Looking to create your service contract? A service contract template is used to formalize your business relationship with the service provider or client. It covers areas such as consulting, remodeling, photography, cleaning and so on. Below you will find a service contract template available for your needs with a single click.
What is a Service Contract?
A service contract is a legally binding agreement in written form between two parties, where one party promises to provide a specified service to the other party in lieu of monetary compensation.
The service contract shall lay out the service scope, pay terms, confidentiality, liability insurance, amendment, termination, etc in case of disputes concerning the business relationship.
A service contract may serve as legal protections for both the service provider and the service receiver in the event that any party is at fault.
A service contract is also known as service agreement, general service contract and service level agreement.
Types of Service Contracts
There are many types of service contracts used in practice, based upon the type and the terms of the service that is provided. Check the common ones below:
Time and Materials Contracts:
Time and Materials contracts are one of the most popular service contracts used for professional service engagement. In a Time and Materials contract, the service provider may bill the client for the amount of work being performed by hour or day, as negotiated on by both parties beforehand.
Time is tracked for the individual provider working on the project.
The service provider shall include any expenses incurred as part of the project in the bill as well.
In a fixed-price contract, the client and the service provider negotiate a fixed price for work deliverables, which shall be well defined to ensure the accuracy of the estimate.
Any risk involved in the project is shifted entirely towards the service provider for the agreed amount, regardless of the effort required.
Not-to-exceed contracts are a hybrid of a time and materials contract and a fixed price contract.
The billing of a not-to-exceed contract occurs in the same manner as a time and materials contract yet with a cap on the amount of money the service provider can charge for the services.
If the billing reaches this maximum cap, the service provider is no longer allowed to bill the client, yet still need to complete the required deliverables at no extra charges than the max cap.
Not-to-exceed contracts are highly beneficial for the client and least preferable for the service provider. This type of service contract may come in handy in case the time and material charges are less than the maximum cap, where service providers will be paid for the work done only.
Exclusively used for lawyers in earlier times, retainer based contracts are now applicable to other services as well.
In a retainer-based contract, the client pays the service provider an upfront amount for the delivery of a particular service during a set time period.
If the billing of the service provider is less than the amount paid by the client up front, the service provider is allowed to keep the balance. In case the billing exceeds the amount paid by the client, the service provider can invoice them for the additional costs incurred.
Recurring Service Subscription
In a recurring service subscription, the client pays the service provider with a monthly fee for recurring deliverables. Generally, these service subscriptions do not have any variations in the deliverables.
Most software solutions and other web services offered on the internet follow the recurring service subscription model.
Managed Service Contracts
A managed services contract is a binding agreement between a managed services provider (MSP) and its client that specifies both parties' responsibilities, including service scope, minimum response time and liability protection for the MSP.
In a managed service contract, the service provider provides a specific level of service to the client for an extended period of time.
Examples of this type of service contracts can be found in outsourced IT services, maintenance contracts for equipment, and outsourced bookkeeping services.
What is Included in a Service Contract?
Inclusions of a service contract may vary depending on the service seeker, service provider, service type,as well as the particular wishes of all parties involved.
Here are several key provisions to look for when entering into a service agreement,
Identification of parties:
A service contract shall clearly identify the service provider and the client receiving the service.
Description of Service:
A service contract shall describe the type of service that is being promised, as well as the service scope.
Timeframe of Service:
A service contract shall include the duration of the service as well as penalties for late work (if any).
Quality of Service:
A service contract shall specify demands for service quality as well as compensations for poor service, in consideration of possible disputes regarding the quality of service being promised after services are completed.
If agreed by both parties, a service contract may include an early termination clause, which states the scenarios in which the service provider or the service seeker is allowed to end the contract before the service is completed fully.
Ownership of Materials:
The service contract shall specify which party will retain ownership rights of the materials produced during the service contract depending on what is agreed upon in the contract by both parties.
The Do’s and Don’ts of a Service Contract
When entering into a service contract, it’s vitally important to proceed with care.
- Do read the service contract carefully, including the appendices and exhibits (if any) within as they may contain important information. Consult an attorney if it’s a long-term business with a substantial budget.
- Do specify what exactly is covered in the service contract, what services shall be provided and what services should not be expected.
- Do avoid ambiguity and unclarity and make sure that all the points on the service contract are understood correctly by both parties.
- Do not agree to any terms of a service agreement that you do not understand, as they may not be in your best interest.
- Do not execute a contract unless all the blanks in the contract are filled completely. This prevents malicious elements from adding any unwanted provisions in the agreement without your consent.
Why Do I Need A Service Contract?
If you are the service provider:
A service contract proves useful in the way it documents pay terms, insurance clauses, and service scope, etc. when a service provider plans to perform services for his or her clients.
It ensures that the rights and interest of the service provider are legally protected in case of late payments or violation against the service contract from the other party.
If you are the client:
The client may add terms about confidentiality, non-solicitation, and non-competition regarding sensitive information about the client as well as his or her business in the service contract.
Under the service contract, the client is entitled to demand compensation or penalties for scenarios which include but are not limited to: late work, poor service quality, as well as non-performance.
It’s also possible to include additional clauses into the service contract, such as indemnity, return of property, liability, or legal expenses depending on your personal needs.
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