There should be a clear mechanism for addressing how deliverables will be tested and accepted. Acceptance should be tied to the objective specifications, so that a failure to meet those specifications is the only basis for rejecting a deliverable. The customer should have a limited period in which to reject a deliverable, and should have to give detailed reasons for any rejection. If the customer does not reject a deliverable within the applicable period, the deliverable should be deemed accepted.
Regardless of the contract structure, however, all service agreements should address the ten important issues discussed below. Note that this article is written from the service provider’s point of view – customers reviewing service agreements may be concerned about different issues, and may have different perspectives on the issues.
The service agreement should include a statement of work, which identifies the project’s scope and the respective responsibilities of you and your client. Oftentimes, if conflict arises it’s because the scope wasn’t properly defined, which led you and your client to interpret scope differently. Watch out for scope creep!
It is critical that the services are clearly specified in the service agreement so both parties are clear on what is expected of the service provider. In addition, there should be agreement on whether further services may be provided and if so the process for dealing with this.
Clearly set out the invoicing and payment terms. The service provider should not wait until the end of the assignment or agreement to invoice the customer, but should bill on a monthly basis or upon achieving certain milestones. Billing on a timely basis will help cash flow and establish expectations. Requiring an up-front deposit will also help with cash flow, and will help screen out customers who are unlikely to pay in the end. Also, be clear about what additional expenses (third-party assistance, travel, accommodation, etc.) the customer is expected to bear. The service provider should require payment within, for example, 30 days following the invoice date.
This is important for two reasons. First, those agreements help the service provider in its day-to-day business of providing services and getting paid. Second, agreements that protect the service provider’s business and assets make it a more desirable target for investment or acquisition.