Key Takeaways

  • Service contracts define the obligations, compensation, and expectations between service providers and clients.
  • Common clauses include payment terms, confidentiality, intellectual property rights, dispute resolution, and termination.
  • These agreements protect both parties from legal disputes and outline specific duties.
  • Service contracts vary by industry and use cases—from maintenance to professional services.
  • Written service contracts are highly recommended to ensure enforceability and clarity.

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)

Types of Service Contracts

Service contracts come in several forms depending on the nature of the service being provided. Common types include:

  • Fixed-Price Contracts – The provider agrees to complete the service for a set price, regardless of time or costs.
  • Time and Materials Contracts – The client pays based on time spent and materials used, commonly used when project scope is uncertain.
  • Unit Price Contracts – Charges are based on a fixed rate per unit of service.
  • Retainer-Based Contracts – Clients pay in advance for a specified amount of work or hours each month.
  • Recurring or Subscription Contracts – Services are rendered periodically, such as monthly maintenance or consulting.

Each type is chosen based on project scope, budgeting needs, and level of service required.

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.

Essential Clauses in Service Contracts

A well-drafted service contract typically includes the following essential clauses:

  • Scope of Work (SOW): Clearly outlines deliverables, timelines, and service expectations.
  • Payment Terms: Specifies compensation details—rate, schedule, late fees, and tax responsibilities.
  • Confidentiality: Protects sensitive information exchanged during the engagement.
  • Intellectual Property: Clarifies ownership of any work, inventions, or content created during the service.
  • Dispute Resolution: Establishes how disagreements will be resolved (e.g., arbitration, jurisdiction).
  • Termination Clause: Defines how the agreement can be ended by either party, including notice periods and any penalties.

These elements ensure transparency and minimize risk for both the service provider and client.

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. 

Industries That Commonly Use Service Contracts

Service contracts are commonly used across various industries, including:

  • IT and Software Development – For coding, software maintenance, and support services.
  • Consulting and Business Services – For strategy, HR, legal, or financial advisory.
  • Creative Services – Graphic design, writing, video production, and photography.
  • Home Services – Landscaping, plumbing, cleaning, and HVAC maintenance.
  • Healthcare and Wellness – Physical therapy, coaching, and alternative treatments.

Regardless of the industry, these contracts help define scope and deliverables while ensuring fair compensation.

Benefits of Using a Service Contract

Service contracts provide several key advantages:

  • Legal Protection: They act as enforceable documents in court if disputes arise.
  • Clarity: All parties understand their roles, responsibilities, and expectations.
  • Risk Reduction: Reduces the risk of misunderstandings or scope creep.
  • Professionalism: Demonstrates the seriousness and legitimacy of the service relationship.
  • Accountability: Holds both parties to agreed-upon standards and timelines.

Whether you're hiring or providing services, using a service contract builds trust and reduces the likelihood of conflict.

Frequently Asked Questions

  1. What is a service contract?
    A service contract is a legal agreement between a provider and client that outlines services to be performed, compensation, and other key terms.
  2. Are service contracts legally binding?
    Yes, when properly executed, service contracts are legally enforceable, especially when they are in writing and clearly define the obligations of both parties.
  3. Who should use a service contract?
    Both individuals and businesses—whether providing or receiving services—should use service contracts to ensure clarity and legal protection.
  4. Can a service contract be modified after it's signed?
    Yes, but changes should be documented in a written amendment signed by both parties to be valid.
  5. What happens if one party breaches a service contract?
    The non-breaching party may seek remedies such as termination of the contract, compensation for damages, or legal enforcement depending on the contract’s terms.

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.