Service contracts are crucial in making sure a customer and a business understand the expectations when it comes to the service being provided.
In this article we’ll cover the four main types of service contract, explain what should be included in them, and list the benefits of using such a contract.
We’ll take you through the steps involved in creating a service contract and the particular things to look out for.
You can also check out a service contract example to get a better understanding of how it should look and the formatting to use.
What is a service contract?
A service contract is an agreement between two parties that outlines the terms and conditions of a specific service to be provided by a third party.
These types of contracts for services are widely used across various industries, including education, healthcare, construction, and IT.
Service agreements are particularly useful for establishing clear expectations regarding the scope, style, and timeline of the service, as well as any deadlines for completion.
Types of service contract
The four main types of service contract consist of the following:
1. General service contract
A general service contract is a pretty broad agreement between a service provider and a client.
It typically outlines the scope of services to be provided, timelines for completion, payment terms, and any other important terms and conditions.
General service contracts are often used in industries such as cleaning services or gardening.
2. Consultant service contract
Consultant service contracts are used when a consultant is hired to provide expertise on a specific project, such as an environmental specialist coming in to assess the impact of a new construction site.
As with other types of service contracts, this will typically outline the work to be carried out by the consultant, the timeframe for completion, how and when payment will occur, as well as any confidentiality and non-disclosure stipulations.
3. Artist service contract
The artist service contract is typically used when hiring an artist, such as a musician, actor, or writer, for a specific project or event.
Like the previous two in this list, it will typically outline the scope of services and the payment terms, but also include information about the ownership of any intellectual property, and things like how the art can and cannot be used, for how long, and to what end.
An artist, for example, may only consent to having a piece of work used for one specific project, like a single clothing line, and not indefinitely for different projects.
4. Product service contract
This type of contract is used when a product is sold along with a service agreement.
For example, when purchasing a new computer, the buyer may also purchase a service contract that covers repairs or technical support for a predefined length of time.
The contract will typically outline the specific services covered, how long the service agreement is valid for, and any additional fees that may be incurred with the services.
What should you include in a service contract?
When writing up a service contract, there are a few vital elements that you should include to make sure that the agreement is clear, complete, and legally-binding:
Description of services
This is the most important element. You need to clearly define the services that will be provided by the service provider.
You should include details like the scope of the work, timelines, deliverables, and any other relevant information for your project.
Terms of payment
In this section you can specify the payment structure for the services being provided.
You should make sure to include details such as the payment amount, when payment is due, and any applicable penalties for late payment.
Warranties
This is where you can outline the warranties or guarantees you want to be provided by the service provider.
You can add details about the duration of the warranty or guarantee, and any conditions that need to be fulfilled for it to be valid.
Confidentiality and non-disclosure
You can also specify any confidentiality or non-disclosure provisions that apply. What information should remain confidential?
How should the parties protect it and are there any exceptions to the confidentiality requirement?
Intellectual property rights
There could be some intellectual property rights associated with the services being provided, so you should decide on questions about the ownership of any intellectual property, licensing arrangements, and any limitations on the use or reproduction of the work produced.
Termination and cancellation
Are there any conditions under which the contract can be terminated or canceled? And if so, what are they?
You should include details such as the notice period required, any penalties for early termination, and any obligations that are still valid after termination.
Resolving disputes
This section outlines the process for resolving any disputes that could come up between the parties.
You can include details about methods for dispute resolution, any jurisdiction that applies, and possible limitations on liability.
Governing law
Depending on the contract, you could also specify which law is relevant to the contract in question.
Which jurisdiction applies in the area where the contract is being used?
Are there any requirements to comply with local laws and regulations that you are aware of?
Force majeure
Any unforeseeable circumstances that could prevent one or both parties from fulfilling their obligations under the contract belong in this section.
You should include details such as the conditions that qualify as force majeure events.
You should also make sure to add any provisions for adjusting the terms of the contract in the event of something like this occurring.
Insurance
You can also stipulate any insurance requirements that apply to the services being provided to you, and include details such as the types of insurance required, the amount of coverage, and any proof of insurance that you think should be given.
Why should you create a service contract?
Creating a service contract is a pretty essential step when it comes to establishing a clear and professional relationship between service providers and their clients.
A service contract has the benefit of outlining all of the terms and conditions of the service on offer, as well as any rights and obligations that are relevant for both parties, so no one gets messed around.
Let’s dive into some of the most compelling reasons why you should create a service contract for your service-based business:
1. Managing expectations
One of the main draws of a service contract is that it sets clear expectations for both yourself and the other party.
By outlining all the essential details of a project, a service contract makes sure that both of you are on the same page from the very start. This can help to avoid misunderstandings or disputes down the line.
2. Legal protection
This one is pretty big. Service agreements offer legal protection for everybody.
By outlining the rights and obligations of everyone involved, these agreements can help to protect you and the other party against potential disputes or legal challenges.
And, in the event of a dispute, a well-worded contract can give you a clear framework for resolving the issue with ease.
3. Customizable
Service contracts can be customized to meet your specific needs for each project.
This allows you to ensure that you’re delivering the exact service that your clients require, and that you are consistent in the work that you do and the impression you make on customers.
4. Managing risk
This type of contract can also make it easier to manage the risks associated with any service-based business.
When you clearly outline the terms and conditions of the service being provided, you are then better able to identify and manage potential risks and liabilities.
5. Competitive advantage
FInally, offering a service contract allows you to stand out from your crowd of competitors.
This is how you demonstrate a commitment to quality and professionalism, which is often a major selling point for potential clients.
You can establish yourself as a reliable and trustworthy provider and build a strong (positive) reputation in your industry.
Service contract example
The above is just a snippet of a service contract, outlining some of the key considerations you should keep in mind when drafting your version.
Check out the full service contract template from PandaDoc for more details.
How to create service contracts
Using a template like the one above can make creating service contracts really easy.
To make sure you get it right, follow these simple steps:
1. Do your due diligence
Whether you’re a service provider or are looking to contract one, it’s critical to do your research at the outset.
Long before you put pen to paper (or, more realistically, start tapping away on your keyboard), you need to understand your potential partner inside and out.
Check out the reputation and values of both the company you’re intending on working with and individuals within it.
Social media, third-party review sites, and public directories can be a goldmine of information.
Only once you’re certain you can work with a contractor or partner, should you start considering creating a service contract to codify your relationship.
2. Talk it out
No matter how good a service contract you’ve drafted may be, if a prospective partner is coming to it cold, they’re not likely to sign it right off the bat.
It makes more sense to have both formal and informal negotiations with any other party to the prospective contract, before you start the drafting process.
That way, you can be sure that the broad strokes of any first draft will be in line with their expectations.
3. Write (and tweak) the contract
Using a template makes creating any contract far quicker and easier.
You can simply fill out and customize the given fields to ensure you include everything you need.
Be sure to reflect what you’ve already discussed with your prospective partner when drafting the contract, and don’t be afraid to continue tweaking as you go.
If you use PandaDoc, it’s easy to collaborate on contracts with other parties and speed up the signing process.
4. Sign on the dotted line
Once all parties are happy with your service contract, it’s time to sign on the dotted line and start your new business relationship.
Of course, these days, that dotted line could just as easily be a digital one, as eSignatures are quick, convenient, and legally-binding.
Create and collaborate on flexible service contracts with PandaDoc
PandaDoc offers a huge array of customizable contracts for your business needs for free.
All you need to do is find the most relevant template or templates, and edit them to fit your specifications.
They have a concise and modern style, free of jargon and easy for anyone to use, for projects big and small.
To find out more about how PandaDoc can help you create and customize your contracts and other documents, why not schedule a free 15-minute demo?
Disclaimer
PandaDoc is not a law firm, or a substitute for an attorney or law firm. This page is not intended to and does not provide legal advice. Should you have legal questions on the validity of e-signatures or digital signatures and the enforceability thereof, please consult with an attorney or law firm. Use of PandaDocs services are governed by our Terms of Use and Privacy Policy.
