In Short
Client agreements establish the contractual relationship between a business receiving services and the service provider, setting out obligations for both parties. As a client, your obligations extend beyond payment to include providing access to premises, supplying necessary information, protecting the service provider’s intellectual property, and adhering to any contractual restrictions. Understanding these obligations helps you manage the relationship effectively and reduces legal and commercial risks.
Tips for Businesses
Carefully review the scope of work to ensure it clearly defines the services you will receive. Check payment terms, including deposits, advance payments and any interest charges for late payment. Verify that intellectual property ownership and usage rights are clearly addressed, particularly if you need to use deliverables created by the service provider. Understand any restrictions on engaging competing service providers or poaching employees. Note time frames for reporting defective services, as missing deadlines may affect your ability to seek remedies.
Summary
This article explains the typical obligations businesses face when entering client agreements with service providers in Australia. LegalVision, a commercial law firm that specialises in advising clients on commercial contracts and business relationships, has prepared this article to help business owners understand their contractual responsibilities and protect their interests.
Many companies need the assistance of external businesses, whether that be an accountant or a public relations specialist. Often a client agreement establishes this business relationship. A client agreement is a contractual arrangement between two businesses, allowing one party (the service provider) to provide services to another party (the client). This article will run through your typical obligations under a client agreement. It will also explain the terms and conditions a client should consider when reviewing or receiving a client agreement from a service provider.
The Services You Receive
A client agreement should clearly set out the type of services you will be receiving. This is the ‘scope of work’. A well-defined scope of work will give you certainty about what you will be receiving and hold the service provider to account if they fail to comply with that scope.
Although you are the party receiving services, you may still need to take actions to ensure the service provider can do their job. For example, the client agreement may state that you have to ensure that the service provider has:
- the necessary access to your premises; and
- all the information they require.
If you fail to fulfil these obligations under a client agreement, the service provider may not have to provide their services. Depending on what your client agreement says, you may also be required to compensate the service provider for expenses incurred.
Payment for Services
As the client, one of your main obligations under a client agreement is to pay the service provider. The client agreement should clearly set out the amount payable and the payment terms. These terms include whether a deposit is payable and whether you will be required to pay in advance. You should be aware of any payment terms regarding interest or the ability of the service provider to withhold their services if you don’t pay on time. Ideally, all payment terms should be stipulated in the agreement. For example, the service provider’s invoice should not contain any extra terms.
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Intellectual Property Obligations Under a Client Agreement
Intellectual property (IP) is important for clients receiving services from IT professionals and media agencies or consultants, among others. You may have obligations to ensure that you protect the service provider’s IP and confidential information. For example, you may need to sign a non-disclosure agreement or agree to not on-sell any products to third parties. However, you should also ensure that you will have the ability to use any IP provided so that you can use the services you paid for.
You will also want to ensure that the service provider provides an IP warranty. This means they promise that their provision of services, and your use of the IP, will not infringe any third party IP rights.
Restrictions on Your Actions
Some client agreements may impose certain restrictions on you as a client. These restrictions could state that you cannot:
- engage other service providers that provide the same services, or services which are similar (if the agreement is exclusive);
- poach the service’s provider’s employees, contractors or agents; or
- engage in business that may cause a conflict of interest.
By understanding and complying with any restrictions, you reduce the risk to your company.
Obligations Relating to Sub-Standard or Defective Services
Unfortunately, there is always the chance that the services you receive are not up to scratch. Alternatively, the services may not have obtained the results you were looking to achieve.
The client agreement plays an important role in addressing these problems. It should set out what the service provider will do to rectify any sub-standard or defective services. It should also address how you should communicate any dissatisfaction with the services.
For example, you may have a specific time frame to make a complaint about the services. If this time frame lapses, the service provider may not have a contractual obligation to rectify those services. It is also important to note that, in addition to your contractual rights, you may have rights to a refund under the Australian Consumer Law if the quality of the services was unsatisfactory.
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Key Takeaways
Clients have various obligations under a client agreement and these obligations go beyond the standard requirement to pay for the services. For example, you may need to grant the service provider access to premises or agree to protect their confidential information.
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Frequently Asked Questions
Clients must comply with obligations beyond payment, including providing the service provider access to premises, supplying necessary information, and protecting the provider’s intellectual property and confidential information. They must also adhere to restrictions in the agreement, such as exclusivity or non-poaching clauses.
Clients should follow the client agreement’s procedures for reporting defective services, including adhering to specified time frames for complaints. Agreements may outline how the provider will rectify issues. Additionally, clients may have statutory rights under the Australian Consumer Law to seek a remedy if services fail to meet acceptable quality standards.
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