Table of Contents
In Short
- Define and clarify the exact services and deliverables to prevent misunderstandings and manage expectations, especially if working on a fixed-price basis.
- Specify fees, invoicing frequency, payment timelines, and any applicable expenses or late payment terms.
- Ensure rights over pre-existing IP are retained and consider stipulating full payment before transferring any IP ownership to the client.
Tips for Businesses
When negotiating your services agreement, prioritise setting clear terms for termination, including notice periods and payment obligations for work completed. This protects you financially and operationally if the relationship ends.
As a service provider, you should always have a contract with your clients. Occasionally, where your customer is a large business or you have limited bargaining power, you may be required to sign up for your client’s contract before commencing the services. It is essential that before signing the contract, you have read and understood your obligations and the risks associated with entering into the contract. In particular, you should look out for these five critical clauses in your customer’s contract, as you may need to negotiate these points to ensure the contract is mutually beneficial.
Scope of Services
The contract should define the specific services and deliverables that you are responsible for delivering under the contract. It is essential that the contract details the scope of the services and accurately represents your responsibilities to the client. The clause needs to be clear, so there is clarity, as this could lead to misunderstandings in the future. This is particularly important when you have agreed to a fixed price for the services. This is because your business will want to clarify what the price includes and what additional costs apply.
To minimise the risk, you should push for precise, unambiguous language that leaves no room for subjective interpretation, for example, a clear list of services and deliverables wherever possible.
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Price and Payment Terms of Services
A clause within the contract should set out the price and payment terms. This should include when you can invoice for the services and how long the client has to pay you.
The Price and Payment Terms provisions in the contract should set out:
- how the fees are to be calculated, whether as an hourly rate, fixed fee or an alternative method of calculation;
- how often you will be paid – for example, for an ongoing arrangement, whether you are entitled to invoice weekly or monthly, and for a fixed project, whether you can invoice upfront, on a milestone basis, or on completion of the project;
- clear payment terms – including the number of days that your client has to pay you after you invoice them, for example, 7 days or 30 days; and
- whether any expenses (e.g. travel costs) that you reasonably incur are subject to reimbursement by your client.
Pay close attention to any provisions related to late payment penalties or interest. It is in your best interest to be paid on time; therefore, you will want to ensure that if payment has not been made on time, you have the right to add interest on top of the fees.
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Intellectual Property
It is likely that while you are providing the services and creating the deliverables, you will be generating intellectual property, such as materials protected by copyright. When reviewing the intellectual property clauses in the contract, you should ensure that there are clauses to:
- reflect that you retain ownership of any pre-existing intellectual property that you create before or independently of this client project;
- if needed, grant a limited licence to your client to use or access your pre-existing intellectual property; and
- set out the ownership of project intellectual property. The ownership of newly created intellectual property is often subject to negotiation, and it may depend on the nature of the arrangement whether you retain ownership or whether ownership will transfer to your client.
Liability for Services
You should cap your potential financial exposure under the contract so that you only face an acceptable level of financial risk. You should keep an eye out for the following clauses in a contract:
- Liability Cap: you should negotiate a reasonable cap on your liability so you are not at risk of unlimited liability. You can cap the amount to the total contract value or a specific monetary amount. Note that some things cannot be excluded with a cap by law, such as injury or death caused by your negligence.
- Consequential Losses: you should exclude your liability for your client’s consequential or indirect losses, such as your client’s loss of profit, reputation, opportunity and goodwill.
- Indemnities: you should keep an eye out for any indemnity provisions. If you are giving an indemnity in the contract, this may allow your client to claim a wider amount of compensation and may enable your client to claim compensation without providing fault. Consider whether the indemnity they ask you is fair, such as whether the risk is reasonably within your control. Consider removing indemnities where possible.
Termination of Services
Another vital clause to consider within a contract review is the termination clause. It should outline the specific circumstances in which either party can end the contract.
There may be a clause to terminate for convenience. It is essential to note the notice period required for termination and consider an appropriate timeframe for notice given the commercial consequences for you, e.g. whether you have time to find alternative work for your team members.
In addition, upon termination, you may wish to negotiate provisions that address outstanding payment, partially completed work, and any post-termination obligations or restrictions that may apply to either party. For example, the clause should state that following termination, the client must pay any outstanding fees and expenses incurred up to the termination date.
Key Takeaway
In summary, when reviewing a Services Agreement as a service provider, you should carefully review the contract. You should particularly focus on these five key clauses: the scope of Services, Payment Terms, Intellectual Property Rights, Limitation of Liability, and Termination. Consider negotiating these terms to protect your interests, mitigate risks, and ensure that the agreement accurately reflects your agreement.
A well-drafted Services Agreement is the foundation of a successful and mutually beneficial working relationship, so it is important to review the contract before signing to ensure that your business is adequately protected.
If you need help reviewing a Services Agreement, our experienced commercial contracts lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A services agreement protects both parties’ interests, sets clear expectations, and helps prevent future misunderstandings by defining each party’s scope of work, payment terms, and responsibilities.
To negotiate a Services Agreement, focus on the key clauses above and be able to explain your position clearly and propose fair alternatives. You should be open to compromise but also ensure you stand firm on essential terms that protect your interests and align with industry standards.
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