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When you buy a product like a pair of shoes or a desk, you can see what you are getting for your money. There is a physical product. But when you purchase a service, the situation may not be as clear. A service agreement is a way to make sure everyone – both client and contractor – understand what is being purchased and what will be delivered.

What is a Service Agreement?

As the name implies, a service agreement is an arrangement between a client and a service provider. Sometimes referred to as a “contractor agreement,” a service agreement is a legal contract that sets out the terms and conditions for service.

The purpose of the agreement is to protect both parties from misunderstandings by clearly stating what services will be provided, how they will be provided, and the length of time they will be provided. The document also stipulates all costs for the service and the conditions under which the service can be ended.

A carefully drafted service agreement benefits both contractor and client. Although a verbal agreement may be binding in some cases, a written legal contract is the best choice.

What Businesses Use Service Agreements?

A service agreement is useful for any service business operation, and owners can customize the contract to meet the needs of their operation. For example, a service agreement can define a job contracted between an interior designer and a homeowner. Or, a service contract can be useful when a small business hires a marketing agency.

Here are some other examples of the wide variety of businesses that use service agreements.

  • Consultants
  • Accountants
  • Website developers
  • IT service providers
  • House cleaning companies
  • Builders and contractors
  • Caterers
  • Landscapers and lawn maintenance companies

Why Is a Service Agreement Important?

A service agreement serves as a commitment between a service provider and a client. The legally-binding contract explains the relationship between the two parties, sets clear expectations, and addresses the way any issues that arise should be handled.

Here are six benefits to have a service agreement:

  • The document spells out the services in detail, enabling both parties to be clear on what will be provided and when.
  • You can refer to the agreement for future reference if any questions come up about the nature of the service.
  • Job-specific responsibilities of both parties are clear. An example might be the requirement to give 24 hours’ notice to cancel an appointment
  • The agreement details how to end or change the service.
  • The document includes name and contact details for both client and contractor.
  • A service agreement includes the cost of service and the payment procedure, preventing any misunderstandings that might occur.

The end result is that a service agreement helps ensure that the business relationship runs smoothly without any misunderstandings. When both the contractor and the client clearly understand the terms of a project, the work can proceed pleasantly, efficiently, and without unnecessary interruptions.

Terms to include in a Service Agreement

There is no one service agreement template because the terms and conditions of a service agreement vary according to each industry and each client’s needs. However, there are some terms every service agreement form should include.

Service provided. The agreement should include a clear description of the services to be delivered using as much detail as needed to avoid any possible confusion.

Duration. The agreement should have a stated start and end date for the service. It also should include any provisions for renewal of the contract.

Responsibilities. This section explains exactly what the contractor will provide and includes any details such as clean-up after the service is performed or maintenance after a service has begun. If the client needs to prepare in any way for the service, this section should explain that requirement as well.

Service Cost and Payment Terms. A service agreement needs to include the cost of the service and how payments should be made.

Dispute Resolution Terms. In the event a dispute arises between client and contractor, this section explains the mechanism for their resolution. The most common terms dealing with dispute resolution are “mediation” and “arbitration.” Some service contracts contain the phrases “choice of law” or “prevailing law,” meaning state or local laws will govern a dispute. Make sure to know how to use forum selection in a contract law.

Liabilities. Sometimes accidents happen during the course of a service period. This section can help shield both contractor and client from some expenses and liabilities.

Amendments. Due to unforeseen circumstances, the terms of a service contract might need to be changed after signing. This clause states how any modifications should occur. The most common practice is to state that no changes will be made without the written consent of both parties.

Status of the parties. The parties to a service agreement are the client (or customer) and the contractor (or service provider). It is necessary to state in the service document if the agreed-upon services will be performed by an independent contractor rather than by you or an employee of your business.

What to Avoid in a Service Agreement

Now that you know the terms to include in a service agreement, here are some tips for what to leave out of the document.

  • Technical or hard-to-understand language, Clients can be put off by terms that don’t make sense or do not apply to their job. Make sure your agreement is written in clear English. If your business deals with complex problems, explain how you deal with them as succinctly as possible.
  • Vague details. Avoid confusing timeframe wordings such as “immediately,” “timely,” or “as soon as possible.” Instead, an agreement should include specific dates or set lengths of time for the service.
  • Lengthy terms of service. There may be some cases where an agreement of more than one year is beneficial to both parties, but, in general, be wary of them.

A carefully-worded service agreement is a win-win for both client and contractor. Ideally, a business develops a form document (sometimes called a “boilerplate” document) that it can offer to new clients on a regular basis.

To make things easy, find our contract generator to set up a service agreement in only minutes.


Create your Service Agreement Now

Helpful Resources:
Terms of Services Agreements - HHS.gov
Negotiating a Terms of Service Agreement -HHS.gov