What Is a Service Contract Agreement?

When a person or business hires a contractor to perform services, a service contract agreement defines the terms of the work to be performed, including the scope of the work and the related fees. A service contract may also be used to define the terms of an extended warranty on a product. There are many forms of service agreements, and the specific provisions included in the contract will vary based on the details of the actual services provided.

Tip

A service contract agreement defines the terms of work between a contractor performing a service and the client hiring him to do the work.

When a contractor agrees to perform a service in exchange for compensation, a service contract defines the terms of that agreement. Service agreements can also be used by a manufacturer to define the terms of an extended warranty, explaining the coverage or costs of services provided for a product if it malfunctions during a specified period.

There are many types of service contracts defined by what kind of work is being done. For example, a general service agreement defines the terms of work between a contractor offering services, such as a plumber, a gardener or a repair person, and a property owner, business owner or other client. A consultant service agreement is a contract between a consultant and a client identifying the terms and conditions of the consulting work. When an artist, such as a graphic designer or mural artist, enters into a contract with a business owner or other client, an artist service agreement is necessary. Accountants and bookkeepers need to enter into bookkeeping service agreements with their clients. Another common contract type is a child care service agreement between a child care provider and a parent or legal guardian.

A product service contract, also called an extended warranty, is a type of service contract that is similar to a basic or limited warranty, only this coverage comes at an additional cost, whereas a basic warranty does not. Some of these service agreements are sold separately from the product and offer free protection for the item for a period longer than the basic warranty or for more services than the basic warranty, whereas others are included with the cost of a product and specify repair costs if the item needs to be repaired. When the repair costs are defined, they are often less expensive than the fees charged by a repair person working outside of a service arrangement.

A service contract should generally include a description of the services provided and their frequency, an identification of the parties in the contract, the schedule or frequency of supervision/monitoring services (if necessary), the fees for the services provided, how and when payments should be made, when and how a contract may be terminated, how disputes relating to the contract will be resolved and a contingency plan when applicable. Some contracts also detail provisions related to confidentiality or proprietary information.

When service agreements cover products, the contract may cover repairs, replacement of parts, replacement of the product, diagnosis of the product, upgrading of parts or software, dispatching of a service representative to perform repairs, refunds and/or returns.

You can find a service contract template online to guide you when making your own. Ideally, you should be able to make a boilerplate template for your business that will allow you to easily create a contract for each of your clients, changing only the details such as the client name, the exact services rendered, the fees charged and other details.

It is important to keep in mind that the most important aspect of any service contract is the description of services rendered. When writing this part of the contract, you should be as specific as possible to ensure that there is no room for misunderstandings between you and the client. If your company always provides the same services to every client, you may want to spend a lot of time defining the services provided in your boilerplate. Otherwise, take the time every time you create a contract to make sure that the client's exact goals and expectations are detailed in the contract. If you offer creative services such as writing or graphic design, you should also include how many revisions are included, or you may end up editing the work indefinitely for someone who will never be 100 percent satisfied that what he envisioned in his head cannot be made into a reality.

The fee structure should be clearly communicated in the agreement. This means not only the fee a client is expected to pay when the work is completed, but also how the fee is calculated, such as whether it is per project, per hour or per milestone. How and when payments are made should be detailed as well, including whether you expect to be paid by check, PayPal, cash, etc. and whether payment should be made weekly, monthly, immediately after the service has been completed or within 30 days of project completion, for example.

If you offer additional services not included in your basic fee, you may wish to list these in the contract as well not only for client reference but also to help define a limit to the work you complete. For example, a child care provider may list the fees required for diapers or baby formula if a parent neglects to bring these supplies for her own child.

Like most contracts, the parties involved in a service agreement may disagree on the terms or whether or not the other party lived up to his part of the bargain. When this occurs, the dissatisfied party may seek legal recourse. When this happens, the parties involved may need to resort to arbitration or a lawsuit depending on the terms of the contract. If arbitration is not specified in the contract, the dissatisfied party will usually turn to the court system and file a lawsuit.

When arbitration is required by the contract, the decision may be binding, meaning they cannot be brought to court if either party is dissatisfied, or nonbinding, meaning the issue may be taken to court once arbitration has been completed first.

Generally, lawsuits and arbitration will result in either a financial payout to the other, or neither party will be required to do anything further. Occasionally, the judge or arbitrator may require the party providing the service to do further work.

Service contracts define what is expected by the person providing the service and the person or business paying for the service to be performed. As a result, a service agreement can protect both parties. Generally speaking though, the party providing the service benefits the most from the contract, as it helps to ensure that the client cannot claim that work was not performed the way she expected, and it helps to protect the party should the client hesitate to pay for services rendered.