Define Service Contract: Everything You Need to Know
One way to define service contract is any contract or subcontract that involves performing an action, rather than providing tangible goods.3 min read
Service Contract Overview
One way to define service contract is any contract or subcontract that involves performing an action, rather than providing tangible goods. This could include the work of carpenters, plumbers, landscapers, electricians, and other maintenance providers, but also consultants, lawyers, accountants, managers, and anyone else who offers an action rather than an object for purchase. Service contracts can be used by individuals, businesses, and the government to achieve tasks that the hiring party cannot achieve themselves.
Non-Government Service Contracts
Non-government service contracts are service contracts used by private individuals or organizations to achieve tasks. Those who complete these tasks for both private entities and public entities are known as contractors, and they might complete such tasks at your home, at your place of business, or from their office or home. Contactors who an individual might engage in their daily life could include:
- Personal chefs
- Fitness experts
Contactors a business or organization might use could include:
- Business consultants
- Financial advisors
- Voice-over narrators
- Security personnel
Government Service Contracts
Government service contracts are those made by the government agency to achieve a desired task. These contracts might be handled by the same contractors that handle private, non-government contracts, or they might be handled by contractors who deal exclusively with the government or governments. Examples of government contractors include:
- Private security firms with military experience
- Engineering and construction companies
- Public policy consultants
Government service contracts tend to have more guidelines and stipulations for the performance being contracted, often so the contracting agency will avoid violating rules and regulations for civil service employment. For instance, the government agency must make sure the contractor maintains its status as such: if the agency exercises too much control over the contractor’s work, including where, when, and how they may work, they may then be considered an employee, not a contractor, which would be a violation of government regulations.
Essential Service Contract Details
When drafting a service contract, you may wish to engage the services of a legal professional skilled in the field, or you can draft such a contract yourself. If you choose the latter course, some topics that a good service contract should cover include:
- The value of the service provided, as well as how it will be paid for.
- The purpose of the service provided.
- The quality level of the service that should be maintained.
- The constraints on the service; what the service will or will not entail.
- The actions by either party that may constitute a breach of contract.
- The consequences of the service not being rendered on time.
Other details aside from this will most likely be necessary to cover, but the above will give you some idea of what considerations you should be making.
Differences Between Service and Supply Contracts
There can be some confusion between service contracts and supply contracts, especially due to cases where the lines appear to blur, but in the simplest terms, service contracts provide value through action, while supply contracts provide value through material. Material, or supply, means all property with the exception of land or the interest in land. If a contract does not provide some material, then it will most likely be a service contract.
Where the line may blur is if a contract involves the service of designing a tangible product, rather than simply purchasing one. For private entities, an example would be hiring a graphic designer to produce a logo. The designer is taking action to create the logo, but in the end, the logo is considered a tangible object separate from the act, so ultimately such a contract would be a supply contract.
Similarly, in the realm of government agencies, the Department of Defense might hire an aircraft manufacturer to design a new fighter jet. A series of actions would then be taken to produce the jet, but ultimately, it is the jet that would be delivered, which is a tangible object, and so that too would be a supply contract.
However, this is not, in fact, a hard and fast rule, and there may be exceptions. The main exception being that if it can be shown that the primary work provided by a contract is a service of some kind and the product produced is secondary to the service, then the contract will be considered a service contract.
Thus, ultimately, in cases where both services and supplies are being offered, whether a particular contract is to be considered a service or supply contract should be taken on a case-by-case basis.
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