A service agreement is an agreement made by two parties that documents the agreement between them with regards to the performance of the service(s) by one party (the service provider) to the other (the principal). Service agreements are very common and can be used in a wide variety of circumstances.  They set out the fundamental terms of the relationship between the principal and service provider.  These terms may include:

1.  Fees and expenses

Generally, the service provider provides a service or services to the principal for a fee and may also be reimbursed for pre-agreed out of pocket expenses.  These amounts, and any limits that may apply, should be clearly specified or otherwise a way of calculating the relevant amounts should be included in the service agreement.

2.  Nature of the services

It is critical that the services are clearly specified in the service agreement so both parties are clear on what is expected of the service provider.  In addition, there should be agreement on whether further services may be provided and if so the process for dealing with this.

3.  Term of Service Agreement

The service provider may agree to provide a one-off service for a set fee or continuing services to the principal for a pre-determined length of time or on an ongoing basis for a fee.  Generally, a service agreement may be terminated by notice of either party or on the occurrence of a specified event (e.g. death or bankruptcy of one of the parties).

4.  Rights, Responsibilities and Obligations of the Parties

A service agreement can be prescriptive and specify rights, responsibilities and obligations of the parties or can provide flexibility.  In particular, in a service agreement it is particularly important to confirm whether the service provider can subcontract the services to a third party.

5.  Confidentiality and Privacy

If the service provider will have access to the principal’s confidential information (e.g. information on its business and customers) then confidentiality and privacy obligations must be included, particularly if confidentiality is an issue for your business, in order to protect the principal.

6.  Insurance, Tax and Super

The insurance, taxation and superannuation obligations of the parties must be specified.  Generally you want each party to take care of these themselves.

Conclusion

It is highly recommended that parties agree and document the terms and conditions of their relationship in a service agreement before the service provider starts to provide the services to the principal in order to minimise the risk of disagreements down the track. To find a lawyer to help you draft your service agreement, contact LegalVision on 1300 544 755 today.

Lachlan McKnight

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