing a comprehensive outline of the services, and having both parties agree to it, you will ensure that your working relationship starts with you literally on the same page.
|Here you can download fully functional, reviewed by a lawyer* and ready-to-use Telecommunication Services Cooperation Agreement.
This has customizable sections, so you can fit it directly to your needs, or use it as the basis for crafting your own Service Agreement.