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Important Clauses to Review before Signing A Service Agreement

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Last revision: December 16th, 2020
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If you are a service provider who has many different clients, it's likely you've signed a Service Agreement before. If you are an individual or have a small business without permanent employees, you may hire service providers a lot. Therefore, you'll also likely have used Service Agreements in the past.

With the gig economy growing every day, many people are starting freelance or service-based contract careers. Many others are using service providers and freelancers to help with their own business ventures.

Service Agreements are great ways to formalize a gig-type relationship between parties easily. In certain cases, more specific agreements may be used, such as a Freelance Agreement for freelancers, but in general, Service Agreements can be used for any non-employee working relationship. Independent Contractor Agreements are also a specific type of Service Agreement.

Before signing one of these agreements, however, it's really important to make sure that the document is absolutely perfect for the work and the relationship both parties want.

In general, there are a few specific definitions to know regarding service relationships. The client is the party that hires someone to do the work for them. The service provider is the party that is hired to do the work. The Service Agreement is the document that outlines the work to be done and the parties' relationship.

In this guide, we'll discuss five important clauses clients should review before signing a service agreement. We'll also discuss five important clauses service providers should review. Keep in mind as you read this guide that all the provisions listed are applicable to both parties. In other words, just because you are a client doesn't mean you shouldn't also take care to review the provisions applicable to service providers. It's just that some, more than others, may be more relevant to you as a client.

By the end of this guide, you'll have a strong understanding of the most important clauses in Service Agreements.

Please be advised that nothing in this guide is meant to constitute legal advice, and it should instead be taken as informational only.


For Clients

1. The scope of services

One of the most important clauses for a client will be the scope of services clause. In a scope of services clause, the client and the service provider define their expectations for the work. As a client, you'll want to make sure that the scope of services clause perfectly covers the work that you want to have done. If it is too broad, the service provider might be doing more than you want them to. If it is too narrow, the service provider might be doing less. It's extremely important to review the scope of services clause in detail to ensure the work will be exactly what you want.

Final takeaway: Carefully read the clause about the scope of services to ensure it is accurate.

2. Remedies

Usually, in any contract, the remedies provision is very important. This clause will talk about what either party can do in case the other party breaches the contract. In service-based contracts, the remedies clause is even more important. It should have a specific section that talks about what you, as a client, can do if you are dissatisfied with the service provider's work. Without this specific provision, you may be left with no options if your service provider doesn't perform in the way you expected them to.

Final takeaway: The remedies clause is extremely important in the situation that you aren't happy with a service provider's work.

3. Ownership of intellectual property

If applicable, you'll want a clause that discusses who owns the intellectual property that comes out of the parties' relationship. This type of clause will be very important in freelance contract, such as for writing or visual media services. In almost all cases, the client should own the intellectual property that comes out of the agreement. Otherwise, there would be no point in the parties' relationship.

If the service provider owned the intellectual property, you wouldn't be able to use the work the service provider did for you. Therefore, it's critical to make sure the contract allows you to own all the IP. You may even wish to have some provisions that allow you to register the relevant intellectual property, like trademarks or copyrights.

Final takeaway: The contract should allow you, as the client, to maintain ownership of the intellectual property.

4. Client obligations

What are your specific obligations? Usually, in a service-based contract, there will be certain things that you, as the client, are required to do. If you don't do these specific items, the service provider may have an excuse for not doing the work they promised. Sometimes, this is the basis of disputes between parties. It would be challenging to end up in a situation where the service provider didn't complete the job, and then blamed you for it.

Review this clause carefully to ensure that you can meet all of your obligations.

Final takeaway: The obligations clause should be reasonable for you to complete everything needed.

5. Subcontractor permissions

Is your service provider allowed to use subcontractors? In some service-based contracts, this might make sense. In others, such as more personal service-based contracts, it won't make sense. Especially if your service provider is using a template document, they may have given themselves permission to use subcontractors when you don't want that to be the case. Make sure you look over this clause before signing.

Final takeaway: Decide whether you want to allow the service provider to use subcontractors. Then, review the agreement to ensure it conforms to your wishes.


For Service Providers

1. Payment terms

What are the specific payment terms? Will you get paid a deposit before you begin? What happens if the client doesn't pay? Can you charge a late fee or additional interest?

These are all questions that you need to have answered before you get into a service relationship with a client. You must think about protecting yourself. Often, service providers will require a deposit before the work begins, so it's clear to them the client is serious. The service provider may also need to hold times in their calendar or decline other jobs. It's also a good idea for a service provider to implement a late fee policy, where extra charges or interest can be assessed against the client. You may also wish to have a clause that says you can terminate if the client pays late.

All of these provisions are designed to protect you for your time and work.

Final takeaway: The payment terms should be fair and reasonable to you.

2. Contract amendments

You'll want to examine any contract amendment clauses in detail. The idea is to make sure that the client can't unilaterally amend the contract and change the work that you are supposed to be doing while keeping the fees the same. If there is a provision to amend the contract, make sure that it is agreeable to you. If it is not, this is definitely something that should be negotiated.

Final takeaway: Contract amendments should be fair for both parties.

3. Dispute resolution

If you and your client get into a disagreement, how will it be handled? The answer to this question should be two-fold. First, how will you handle initial disagreements over the work? Will you have a friendly conversation? Will you need to have your communications in writing? Usually, the contract should indicate how initial minor disputes will be solved. Second, how will you handle a bigger dispute that is harder to solve? Often, in these contracts, the parties will decide on arbitration. Arbitration is a binding, non-judicial way to resolve disputes. No matter what, make sure to check on the contract, so you are in agreement with what is written.

Final takeaway: Carefully go over the dispute resolution provision, so you know what to expect in case of a dispute between you and the client.

4. Termination

How does the agreement end? Can the client unilaterally fire you for no reason - and therefore, not pay you? The termination provisions should be fair to both parties, even if the client is dissatisfied. If the client does want to terminate, you must be fairly paid for the work that you have already done. Review this provision carefully to make sure it is agreeable.

Final takeaway: Termination provisions should be acceptable to both you and the client.

5. Exclusivity provisions

Are you allowed to work with other clients in the same or similar industry? For a Service Agreement, which establishes an independent contractor relationship, it would be very rare for there to be an exclusivity provision such that you could not work with other clients. In fact, exclusivity provisions are generally only justifiable in employment relationships, not for contractors.

If there is an exclusivity provision in your Service Agreement, there should be a very good reason for it. If you are at all unsure about it, talk to the client about why they feel it is needed. They should be able to explain their reasoning in a way that makes sense to you. If they can't, re-negotiate this provision.

Final takeaway: Carefully review the exclusivity clause to see what the client expects of you. If you do not agree, communicate this to the client before you sign.


Final Takeaway

Keep in mind that all of the contract terms in a Service Agreement should be negotiable. In other words, if anything seems off to you, you should be able to have a conversation with the other party to get your wishes heard. If it seems like you are getting bullied into signing something that isn't acceptable, you may want to rethink your business relationship.

It's also a good idea to get a licensed attorney's help in both drafting the Service Agreement and negotiating on your behalf. If it is a small contract, even a brief conversation with an experienced attorney can help.

Regardless, reviewing your Service Agreement carefully is an important first step in any successful contractual relationship.


About the Author: Anjali Nowakowski is a Legal Templates Programmer at Wonder.Legal and is based in the U.S.A.


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