Introduction To Service Contracts
To reduce your exposure to liability, your service contracts and statement of work should contain many, if not all, of the commercial reasonable standard provisions set forth below. While the following terms are by no means exhaustive, they do represent some of the standard terms contained in service contracts. I remind you that this advice is general and not intended to cover all of the legal issues involved in your business, so please use this information merely as a starting point for educating yourself about the legal aspects of your business, and not as a substitute for competent legal advice from a local licensed attorney.
If your business provides the same type of service to a number of different customers, or if you hire independent service-providers on a contract basis, then your business should have a standard "form" contract that can be easily modified to meet any special needs.
This form should cover everything your business absolutely requires before it will enter into a contract with a customer, such as a description of work to be done, begin date and date for completion, fees, deposits (if any) and time of payment, plus any special terms required by your particular industry. That's the easy part. Your service contract should also: (a) state the party’s names, address and facsimile numbers; (b) precisely describe all of the services to be provided and when; (c) set forth not only your hourly fee, but also set prices; (d) state your express warranties and disclaim any implied warranties/guarantees; (e) state who will own and how any intellectual property created or disclosed during the course of the service contract should be dealt with; and (f) include a non-competition agreement, if necessary, between the customer and any third party service-provider.
Most of these clauses are simple, but must be well-drafted (preferably written by an attorney) to be effective. The warranties, guarantees, and liability clauses are very important, and this is where you lawyer will earn his or her money. Why? Because this is the part of your contract that will determine who bears the risk if something goes wrong during or after the contract term and hopw much liability will in fact follow. The sections dealing with the ownership of intellectual property rights are also crucial, especially if your owns a patent or a copyrighted program. If your company hires service-providers who have access to your company's intellectual property, then your company's service contracts should contain explicit language concerning the ownership and control of any intellectual property to which the service-providers may have access. Your contracts should also reserve the rights to any intellectual property created during the course of the service contract. If you are a service-provider, on the other hand, you will want the same provisions, except you will want the terms to grant you rights to use any intellectual property you help create, or to which you have access. We doubt that the latter will be granted, but you may get the former. In any event, make sure that your lawyer is well-versed in work-for-hire agreements and intellectual property law.
Non-disclosure, non-compete, and non-solicitation clauses are also crucial. When an independent third party service-provider is hired, the service-provider is often given access to customer lists, pricing and cost information, product ideas, and other important information concerning the company's business (often considered company trade secrets). Assuming your service contract contains language forbidding the disclosure of such information to third parties, you still want to ensue that your agreement addresses the potential problem of the service-provider using such proprietary information to start a competing venture.