If you are in the service business, it is advisable that you form a service agreement (a template) that can be used by your company every time you take on a new client.
A commercial lawyer will be able to prepare a template that is best suited your company i.e. a template that is favourable to your company and accurately reflect your company’s objectives.
Appointing a commercial lawyer to prepare the template will not only save you time but also the cost of hiring a lawyer to review the service agreement every single time you have a new client; especially where the draft agreement is prepared by the client. In such case, a commercial lawyer will have to be engaged to review, advise and negotiate the terms of every new service agreement for you to ensure that your company’s rights are protected at all times.
A service agreement is when one party, who is a supplier, agrees to provide services to another party, who is the client, in exchange for a fee or payment.
The purpose of a service agreement is to clarify the scope and standard of services to be provided – the cost and duration of the supply, the consequences of not complying with required standards, and other rights and obligations on the part of both parties.
A service agreement may exist as a single contractual document. Alternatively, it may be divided into two parts, namely a main framework agreement consisting of legal terms, and an attached agreement detailing the services being purchased, in a single outsourcing contract.
The separation of the legal and technical aspects of the agreement allowed by the latter format is useful in practice as it allows suppliers to more easily refer to technical requirements.
A service agreement is different from a service level agreement. A service level agreement also known as SLA focuses on the performance measuring and service quality required and agreed to by the client and the supplier. It defines the level of service expected by a client and it is commonly used by clients with IT service providers and telcos.
The Service Agreements can be further divided into three types:
The supplier is usually hired as an independent contractor by its client. Neither party is granted authority to make any commitments on the other’s behalf, and the service agreement does not constitute or imply any partnership, joint venture, agency or fiduciary relationship.
However, the service agreement may impose restrictions on both parties’ dealings with third parties. Suppliers may be required to cater exclusively to a client, or clients may be required to obtain particular services exclusively from a supplier.
The scope of services to be supplied is defined in terms of type of services and manner of supply. The provision of necessary capital and labour may be assigned to either client or supplier, or split between both.
A start and end date are usually specified to indicate the duration for which the supplier and the client are bound by the terms of the service agreement. A provision for these dates to be altered or extended through written agreement is also usually included.
Suppliers are generally required to warrant that services they provide will be free of defect and in compliance with clients’ requirements.
Requirements may be set for the exercise of this warranty. For instance, clients must provide notification of any claims within a set time period from the date a defect is discovered, and claims cannot be made for defects resulting from improper use by the client.
Clients may be obligated to purchase a minimum value of services from the supplier across the duration of the service agreement. Clients may also be required to provide support for the supplier. This could involve planning and monitoring the supply of a service, or assisting the supply of a service by providing capital or personnel. Both supplier and client are usually required to keep the information regarding the service agreement confidential. Neither party is permitted to make a public announcement or other disclosure about the agreement without prior notification of and approval by both parties – with the exception of disclosures required by law or regulation.
Payment for the supply of services may be made by an hourly rate; by a fixed fee for each instance of service provided; or through revenue sharing (although this is rarely adopted by most parties to a service agreement). It is where a supplier is given a share of the revenue gained by the client as a result of a service. A payment schedule and a method for calculation of work hours for hourly payment must be established.
The designation of IP ownership resulting from performance of a service must be determined, as well as whether those ownership rights will survive the termination or expiry of the service agreement.
Suppliers are usually permitted to limit their potential liabilities through specifying the circumstances under which liability arises on their part. They may also place a cap on the extent of their liability for claims by third parties and claims resulting from wilful misconduct by the client.
Clients are generally indemnified against actions brought against them by third parties as a result of harm arising from a supplier’s actions. This may be limited to situations where harm was caused directly and solely by the supplier. Clients may also expressly disclaim all indirect, incidental, consequential and punitive damages on the part of the supplier.
Both the supplier and the client have the right to terminate a service agreement in the case of a material breach of the agreement’s terms by the other party. A time period may be set for the party in breach to remedy a breach. If the breach is not remedied within this period of time, the contract can be terminated.
No liability arises on the part of either party for delays or failure to perform due to circumstances which are beyond a party’s reasonable control.
Prompt notification of the other party should be provided if such circumstances arise. If such circumstances continue for a certain length of time – usually 6 months – both parties are entitled to terminate the service agreement by written notice.
A service agreement may need to be amended or varied if the needs or capacity to perform of the supplier or client change during the duration of the agreement. Any alterations must be approved by an authorised representative of each party through a written instrument.
A service agreement which is intended to be legally binding must stipulate the law to which its construction and performance is subject to, and the judicial jurisdiction in which any disputes arising from the agreement will be resolved.
A service agreement defines the roles and relations between the supplier and the client of a service, and confers legally binding rights and obligations upon both parties.
This section is normally where authors tell people about their achievements, life aspirations, etc. I'm Effa; a land law expert, and an organized, highly logical corporate lawyer who loves to run and hike. Oh, and I occasionally lie in my bio.
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