Key Terms Required in Most Business Service Agreements
Every day, we all live our lives in keeping with the precise language contained in one or more business service agreements. And depending on our line of work, we may also require others to sign such agreements to protect our business goals and proprietary interests.
The exact types of these “service agreements” are often tied to our utilities, banking activities, office supplies, and delivery needs. Both large and small companies contract with individuals and others to help them keep their daily needs met with limited interruptions.
To remain competitive, highly efficient companies and individuals periodically review the terms of their business service agreements to see if more favorable terms can be negotiated. Although large corporations are rarely willing to accept new terms, smaller ones may do so to keep long-term, reliable customers – while still trying to attract new ones.
Here is a closer look at the terms we often look for when reviewing business service contracts for our clients – or drafting new ones at their request.
A clear statement that names all the parties to the agreement
When this information is not included, it can become harder for the parties to resolve any future disputes. In addition, business service agreements (or “service contracts”) should also indicate whether any named business is a partnership, corporation, or other legal entity.
The scope of services being provided should reference all key responsibilities
Whether you are entering into a service contract for office machine repairs or making sure regular deliveries of specific office products are delivered to your office, you need those services described in very precise terms. For example, delivery dates and times should be included, along with a broad description of the individuals who are qualified to provide the services.
The length of time the parties expect the agreement to be enforced
This information should state a first day of service and indicate any expected ending date. All parties can also agree to keep the agreement in force, on a month-to-month basis (assuming all payments are being tendered as required).
Payment terms and any required deposit amounts should be carefully described
All parties named in the contract must sign and agree to the payment terms and any required deposit. Set payment deadlines must be stated, along with a reference to any allowed grace period. While it is possible to negotiate lower payment terms with smaller companies, it can be difficult to get a large corporation to agree to a lower deposit or smaller payments. *If the service provider plans on demanding penalty fees for late payments, those terms must also be clearly described.
A paragraph should note whether any parties must carry liability insurance
Some service agreements require certain parties to obtain liability insurance to consummate the business relationship. Of course, during negotiations, this requirement might be dropped. If the minimum amount of coverage required is too high, it may be necessary to find another company that will accept less expensive policy. If either party must legally indemnify the other, that information must also be included.
A statement must be made regarding the IP (intellectual property) rights of each party
When most service contract agreements are signed, one or both parties may have legitimate concerns about securing all their IP rights – while doing business together and after their formal relationship ends. This makes it necessary to include a paragraph stating which rights are being protected and in what specific ways. All parties must be reminded that IP rights cannot be implicitly given away during the duration of the agreement.
A potential waiver of rights should be addressed
Many parties request at least a brief statement indicating that certain contractual rights do not end just because they are not exercised at all possible times. For example, if one party does not assess penalty fees for a single late payment under a service contract, that party can still assess penalty fees whenever desired in the future.
Stated simply, this paragraph should clearly state that any confidential information learned by one or both parties during the business relationship must always remain fully protected, even after the parties stop doing business together. Of course, should litigation later occur between the business entities, the court (or the private dispute resolution group named in the contract) may allow limited, private disclosure of some facts until all conflicts have been resolved.
A statement about how agreement terms can be amended
While this type of paragraph can vary somewhat, it usually states that the business service agreement’s terms can be amended, if all parties to the agreement provide their written consent. Opportunities to amend an agreement are usually only allowed if certain circumstances involved in the business relationship have changed over time. Obviously, the current pandemic would likely provide the type of unexpected change in circumstances that might readily motivate both parties to amend the terms of their service agreement.
Terms that dictate how all disputes and disagreements will be resolved
Many companies and individuals simply agree to use a specific arbitration or mediation group. In some situations, the more dominant party may demand that the other party agree to a specific arbitration or mediation group. Both parties should also agree that any decisions rendered will be considered final and legally binding. Many healthcare providers and insurance companies include nonnegotiable terms like these.
Parties to a service contract must also state their preferred “choice of law.” This simply means that if a legal dispute arises, the parties’ claims will be decided based on the laws of a specific state – such as the one where the service provider is located.
Conditions leading to a possible early termination of the agreement
Actions constituting a breach of contract are often described here, including failure to perform the services requested in a timely manner – or failure to pay on time. Illegal acts committed by either party might also give rise to early termination, especially if a clause in the parties’ service agreement addresses this type of potential problem. Stated differently, this type of paragraph provides a potential exit strategy for the parties under certain circumstances.
While other terms can be addressed in business service agreements, the ones described above should provide readers with a better understanding of some of the most common ones used.
Please feel free to contact one of our Murray Lobb attorneys so we can help your company by drafting one or more new business service agreements. We are also available to interpret the precise terms contained in any such contract you have already signed – or are still reviewing.