What is a Service Agreement?
As we briefly mentioned, a service agreement is a written contract between a service provider and a client. It spells out the work to be performed and the responsibilities of both parties in getting the work done and paid for.
A service agreement in Singapore can have many names, such as:
- General Service Contract
- Service-Level Agreement (SLA)
- Independent Contractor Agreement
- Consulting Services Agreement
However, at the end of the day, it is a document that legally binds two parties whilst protecting them throughout the contract. Service agreements are often used when a job becomes more complex and a deeper explanation of services needs to be expanded upon.
It generally includes time frames for beginning and completing the work, specific metrics for evaluating the service provided, consequences and remedies if they aren’t delivered, and other procedures and details involved in the job. It can also be used for one specific job or an ongoing position that does not have an end date at the time the contract is signed.
Now, a service provider is an individual, or an entity, that provides services to another party. There is a vast array of services that can be offered and these agreements can be both orally agreed upon. For example, if a customer goes to a salon to get a haircut then the service provider will be the hairstylist who agrees to do their hair.
To have a better idea of service providers, here are some common examples:
- Caterers
- Child care providers
- Graphic designers
- Musicians and DJs
- Graphic designers
- Web developers
Now that you have a general understanding of what a service agreement is, let's discuss the main reasons why they are used.
Why are service agreements used in Singapore?
When you buy a pair of shoes, a car, or even a new phone, you can see, touch, and receive your purchase right there and then. Even if you order it and have to wait for delivery, most of the time you have an idea of what you are going to get.
With a service, it is more complicated. You can’t look or touch a service like you would be able to for an appliance. Service work takes time and you sometimes cannot physically see the results or progress as it happens. For example: “a developer who creates customized software for a company will likely go through several steps—from determining the company's needs to designing, installing, and testing the software—before delivering any work.” Thus, a written service agreement is a way to manage expectations while you - the service provider - are performing the service.
However, service agreements are not always needed or required. An example of this is the hair salon example we used in the section above. When you’re getting your hair done you can orally agree about the service — from the hairstyle, the price, and the payment method. But when work is done as time goes, both parties need the protection of written standards, goals, and price to ensure they both receive what was agreed upon.
When are service agreements used in Singapore?
There are two perspectives we can look at on how and when service agreements are used 一 from the perspective of the service provider and the perspective of the client.
- Service provider - If you are a service provider, service agreements will come into play when you plan to perform services for clients to protect your own interest. Vice versa, clients need to be ensured they are going to receive the work they asked for. For examples of service providers, please see our list in the first section of this article.
- Clients - Clients should use service agreements whenever they hire a service provider to perform a paid task to establish the exact details of the arrangement including compensation, duties, and confidentiality if required.
A few examples of businesses and professions relying on service agreements include:
- Management consultants
- Photographers and videographers
- Website developers and IT service providers
- Real estate brokers
- General contractors and construction companies
- Accountants and lawyers
- Advertising and marketing professionals
- Caterers
Nevertheless, no matter what industry or business you are in, a service agreement should be used every time your business agrees to provide a service to a client or customer. While it may seem like a hassle to draft up a service agreement, having a good contract management process will help you reduce the time it takes to create one while also helping you reduce any errors that may occur.
What terms should a service agreement include?
Although there are different service agreements in Singapore, they typically include the same fundamental terms. This section will go through these different elements, provide a description for each element, and why each one is needed.
- Scope and nature of service(s) provided
Always include a clear explanation of the obligations and duties of each party for the entirety of the contract. This term is very important and requires attention to detail when being written as the service will be very specific to what is written and agreed upon.
Even if there have been prior discussions with the other party about the services that will be performed or received, it is important to spell out the responsibilities in detail in the contract to prevent any misunderstandings that could lead to problems along the way.
- Terms of remuneration
Terms of remuneration are considered the payment terms. They detail the exchange of money for services and each service agreement should clearly explain how much payment the service provider will receive when the payment will be received, and how the payment will be processed.
Similar to the scope and nature of services, the terms of remuneration should also be detailed to prevent confusion while also protecting each party. These terms should also include the necessary steps that the service provider must meet before receiving their payment. Lastly, they should also specify who is responsible for the payment.
- Rights to intellectual property created in the course of service provider’s engagement
When a service is being provided, there is often a work product that is created. This term clarifies whether the client or the service provider can make ownership claims on any physical product or intellectual property that is created in the course of the engagement.
Here are a few examples of what that could potentially look like:
- Company Ownership - The Company owns and retains all rights, title, and interest, including all intellectual property rights, in and to the Service and all technologies related thereto, including any and all algorithms or processes developed by the Company and all derivatives, modifications, or improvements of or to any of the foregoing made by or for the Company, whether or not created or developed in connection with the Service.
- Customer/Service Provider Ownership - The Customer owns and retains all rights, title, and interest, including all intellectual property rights, in and to (a) the Customer content; and (b) all data and reports provided to Customer by Company prepared based on analysis of the Customer content, subject to the Company's underlying rights in the Service.
- Indemnity clause
When a service is being performed, accidents or mistakes can sometimes happen, whether or not someone wanted to or not. Indemnity clauses are put in place to help protect one party if the other party is harmed in any way while performing a service for them. They exist to protect a party from losses or damages that have occurred or could occur.
Indemnity clauses are typically used when businesses want to guarantee that they will receive a product or service, or if they want to protect themselves from liability. For example, when you engage in an activity that has risks such as scuba diving or skydiving, you would most likely have to sign an indemnity agreement that protects the company from any liabilities if an accident were to occur before you receive the related service.
- Termination clause
Termination clauses set terms and conditions surrounding a contract being terminated. It describes how parties can terminate the contract and who is responsible if such an incident were to occur.
The termination can sometimes be unforeseen, for example, if one party commits any illegal acts, or if the service provider does not fully execute the agreed-upon services. In other words, termination clauses allow parties to end their relationship with no strings attached.
- Conflict of interest
A conflict of interest is when an individual's personal interest — whether they relate to family, friends, financial or social factors — could compromise their judgment, decisions, or actions.
A conflict of interest clause states that if there are any conflicts of interest, they must be disclosed, and should a conflict of interest develop over the course of the contract, it should also be disclosed. Lastly, it states that the party will avoid taking on any conflicts of interest during the course of the contract.
Here is an example of what a template for a service agreement may look like:
Tips on drafting a service agreement
To help you write your service agreement, here are a few tips:
- Be specific. Be as specific as possible, keeping in mind that you won't be able to change your fee if you end up doing additional work. For example, a writer would want to specify the hours they would spend on a project, the number of articles they write, as well as the word count, and how much each word is charged. Accurately listing or describing the service will ensure the writer doesn’t get overworked and get paid accurately.
- Include detailed fees and payment schedules. Include specific terms like whether the charges are hourly, weekly, or monthly; or whether you are charging a flat fee per project. You'll also want to include a payment schedule with the appropriate dates and amounts due. For example, will the writer be getting paid fully upfront or in installments? Some agreements will also include clauses that specify what will happen if payments are not received according to the schedule.
- Be prepared to mitigate problems. Your agreement should also cover situations where you are unable to complete a project because of something the client does or does not do. For example, if a client has agreed to pay for a service weekly and fails or refuses to make a payment.
Build your service level agreement with Lexagle
Though it may seem daunting to create a service level agreement especially if you're not created one before, it doesn’t have to be difficult and complicated. You can build one using existing templates and consult with experts for perceived gaps.
Companies of all sizes in multiple industries can reap the benefits of what a good contract management platform has to offer. These include being able to oversee the entire lifecycle of your contracts using intuitive software, custom contract templates that are easy-to-use and more.
Lexagle streamlines the contract lifecycle from end-to-end, empowering organisations to drive business growth by promoting collaboration, transparency, efficiency, and effective governance throughout the contracting process. Contact us today to discuss how Lexagle can best fit your organisation's unique needs.
