How to Draft a Service Agreement

Make sure that your form service agreement is as favorable to your company as possible and accurately reflects your company’s objectives.



If you’re in the service business, there are a number of reasons why you should have all of your client relationships documented in writing (see Use Written Service Contracts for Your Clients). This article will walk you through the process of creating a service agreement best suited for your business. Note that the purpose of your service agreement is to have a form document (sometimes referred to as a boilerplate document) that your company can use on a regular basis every time it takes on a new client.

You should take as much time and effort as needed to make sure that your form service agreement is as favorable to your company as possible and most accurately reflects your company’s objectives. When the form is in the right shape, all you will need to do is fill in certain blanks for each new client, after having negotiated only a limited number of contract terms. The title of the agreement can be anything you see fit, whether it be a “Service Agreement,” “Client Agreement,” “Customer Agreement,” or some other title that incorporates the name of your company.

Define the Parties

When preparing a contract, parties often underestimate the importance of correctly defining the parties. For a variety of reasons, the recitals (the introduction) to a contract should clearly reflect whether each party is an individual or a business entity and provide any other relevant identifying information (see Ten Tips for Making Solid Business Agreements and Contracts). For example, individuals and business entities face different exposure to liability and must be approached differently in the event of a future claim or dispute. Companies should indicate their state of formation and entity type (whether it’s a corporation, limited liability company, partnership, or the like). Properly defining the parties also provides you with the information you need to perform basic research (due diligence) on each other.

Define the Services

Probably the most critical component of your service agreement is the description of the services that your company will provide. For a number of reasons, you should define the services as specifically as you can. If you describe your services too broadly, you might inadvertently find yourself in a situation where the client expects their fees to include certain perks or actions that you never contemplated. From a negotiation and clarity standpoint, it’s a much better approach to narrowly define your services and then leave it up to the client to propose anything additional that they might require. Similarly, the contract should also define any extra services as precisely as possible and clearly state the related fees.

For example, if you run a chauffeuring business, the description of services could be fairly easy because your drivers will simply pick up clients at one location and drop them off at another. However, if your company’s business is to integrate a technology platform with a client’s existing work environment, then the agreement would have to specify whether any services, beyond installation, would be covered by your company’s initial fee.

Fees and Expenses

Your company’s boilerplate service agreement should reflect the price structure that is most appropriate for your business. It should specifically state whether or not your company is compensated on a per-project (flat fee) basis or an hourly, weekly, or monthly fee basis. If you charge the same rates for all clients, then include these numbers in the contract; otherwise, you should leave blanks that can be filled in depending on your negotiations with each respective client.

The agreement should also indicate how often the client is required to make payments, as well as the acceptable methods of payment (for example, bank wire, money order, credit card, or PayPal). Furthermore, your service contract should make it clear how expenses will be allocated between the parties. Usually, the client will expect you to cover all expenses involved in delivering the services (including costs for parts, labor, and so forth); however, depending on the nature of your business, the client might reasonably agree to be responsible for certain expenses. You can negotiate to have the client pay for these expenses either ahead of time or as a reimbursement to the company.

Contract Term and Termination

Your service agreement should state the term of the contract and include any renewal provisions. It should also indicate the circumstances under which either party is permitted to terminate the agreement. Because contract termination rights are regularly associated with events of default, the agreement should also outline what constitutes a default by either party under the agreement. As discussed above, your company’s services should be described specifically enough so that your company doesn’t inadvertently breach the agreement, resulting in an accidental termination. Furthermore, note that terminations and defaults typically rely on proper notice, so your contract should include an adequate “notices” provision in the miscellaneous sections discussed below (see Why Your Contract’s “Notices” Provision is Vitally Important).

Confidential Information

It’s customary for service agreements to include provisions with respect to the protection of confidential information. This includes the safeguard of your business strategies, client lists, supplier information, trade secrets, and so forth. Note that a client might request that you adjust the confidentiality provisions so that they’re applied mutually, which is usually acceptable so long as all of your employees, contractors, and everyone else involved in your business handle all client information in compliance with the provision. See Sample Confidentiality Agreement (NDA) for more information on confidentiality provisions.

Proprietary Rights

Proprietary rights are the intellectual property rights in anything that your company creates or invents. Depending on the nature of your business, the protection of proprietary rights might or might not be very important. As examples, artists, musicians, writers, and companies in the technology space often create unique works, or implement certain know-how, in order to provide their services to a client. A proprietary rights provision makes it very clear that your company will own all intellectual property related to anything produced for the client.

Cooperation

Your form agreement should include a provision requiring that the client reasonably cooperates with your company. The client should provide whatever information or assistance the company might need in order to allow it to properly fulfill its obligations under the contract. Without the client’s reasonable cooperation, your company can’t be expected to fully or adequately perform.

Indemnification

The client should be responsible for any damages suffered by the company as a result of its misuse or misappropriation of the services. See Indemnification Provisions in Contracts for additional information.

Addendums for Work Orders

To simplify your service agreement, it can incorporate the likelihood that there will be multiple projects in the future. In these cases, you can construct your service agreement to anticipate work orders (or statements of work) that will be attached in the future (see How to Effectively Use Schedules, Exhibits, and Addendums in Your Contracts).

Miscellaneous Provisions

Your boilerplate contract should conclude with standard, miscellaneous provisions that are included in the vast majority of contracts. For examples of these provisions, see Common Boilerplate Provisions in Contracts.

For additional tips on the preparation of service agreements, see Use Written Service Contracts for Your Clients. To get an idea of what a client might expect or request to be included in a service agreement, see Put Your Independent Contractor Agreement in Writing. Familiarizing yourself with the client’s perspective can give you a competitive edge in your negotiations. Lastly, for all of the administrative tools that you need to work as a service provider, including sample independent contractor agreements, see Consultant & Independent Contractor Agreements and Working as an Independent Contractor.

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