Legal Nature of a Service Agreement
A Service Agreement is not just a piece of paper. It is a clear instruction for both parties: what we do, when we do it, how much is paid, and who is responsible if something goes wrong. Since services are intangible, it is crucial to detail the expected result and acceptance criteria – this leads to fewer surprises and disputes.
Essential Clauses
- Subject Matter of the Agreement – specifically which services, in what scope, and with what final result.
- Timeline and Stages – deadlines, intermediate stages, acceptance milestones.
- Payment – amount, how and when payment is made (advances, in stages, upon completion).
- Parties' Obligations – who does what, who provides access to resources/data.
- Acceptance Criteria – how to determine that the work is finished and accepted.
- Liability – penalties, compensation, limitations of liability.
- Confidentiality and IP – who obtains rights to the results, NDA, protection of code/data.
- Termination – when the agreement can be terminated, what happens with payment and rights after termination.
- Governing Law and Dispute Resolution – arbitration or court, chosen jurisdiction.
Specifics for the USA – Key Points to Consider
- Contracts are governed by common law and the rules of the specific state – specifying the jurisdiction is crucial.
- Licenses and professional standards (medicine, fintech, law) may require additional clauses.
- Personal data protection requirements (HIPAA, CCPA) and tax regulations influence the wording.
- For contractors, it is important to stipulate tax implications and the payment structure.
What a Lawyer Pays Attention To
- Clarity: what exactly is considered "completed".
- Realistic deadlines and a clear acceptance mechanism.
- Limitations of liability and insurance mechanisms (indemnities, insurance).
- Procedure for the transfer of rights to the results and exceptions.
- Force majeure and an action plan in case of impossibility to perform obligations.
- Correct dispute resolution mechanism and confidentiality protection.
Practical Tips – To Avoid Rework
- Describe the result, not just the process: instead of "deploy a platform" – "deploy a website on a domain, with pages X, Y and integration Z".
- Add test scenarios and acceptance checklists.
- Stipulate an action plan for delays and a compensation formula.
- Clearly define who pays for changes in scope (change orders).
- Stipulate rules regarding intellectual property and licensing.
SummaryA well-drafted Service Agreement is not bureaucracy, but protection and order. It will speed up work, reduce disputes, and save time and money for both parties.