If you run a production services business, it is important to enter into clear contracts with your customers. In this article, a production service contract refers broadly to any agreement used where your business provides production services to a business client. Your contracts are a key framework for how your projects will run in practice and to help prevent risks.<\/p>\n\n\n\n
However, you may come across \u2018red flags\u2019 in these agreements. Your clients may provide their own contract or seek to negotiate terms in their favour, which can place your business at risk. <\/p>\n\n\n\n
This article explores high-level examples of risk areas in production service contracts and offers strategies to address them to help protect your business.<\/p>\n\n\n\n
Production service contracts are important<\/a> documents that should govern a project, including:\u00a0<\/p>\n\n\n\n Production work can require high upfront costs and move quickly. If contracts lack clear terms and mismatched expectations, risks can arise and cause problems that can develop into disputes.\u00a0<\/p>\n\n\n\n Reviewing your contracts carefully before entering into them can help prevent risks.<\/p>\n<\/div>\n\n\n\n Production services agreements are unique. Production companies can include a wide range of activities and projects, depending on the client\u2019s requirements and the work you need to carry out. <\/p>\n\n\n\n That said, there can be common risk themes that appear across several types of contracts. Risks in contracts can impact significant issues, such as your right to payment and exposure to liability claims. <\/p>\n\n\n\n Payment terms can be a common source of risk. In the creative industry, some contracts might seek to tie your payment to subjective or unclear approval standards. <\/p>\n\n\n\n For example, they may state that you will only get paid following client satisfaction or final acceptance of your work, without defining what approval means with objective criteria. This could let the client delay or stop approval and your payment.<\/p>\n\n\n\n Some contracts may require<\/a> payment only after final delivery of your services. In practice, you may need to pay for:\u00a0<\/p>\n\n\n\n If payment takes a long time, it can cause cash flow problems and stress, especially if you keep working, but the contract does not clearly say when you will get paid or what needs to happen first.<\/p>\n\n\n\n To avoid this, signed contracts should clearly set out payment dates and explain exactly what counts as approved work. This helps reduce confusion and gives you confidence about when you\u2019ll receive your money.<\/p>\n<\/div>\n\n\n\n Scope creep can put ongoing pressure on production service businesses.<\/p>\n\n\n\n When deliverables are described too broadly without limits, clients may think extra: <\/p>\n\n\n\n Each request for extra work can add time and cost without additional payment. Having clear contract deliverables and a set process for changes and additional work can help control workload and protect you from having to deliver extra work for free. <\/p>\n\n\n\n You should pay close attention to termination provisions when you are negotiating a legal contract.<\/p>\n\n\n\n Some contracts may let clients end the agreement right away for minor breaches, without giving the company a reasonable chance to fix the problem. This creates a serious risk after work has started, especially where the contract has wide obligations. <\/p>\n\n\n\n Immediate termination rights may also stop an important project from being finished, as well as affect payment, depending on how the contract is drafted. <\/p>\n\n\n\n Including a reasonable remedy period can allow you time to fix problems before termination applies and reduce the risk of an abrupt project shutdown.<\/p>\n\n\n\n Put simply, intellectual property terms commonly address who owns or can use the creative materials and content created under the contract. <\/p>\n\n\n\n In production service projects, clients may request that all intellectual property rights you create must be assigned to and owned by their business. You will often need to reach an agreement on this to determine who owns the rights to intellectual property. <\/p>\n\n\n\n In some cases, you may negotiate that a client receives a licence to use the intellectual property instead. <\/p>\n\n\n\n The contract should determine what rights the client receives and what, if anything, the producer can continue to use. <\/p>\n\n\n\n If you decide the client will own the intellectual property, you should ensure your business is protected. For instance, the contract may need to state that you keep ownership of any \u2018background intellectual property\u2019, such as: <\/p>\n\n\n\n Clear drafting of intellectual property provisions can help to avoid misunderstandings and disputes later down the line, particularly where the materials or content you create are business-critical or high-value.<\/p>\n<\/div>\n\n\n\n Simply put, liability clauses specify the liability and financial risk allocation your business assumes under the contract. <\/p>\n\n\n\n It is essential that your contract includes a limitation<\/a> of liability clause; otherwise, there will be no ceiling on how much the customer could potentially claim if you breach your obligations.\u00a0<\/p>\n\n\n\n Uncapped liability under a contract is a serious concern. Without a limit, your potential risk can be much higher than the contract\u2019s value, and in some cases, unlimited. <\/p>\n\n\n\n It is advisable to seek legal advice on the liability provisions in your contract from a commercial solicitor before signing. <\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n\n
Key Risk Areas to Be Aware Of\u00a0<\/h2>\n\n\n\n
Unclear Payment Terms<\/h3>\n\n\n\n
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Scope Creep and Open-Ended Work\u00a0<\/h3>\n\n\n\n
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Termination Rights Without a Remedy Period<\/h3>\n\n\n\n
Lack of Clarity on Intellectual Property\u00a0<\/h3>\n\n\n\n
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Uncapped Liability Exposure<\/h3>\n\n\n\n