Last Updated April 9, 2024
What is a Service Agreement?
A written Service Agreement is a contract that defines the terms and conditions of a working arrangement between a contractor and their client. This type of contract outlines a contractor's service to a client in exchange for payment.
If you are a contractor who provides services, use a Service Agreement to define the service and pricing terms to your client clearly. As a client, if your contractor doesn’t initiate a written agreement, you can create one to prevent future disagreements and ensure accountability.
Using a written Service Agreement benefits contractors and clients by clearly outlining the terms of their working arrangement. A Service Agreement provides transparency and accountability for both parties and helps prevent disputes that could arise without a formal agreement.
You can use a Service Agreement for a single project, a job that ends on a specific date, or work that is ongoing.
A Service Agreement is also known as a:
- General service contract
- Service-level agreement
- Contract for services
- Professional services agreement
Who are the parties to a Service Agreement?
Within a Service Agreement, there’s a contractor and a client. The contractor (also known as the service provider) provides a service for the client, who pays the contractor for their work. Either party can be an individual or an organisation. Also, the client might be two or more people, such as a married couple. Similarly, the contractor could be two or more partners who all sign the agreement.
What is a contractor?
A contractor is a skilled person (or organisation) who provides services for other parties. Often, individual contractors are self-employed and run their own business. Generally, contractors don’t have employment protections because labour laws don’t apply to independent contractors.
If an organisation hires a contractor, they hire the contractor as an external worker, rather than internal staff, for a set time (or project). For example, a company may hire a freelance accountant rather than employing one to work in-house.
Outsourcing work to professional contractors with specific skills is very common and allows clients to access the exact services they need without hiring new staff. Contractors can come from every industry and include labourers, skilled tradespeople, and freelancers.
Typically, contractors:
- Have more than one client
- Send invoices to their clients
- Use their own tools or equipment
- May hire employees or subcontractors to help complete services
- Don’t receive employment benefits from clients
What do I include in a Service Agreement?
To create an effective Service Agreement, address the following details:
- Service duration: Specify whether the contractor will provide service for a single job, a specific period of time, or indefinitely.
- Service details: Describe the service the client hires the contractor to provide.
- Contractor and client information: Specify if each party is an individual or company and provide their names, addresses, and New Zealand Business Numbers (NZBN), if applicable.
- Billing details: Outline how much the contractor will charge and if they’ll charge the client a flat fee, at an hourly rate, or in another way. If the contractor requires a deposit, set a deposit amount. Outline when the client must pay and if they’ll pay in instalments. Set the interest rate which can be charged on any late payments.
- Notice periods: If both parties agree to end the agreement early, outline the number of days that the terminating party must provide written notice to the other party.
- Expenses: Decide if the client will reimburse the contractor for reasonable work-related expenses and if the contractor needs the client’s approval before incurring expenses.
- Intellectual property ownership: Specify which party owns any intellectual property that the contractor creates. Intellectual property is any work that is a creation of the mind.
- Confidentiality: Decide if the contractor must keep client information confidential.
You can create an effective contract using LawDepot’s Service Agreement template by providing all the necessary information. Be clear and specific when describing the job or project the client requires and indicate any important dates.
How do I enforce a Service Agreement?
If your contractor or client breaches your Service Agreement, you should try to enforce the contract’s terms by contacting the offending party, pointing out their obligations, and requesting that they fulfil their part of the agreement. Communicate with the other party in a civil and non-offensive manner to ensure a better chance of compliance. Also, they should be provided with enough notice to rectify their actions.
If the offending party doesn’t rectify the situation, you can take legal action for breach of contract.