Make sure that your form service agreement is as favorable to your company as possible and accurately reflects your company’s objectives. 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.
Generally, the service provider provides a service or services to the principal for a fee and may also be reimbursed for pre-agreed out of pocket expenses. These amounts, and any limits that may apply, should be clearly specified or otherwise a way of calculating the relevant amounts should be included in the service agreement.
Both parties should be able to terminate for a material breach that is not cured within a specified period (usually 30 days). It is also common to allow one party to terminate if the other party becomes bankrupt or insolvent. Termination for convenience is more problematic, and may not always be appropriate. If the customer can terminate for convenience, consider whether there should be a cancellation fee to compensate for the loss of the bargain or to at least cover out-of-pocket expenses, or whether the customer forfeits any pre-paid amounts. Finally, clarify what obligations apply on termination – for example, the customer should immediately pay for services performed up to termination for which the service provider has not been paid.
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. 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.
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.
The insurance, taxation and superannuation obligations of the parties must be specified. Generally you want each party to take care of these themselves. It is highly recommended that parties agree and document the terms and conditions of their relationship in a service agreement before the service provider starts to provide the services to the principal in order to minimise the risk of disagreements down the track.