Top 5 Clauses to Consider When Reviewing a Services Agreement as a Customer

You’ve found a service provider, and they’ve sent you their services agreement to sign. While you might feel tempted to skip straight to signing, taking time to review key clauses can save you significant headaches in the future. Many customers sign service agreements without adequately understanding their rights and obligations, leading to costly disputes further down the line. 

This article will guide you through the five most crucial clauses you must carefully review before signing a service agreement.

1. Scope of Services Clauses

The scope of services clause forms the foundation of your agreement. This clause should clearly outline exactly what services you will receive and, if applicable, what you won’t. Look for specific deliverables, timelines, and performance standards. For example, if you’re hiring an IT service provider, the agreement should detail:

• the service provider’s responsibilities;
• which systems they will maintain;
• response times (such as SLAs) for different types of issues, as you do not want to be waiting days/ weeks for a response to an issue disrupting the services you are paying for;
• service availability hours; and
• excluded services.

Watch out for vague or ambiguous language that could lead to misunderstandings. If the scope seems unclear, ask for specific examples and measurements. Remember, you can’t hold a service provider accountable for services they haven’t explicitly agreed to provide in the contract.

Additionally, you should look for any service warranties or guarantees, such as a promise that the service provider will comply with all laws and follow best industry practices. If the service provider fails to do these things, these clauses may give you the right to terminate the contract and/or bring a claim against the service provider. 

2. Payment Terms and Additional Costs Clauses

Payment clauses often hide unexpected costs that may be outside your budget. Examine the payment structure carefully, paying attention to:

• base service fees;
• frequency of payments, including when the service provider will invoice and the due date for payment following invoices;
• payment methods;
• late payment consequences; and
• price increase mechanisms (this is especially important as you don’t want the service provider to increase the price with no warning or right for you to subsequently cancel the contract). 

Look for additional cost triggers, which may incur extra costs you must pay under the contract. Service providers often include charges for items like after-hours support, travel time, or emergency assistance. Some agreements allow providers to pass through third-party costs or increase prices with minimal or no notice. 

Challenge any costs that seem unreasonable or unclear, as you want to avoid any unexpected costs in the future.

3. Service Level Agreements (SLAs)

The SLA defines the quality standards you can expect. A well-drafted SLA should include:

• specific performance metrics;
• measurement methods;
• reporting requirements; and
• consequences for failing to meet standards.

For instance, if you’re contracting for software services, the SLA might guarantee 99.9% uptime and specify compensation for downtime. Without clear SLAs, you’ll struggle to hold your service provider accountable for poor performance.

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Ensure the agreement includes meaningful remedies for service failures, such as compensation, service credits for future services, or partial refunds.

4. Termination Rights Clauses

Don’t get locked into a problematic relationship with a service provider from which you are getting no benefits. Your termination rights should allow you to end the agreement if things go wrong. Key aspects to review include:

• initial term length (including how long you are initially ‘locked in’ for);
• notice periods for termination (including how much notice you have to give to terminate, which may be particularly important if the contract auto-renews);
• termination for convenience options (if any);
• termination fees; and
• grounds for immediate termination, such as where the service provider or you are in breach of the contract. 

Watch for lengthy notice periods or excessive termination fees or penalties. You should have the right to terminate if the provider commits a breach of the agreement and has not remedied this breach. Also, check what happens to your data (including personal data), confidential information, and any ongoing services during the transition period (if any) after termination.

5. Liability and Indemnities

Service providers often try to minimise their liability through carefully worded exclusion clauses. Pay close attention to:

• liability caps;
• excluded types of losses; and
• indemnification obligations.

Many service providers will seek to cap their liability at the amount of your fees over a certain period. Consider whether this provides adequate protection for your business risks. In some cases, excluding you from the liability cap will be appropriate, particularly for risks that pose a higher financial liability for you, such as data protection or confidentiality breaches. 

Key Takeaways

Reviewing a services agreement requires careful attention to protect your business interests. When examining these agreements, you should:

• ensure the scope of services matches your requirements;
• understand all costs and payment obligations;
• confirm service levels are measurable and enforceable;
• secure flexible termination rights; and
• negotiate appropriate liability protections.

Other clauses, such as intellectual property, confidentiality, and data protection, may be critical, depending on the service provider’s services. You should ensure that a legal professional thoroughly reviews the contract to advise on all practical risks for the specific scenario. 

Even though the urge may be to skip to the end and agree without reading the agreement, you may find yourself in a difficult situation further down the line. While focusing on protecting your interests, remember that you also have obligations under the agreement, so make sure you can realistically fulfil those obligations before signing, such as paying fees on time. 

If you require assistance reviewing a Services Agreement, LegalVision’s experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you can access 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. 

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