What is a Services Agreement?

A services agreement, also known as a contractors agreement, or a contract for services (Services Agreement) is an agreement under which one party (Supplier) agrees to provide services to another party (Client) in exchange for remuneration.  It is different from a contract of service which is the technical name for an employment contract.  A Services Agreement is often issued in response to a request for proposal.  The Supplier agrees to provide services to the Client by providing a proposal, which the Client rejects or accepts by providing purchase orders.  A suite of documents like this should be read together to fully comprehend the legal relationship between the parties.

Common clauses in Services Agreements

The contents of a Services Agreement varies according to the Services provided, the relationship of the Supplier and Client, and the contents of related documents, but common clauses include:

• confidentiality – neither party may disclose the confidential information of the other;
• delivery of services – the Supplier agrees to deliver its services without interfering with the Client’s activities, and to comply with all applicable laws, regulations, industrial awards and guidelines;
• dispute resolution – mandatory processes for resolving disputes between the Client and Supplier may include arbitration or mediation;
• inspection and testing – the Supplier must keep the Client fully informed on all aspects of the performance of the services and must allow the Client to inspect, examine and conduct tests on any aspects of the services;
• intellectual property – the Client generally owns any intellectual property created in the provision of the services;
• outsourcing – the Client acknowledges that the Supplier may need to engage subcontractors in order to provide the services by the completion date. The Supplier is required to make to make certain warranties in regards to these subcontractors;
• non-circumvention – the Supplier will not go around the client direct to their client;
• payment – what fees will be paid to Supplier, and how and when these fees will be paid;
• quality of services – the Supplier must, by the stated completion date, deliver services which match the description provided in the proposal;
• term – the length of time that the agreement continues in force is usually expressed in terms of a stated commencement date and completion date; and
• termination – the agreement can be terminated by written notice once the Supplier has finished providing the services. Either party can also terminate for breach of an essential term of the agreement.

Common legal issues with Services Agreements

A common issue with Services Agreements is not adequately addressing liability – if the Client suffers loss as a result of the services provided by the Supplier, who bears the cost?  A well-drafted Services Agreement will include provisions regarding indemnities, limitation of liability and insurance.  For the sake of completeness, a Services Agreement should also address the personnel of the Supplier – employees, sub-contractors and agents should be prevented from soliciting the Client’s customers, and should have the same obligations of confidentiality as the Supplier does.

Links and further references

Cases

Peter Pan’s Backpacker Adventure Travel Pty Ltd v Eye Jam Interactive Pty Ltd [2012] QSC 227 – Peter Pan’s Backpacker Adventure Travel Pty Ltd (Applicant) engaged Eye Jam Interactive Pty Ltd (Respondent) to design, develop and integrate a software system for the Applicant’s business.  There was no formal contract signed but it was agreed that the Respondent was to be paid $95 per hour plus GST.  The Applicant paid a total of $1,587,398.97 to the Respondents over two years.  The Applicant then stopped paying the Respondent’s invoices believing that after two years the software should have been completed.  Based on expert evidence that the Respondent should have finished developing the software in half the number of hours, the Supreme Court entered judgement in favour of the Applicant to the tune of $954,418.  A related issue was that because of the contractor relationship the intellectual property in the software was not assigned in writing as it belonged to the contractor and not the client by default.

Further information about Services Agreements

If you need assistance drafting a Services Agreement or are disputing the terms of one, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

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