Essential elements of a services agreement - top 7 clauses to include
What is a services agreement?
A services agreement is the key legal document for the supply of services to customers. It is a contract between the service provider (or supplier) and the customer receiving and paying for the service. It can be used for any type of service, from creative design to event planning to IT support.
Having a services agreement in place is crucial to protect both the supplier of services and its customer. Without one, exactly what each party is expecting from the relationship could be unclear and lead to a dispute in the future.
What should be included in a services agreement?
To get the full benefit of a services agreement, it is crucial to include some key clauses that protect both the customer and the supplier. Comprehensive services agreements contain a range of different commercial terms and legal provisions, some of which will vary depending on the type of service being provided.
We have set out below some of the key clauses that should be included in an agreement for services, and why they matter:
Scope of services - it is really important to set out exactly what services are being provided (and any out-of-scope services) in a services agreement. This is beneficial to both the customer and the supplier - having a clearly defined service scope in the contract reduces the risk of any future misunderstandings about what each party is expecting the services to entail (and therefore reduces the risk of a dispute in the future). It also focuses the parties' minds from the outset of the relationship - they will be required to consider exactly what the scope of services will be at the contract stage and before the services start to be provided. This will mean that both parties know exactly what to expect when the services start to be provided.
Service standards - the services agreement should simply and clearly set out what is expected of the supplier when they are providing the service. For example, it is common to provide certain types of services so as to meet defined service levels or KPIs (e.g. software support services). If the customer wants those service levels to be absolute targets that the supplier should achieve, they should be set out in a services agreement. Service levels can also be an important tool for suppliers in measuring service quality to ensure consistency among the supplier’s employees that are delivering the services.
Customer responsibilities - as well as the supplier having performance obligations, there will be certain things that the customer will need to do in order to receive the services e.g. providing the supplier with access to staff, data or other information. Particularly where these are critical for the supplier to be able to perform the service, these responsibilities should be set out in a services agreement so that the customer is contractually obliged to meet its obligations. These customer responsibilities can sometimes be referred to as customer dependencies when they are critical to the supplier being able to provide the service.
Payment terms - as a supplier, receiving revenue for the service is one of the most important aspects of a business. Robust payment provisions should be included in the services agreement to protect that revenue stream. Failure to make payment in accordance with those payment terms will be a breach of contract by the customer that could lead to the supplier making a claim, bringing the contract to an end early or suspending the services. Likewise, for customers, clear payment terms are key to ensure that no hidden payments are due and there can be no dispute over exactly what payments have been agreed.
Supplier’s liability - limitation of liability clauses set out financial caps and exclusions on a supplier’s liability, in the event that there is a valid claim under the contract by a customer. Including such a clause will ensure that the supplier knows what its potential financial exposure is in the event that a successful claim is made against it under the services agreement. Without such a clause, the supplier’s potential financial exposure will be uncapped and unlimited, which increases the supplier’s risk profile in providing the services. Generally, a supplier will want its risk profile in providing services to be balanced with the reward (i.e. the level of remuneration it gets).
Warranties and disclaimers - a warranty is a promise in a contract that, if breached, may give rise to a claim for damages by the other party. Some warranties will automatically be implied in a services agreement under English contract law (e.g. that the services will be carried out with reasonable care and skill). However, some customers may request other specific warranties to be included in the agreement so that they can be sure that the services will be performed to the standard they expect (e.g. that the supplier has all rights and consents necessary to perform the services). This is particularly important where the services being purchased are business-critical (e.g. payment processing software services for online retailers).
Renewal and termination rights - both parties should be clear on how long the services agreement lasts and how it can be brought to an end early. As a customer, you should know whether you are agreeing to renew the contract automatically and, if so, make sure you have diarised accordingly so you don’t miss renewal dates and get accidentally locked into contracts. As a supplier, you will want to know how long you are guaranteed that revenue stream for.
Find out more about the key clauses to use in your services agreement using this handy checklist.
Is there anything else I need to include if the customer is a consumer?
Consumer protection laws require that services agreements are drafted in a certain way when they are with consumer customers, and that specific clauses are included. For more information about what must be included in consumer contracts, read these FAQs.
Docue’s services agreement can be used for B2B and/or B2C services. Simply answer a question about the customer type and the services agreement will automatically update to include terms that are appropriate for that customer type. Where consumer customers are selected, the service agreement contract will include clauses for the contract to comply with UK consumer protection laws.
Why does my business need a services agreement?
A services agreement can be a crucial contract for your business to get in place, whether you are the supplier of services or a customer purchasing services. An agreement for services can be a key tool in establishing clear expectations, protecting your business’s interests and helping to reduce the potential risk of disputes or misunderstandings.
A services agreement creates a legally binding contract that outlines the rights and obligations of both parties, leading to a professional and transparent relationship from the outset. Depending on the type of services being provided, different services agreements will be used. Find out which service agreement suits your business here.
How can Docue help?
Docue’s service agreement contains all the clauses needed to protect your business and can easily be adapted to suit the specific services being provided.
Lawyer-drafted guidance notes will guide you through the process, so you know which clauses to pick for different scenarios (e.g. if you want pro-supplier terms or pro-customer terms). Simply click through the intelligent tick box options and text box answers and you’ll have a comprehensive, tailored, and ready-to-use services agreement in no time.
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Tags: services agreement, agreement for services, service agreement contract, general service agreement.