What is a service contract? This is a question that people might ask when they're figuring out what type of contract they need for a certain task.

Service Contract/Agreement

A service contract is an agreement between two or more parties to complete specific acts. These might include tuning up a vehicle or painting a house. Service contracts are different and distinguishable from contracts used for goods. Consultants, freelancers, and contractors tend to use service contracts most often. This type of contract will involve one person or party paying the other to handle a certain act.

A written document describing the terms of a service offered by one party for another in return for payment is called a "service agreement." When two parties establish a legal contract, this action protects the individual worker and the business on a legal basis. This contract is called a service contract or service agreement.

Other names for a service contract or agreement include:

  • Consulting services agreement
  • Service-level agreement
  • General service contract

When Is a Service Agreement Used?

When you, as the service provider, perform a specific service for a customer and want to protect your interests while making sure you will receive compensation, you should use a service agreement.

If you are a customer, you should use a service agreement when you hire a provider to handle a paid task. This agreement should outline the details of the task that will be performed, including:

  • Duties
  • Compensation
  • Confidentiality requirements (if needed)

How to Write a Service Agreement

The first step in writing a service contract is identifying the service provider and the customer. Make sure the agreement includes the contact information for each party. 

The next step is including a description of the services that will be provided. This description should be clear and accurate, outlining what the service provider must do throughout the agreement's duration. When you include more detail in your description, the chance of misunderstandings is lower. Accurate service descriptions also make it clearer to the customer, helping them know what to expect. The service provider knows what they need to do when the description outlines their responsibilities clearly.

A service agreement should also outline the payment schedule. This should determine the details of compensation for the arrangement. Make sure to include such items as:

  • Whether tax is applied
  • Pay rate
  • Penalties for late payments
  • Penalties for non-performance
  • Who will provide resources
  • How often payment will be made

The agreement should establish terms about non-competition, non-solicitation, and confidentiality. Not all service agreements require the inclusion of confidentiality. It's up to the customer whether the services provided should remain confidential. Adding the confidentiality clauses to the agreement can help protect and restrict access to sensitive information about the business or the customer. 

The customer can also decide whether they want to include non-competition and non-solicitation clauses. These clauses help prevent the provider from soliciting business or competing unfairly for the time period outlined in the contract.  

Next, the ownership of the material must be addressed. Make sure to specify which party will keep rights to own any materials that are produced during the period of the contract. Both parties can determine who will retain those rights.

Finally, if you're using a service agreement template, add some details that make it more personalized for the situation. You might want to include additional clauses related to legal expenses, liability, the return of property, or indemnity. Depending on your situation and the other party in the agreement, you may choose to add these additional clauses or keep it simple.

Does a Service Agreement Need to Be in Writing?

Similar to any other legal agreement or contract, you should always have your service agreement in writing. Service contracts are commonly used when a contractor is interacting with another individual, a business, or even a family member. When you're working with someone you know or are close to, it's tempting to make a verbal agreement and shake on it.

However, this can create a dangerous situation. When you have the agreement in writing, it clearly outlines the responsibilities and roles of both parties. This ensures that the contractor will receive fair payment while the customer understands the scope of work and timeline. 

If you need help understanding what is a service contract, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.