Key Terms Included in a Service Agreement

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Table of Contents

• What Are Service Agreements?
• Engagement Clause
• Indemnities Clause
• Limitation of Liability Clause
• Insurance Clause
• Key Takeaways

As a business that provides services, you need to ensure that you have properly drafted service agreements. This agreement can clearly outline:

• the scope of the services that you will provide;
• how and when your clients must pay you;
• the limitation of your liability and responsibility when something goes wrong; and
• the dispute resolution process if anything goes wrong.

This article will discuss some of the clauses that you should include in your service agreements.

What Are Service Agreements?

A service agreement is a legally binding document between you, as the service provider, and your client, who is receiving the services. A service agreement sets out the terms of the engagement and covers each party’s rights and responsibilities. Depending on how the agreements are signed or accepted, it should contain or reference the commercial details of the arrangement. You can set out these details in a schedule attached to the agreement and include the: 

• party names;
• scope of the services;
• important dates and times;
• price;
• payment terms, and 
• any other details that are particular to the arrangement.

Engagement Clause

Under a services agreement, the service provider can be engaged as: 

• a contractor; or 
• an employee.

The legal obligations of a service recipient differ depending on whether they engage an employee or a contractor. 

Employees have a legal entitlement to:

• minimum employment standards;
• be paid superannuation contributions by their employer; and
• have their PAYG tax contributions withheld and paid on their behalf.

A contractor, on the other hand, is regarded as being independent and in business for themselves. Accordingly, they have no such employee entitlements. 

Indemnities Clause

A contractual indemnity is a form of security or protection against loss or burden. The clause covers a situation where loss or damage occurs during the provision of services. This clause often includes the legal fees sustained by another party -usually the other contracting party or a third party. 

The main objective and effect of a contractual indemnity clause are to alter the otherwise standard legal rights of the parties. When reviewing indemnity provisions, it is essential to:

• tailor the clause to the particular circumstances of the engagement;
• ensure that you can meet the obligations imposed upon you under the clause; and 
• take out insurance to cover you.

Limitation of Liability Clause

Liability clauses limit or exclude the parties’ liability under the contract. Liability clauses can limit or exclude the liability of one, some or all of the parties under the agreement. 

Where such clauses purport to limit rather than exclude liability, they often do so by reference to a maximum dollar amount that can be claimed in compensation. 

Here, consider whether you can meet the obligations imposed upon you under a limitation of liability clause and what you need to do to protect yourself as well.

Insurance Clause

You should be aware of any insurance you may need to obtain under the contract. Further, find out whether the contract requires you to list any parties as interested third parties on the policies, and whether this is possible under your policy. 

Key Takeaways

When engaging someone to perform services, ensure that you have a comprehensive service agreement. Ensure that you are aware of the employee or contractor status of the service provider, and think about including clauses that will limit your liability, and cover you in case of loss or damage. If you need any assistance drafting or reviewing a service agreement, contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.