This services agreement is designed for use by a company that wants to obtain services from another business – referred to in the agreement as the service provider. It is suitable for a very wide range of services including, but by no means limited to, design, software applications, engineering, administrative services or accounting support.
The contract is in three parts – first, a one page Form of Agreement that is signed by both parties, second, Terms & Conditions and, third, Schedules which are left blank and need to be filled in specifying the services, the programme and the fee arrangements. The Terms & Conditions are written from the company’s point of view and, while fair, are designed to protect the company rather than the service provider.
FORM OF AGREEMENT
This identifies the contractual parties, the commencement date and completion date (if relevant) and states that the contract between the company and the service provider comprises the Form of Agreement, attached Terms & Conditions and completed schedules. If there are other contract documents – e.g. some drawings or correspondence, they should be listed here.
TERMS & CONDITIONS
This contains a few defined terms used in the contract.
2. SCOPE OF CONTRACT
This briefly sets out the basic deal between the company and the service provider – the service provider will carry out the services and the company will pay the agreed fees for those services.
3. SERVICE PROVIDER’S GENERAL OBLIGATIONS
Here there are paragraphs that set out the standard of performance required, an obligation to comply with company instructions and an obligation to report to the company on progress as well as on any events that might delay or disrupt the services.
This makes it clear that the Service Provider’s personnel should be suitably qualified and the clause also provides for a representative to be identified as the service provider’s main point of contact with the company. If the company wishes, an extra schedule naming key personnel can be added to the contract.
This sets out the procedure for changing the scope of the services – and deals with the price and time implications of a variation. The clause makes it clear that an estimate of the likely cost has to be provided by the service provider and the company can then consider whether or not to go ahead with the extra services.
7. APPROVAL AND COMPLETION
The company will inspect the services before finally approving them. Also, any errors or defects have to be corrected by the service provider at its own expense. The company has the option to withhold payment pending correction as well as the right to get the work done by someone else.
Depending on the nature of the service , the approval procedure may need to be adapted if, for example, there are several stages, with each one needing to be signed off by the company before work moves on to the next stage.
8. PRICE AND PAYMENT
This clause refers to Schedule 2 where the contract price and fee arrangements are to be set out. The wording of the clause goes on to state that invoices must be accompanied by relevant supporting documents and specifies a payment date – our document says 28 days from receipt of invoice. The company is allowed to withhold money if it has reason to do so, but it is required to give notice with reasons to the service provider.
Late payment will entitle the service provider to interest. Our clause proposes an interest rate of 3% above Base Rate. In the UK, if the contract does not specify an interest rate, the law allows an unpaid party to a contract to claim a high rate – 8 per cent above Base Rate under the Late Payment of Commercial Debts (Interest) Act. So, from the company’s point of view it is better to specify the rate.
Here the service provider warrants – i.e. guarantees - to the company that it will exercise a high degree of skill and care and, where materials are supplied, these will be of good quality and suitable for the purpose for which they are required.
The company may want to suspend work and this clause gives it the right to do so. If suspension continues for more than a specified period – 6 months in our text – either party can terminate the contract.
The company has the right to terminate for convenience at any time on giving 30 days notice. It can also terminate if the service provider fail to perform. The service provider can terminate for non-payment and either party can terminate if the other becomes insolvent. The clause also deals with the consequences of termination.
12. INTELLECTUAL PROPERTY
Especially when the service provider has access to company software and other intellectual property, it is sensible to have wording designed to protect the company’s intellectual property rights and this is the purpose of our wording. As for designs and other intellectual property produced by the service provider for the company, ownership passes to the company. Sometimes a service provider will want to retain ownership and grant a licence to the company, and this may be a matter for negotiation. From the company’s point of view, it is paying for a service and if the product of that service is integrated with systems of the company, then it is better to have outright ownership.
13. INDEMNITY, LIABILITY & INSURANCE
Here, the service provider gives an indemnity to the company – i.e. agrees to make good all loss suffered by the company - due to negligence on the part of the service provider or its personnel that cause death or injury or damage to property. In addition the service provider gives an indemnity with respect to intellectual property rights.
A service provider would usually have public liability insurance to cover against injury or death or damage to third party property. Designers or engineers are also likely to have professional indemnity insurance to protect them against negligence claims.
The contract does not contain any limit on the potential liability of the service provider, nor is there a clause excluding liability for loss of profits or consequential losses. This is sometimes requested by a service provider and it can be sensible to agree – if only because most companies would not have the resources to meet a really large claim.
Our clause deals briefly with the insurance issues by reference to Schedule 3, which is, in effect, optional depending on the circumstances.
14. CONFIDENTIALITY AND PUBLICITY
This imposes strict confidentiality obligations on the service provider. In addition, any publicity concerning the contract - e.g. if the service provider wants to refer to it in his brochures - has to be approved in advance by the company.
15. ASSIGNMENT AND SUBCONTRACTING
Consent is required before the service provider can assign or sublet any of his rights or obligations to a third party.
Our contract provides for a three-stage process for dealing with any dispute that arises – direct negotiation, mediation and then the courts. Our form says English law will apply, but this can be changed as appropriate. We have free information on our website that deals with these issues: Z139 and Z140.
This clause contains what are known to lawyers as ‘boiler plate’ provisions.
These are largely left blank, except for some headings, and they should be filled in before the contract is signed. In the Payment schedule, some illustrative wording is shown in italics as there are various possibilities and we have shown two – a fixed fee, with a schedule of payments (probably linked to activities) and an estimated fee, with charges calculated by reference to daily or hourly rates (in which case an overall cap may be sensible).
It is sensible to have agreed rates for extra services agreed at the time the contract is signed as well as agreement on what expenses are chargeable in addition to fees and our schedule allows for these.
If the service provider is required to maintain insurance, Schedule 3 can be used, otherwise it should be deleted.