As a business owner, it is important to set clear expectations about the services you provide and how they will be performed. This is especially true for service businesses, as the job in question tends to be highly personalized to the specific needs of the client. In situations like this, a miscommunication regarding the work being delivered can lead to major headaches down the line, so the best option for service business owners is to use a service contract that clearly lays out the work involved.
What Is a Service Contract?
A service contract (sometimes called a professional services agreement or client services agreement) is a written legal agreement between a service provider and a client.1 This document outlines the terms and conditions of the services provided, including the work to be performed and the responsibilities of both in getting the work done and paid for. In addition, it covers the timeframe for the beginning and completion of the work, along with any additional due dates that might be needed.2
Service agreements can be used by all service providers, contractors, and freelancers. Some of the most common fields that use service agreements include construction, marketing, writing or editing, graphic design, and web development. However, many professionals across a wide variety of fields like to use service contracts to outline their scope of work and protect their interests.
Though the exact format for a service contract is typically up to the service providers’ discretion, most contracts have a similar format that includes the following general terms and conditions:3
- Contact information for both parties
- Description of service and scope of work
- Compliance and insurance requirements
- Payment terms
- Confidentiality agreements
- Indemnification
- Warranty
- Default terms
- Remedies and dispute resolution
Additionally, you can add additional terms to your service contract based on your own needs. This includes:4
- Non-Solicitation Clause: A clause designed to prevent a service provider from soliciting or hiring their client’s employees.
- Non-Compete Clause: A clause designed to prevent a service provider from using inside information to compete in their client’s industry or market.
- Confidentiality Clause: A clause designed to prevent a service provider from sharing any sensitive, private, or proprietary information about their client.
Why Use a Written Service Agreement?
While you can technically have an oral service agreement, it is a risky proposition that can lead to confusion down the line. If you do not have a hard copy of your agreement, then you’re inviting a situation where a client ends up arguing with you about the details of your deal. Maybe they misunderstood something you discussed earlier in the process, maybe they had met with other providers and confused the scope of the work with someone else’s.5 Or perhaps they just changed their mind since you made the original agreement. Whatever the reason, the result is the same: unnecessary conflict and confusion. By writing out a service agreement, you eliminate any chance for confusion down the line, as all important elements of the job are laid out clearly, from the size and expense of the project to how long it will take to complete.
When Do You Need a Service Agreement?
Going forward, anytime that you plan to provide a service for a client, you should ask them to sign a service contract. Furthermore, any time you plan to hire services for your business, you should also have your service provider sign a service contract. This might seem excessive if you are new to working with this type of document, but it is vital for protecting your interests and ensuring that you receive the payment you deserve.6 By establishing the scope of the job clearly and in writing, the situation is easier for everyone involved.
See our article about 5 other contracts that your small business should consider having in place.
Endnotes
1. Garcia, S. (2021, March 12). How to Draft a Service Agreement. www.nolo.com. https://www.nolo.com/legal-encyclopedia/how-to-draft-a-service-agreement.html.
2. Garcia, S.
3. Rocket Lawyer. (n.d.). Service Contracts – Legal Documents and Advice. Rocket Lawyer. https://www.rocketlawyer.com/business-and-contracts/service-contracts.
4. Contracts Counsel. (n.d.). Service Contract: Everything You Need to Know. Contracts Counsel. https://www.contractscounsel.com/t/us/service-contract.
5. Garcia, S.
6. Contracts Counsel.
About the author
Isaac Isaiah Carr, JD MBA is founder, CEO, and business attorney of CCSK Law, a kingdom-driven law firm. Launched 5 years ago, CCSK Law grew from a single member firm to a 10 person team. His areas of focus include business formation and strategy, contract writing, sales, and corporate finance. Often referred to as an entrepreneur with a law degree, Isaac is able to offer business strategy utilizing creative solutions guided by legal and accounting principles that are then well executed in law. Experience in a variety of industries including real estate, hospitality, automotive, e-commerce, professional services, and healthcare. Successfully negotiated and closed multi-million-dollar transactions, ranging from $1.8M to $10M, with private investors, corporate leaders, and municipalities. Ultimately, he builds sustainable structures for systematic growth. Graduated from Valparaiso University Law School summa cum laude with his Juris Doctorate as well as the AACSB-accredited Valparaiso University School of Business with his Master’s in Business Administration. Passionate about education in all forms, Isaac is involved in the nonprofit organizations of SCORE, Neighbors’ Educational Opportunities (NEO) and New Vistas High School, ValpoNext, and Music Neighbors.
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