Provision of Services Agreement: Everything You Need to Know
A provision of services agreement makes at least one party to perform a service for another in exchange for products, services, or financial compensation.3 min read
A provision of services agreement is a contract between two or more parties that provides that at least one party will perform a service for another in exchange for products, services, or financial compensation.
Drafting a Service Agreement
There are a number of steps involved in drafting a good service agreement including, but not always limited to the following:
- Define the involved parties
- Define the services to be performed
- Outline the fees and expenses associated with the agreement
- Define the term of the contract and its termination
- Outline confidential information
- Outline any proprietary rights
- Define expected cooperation
- Define indemnification
- Outline work order addendums
- Outline any miscellaneous provisions
- Outline any waivers to be included in the agreement
One thing that many people underestimate when creating a contract is how important it is to correctly define the parties involved in the agreement. There are a number of reasons that a contract's introduction, otherwise known as "the recitals," should clearly define whether each of the involved parties is either:
- An individual
- A business entity
The introduction should also include any other information that may be relevant in identifying the parties involved in the contract. For instance, the potential liability exposures a party might face will vary greatly depending on whether they are a business or an individual. This is especially important in the event that claims or events should arise in the future. A company should include the state in which it was formed as well as its business structure, such as:
- Limited liability company
- Sole proprietorship
It's important to define parties properly because it provides all parties involved with the necessary information to perform due diligence on one another.
Providing a detailed description of the services that are to be provided is possibly the most important part of the service agreement. There are a number of reasons for making sure this is done properly. It is important to define the services to be provided under the contract as thoroughly as possible. If they aren't described in enough detail, it is possible for the service provider to end up in a situation in which the client expects additional perks or services to be performed that the provider did not originally intend to offer.
Important Provisions for Clients to Consider
As a client, you'll want to pay special attention to the following provisions in any service agreement in which you enter:
- Payments and deposits
- The scope of the services to be performed
- Contract amendments
- Contract termination
- Liability insurance
- Confidentiality requirements and expectations
- Intellectual property ownership
- Choice of law and dispute resolution
In most cases, the service provider will likely require the client to make a deposit to obtain its services. It may also require either a series of payments be made over the course of the provided services or what is known as a "balloon payment." It's important to pay attention to the payment schedule outlined in the contract. Failure to do so may result in either owing late fees or finding yourself in breach of the contract.
It's also a good idea to request an itemized list that outlines the final cost to make sure you're getting everything for which you're paying. The itemized list should also be included in the service contract as an exhibit.
The section of the contract that pertains to the scope of services provides a detailed description of the services you are to be provided. For instance, if a clothing provider is creating apparel for your startup company, you're going to want this section to include an itemized list of all the products you are to receive, as well as any additional services such as:
- Warehouse storage
- Delivery fees
- Design fees
The Scope of Services section of the contract should be as detailed as possible.
The contract's amendment section should include details regarding how parties can go about making changes to the contract in the event that circumstances happen to change during the relationship. Normally, this requires written consent from all parties involved before an amendment can be made to the contract.
The termination section should describe how parties can go about terminating the relationship as well as who is responsible in the event that termination occurs. If either of the involved parties should happen to commit an illegal act, for example, it could potentially be considered a breach of contract.
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