Services Agreement - B2B

When should you use a Service Agreement?

A services agreement will set out all the commercial terms on which the services will be provided. This will include a description of the services, the cost of the services and the timing for delivery of the services. It should also include protections for each party in the event that something goes wrong.

Why is a Services Agreement important and why should you use a Services Agreement?

A services agreement provides a record of what has been agreed between the parties. Using a services agreement will protect both the customer and the service provider. Without it there is a high chance that the parties will end up disagreeing over commercial terms.

A services agreement will also protect the parties by including:

• a cap on each party’s total liability;

• exclusions so that the parties are not responsible for certain types of loss, such as loss of profits or goodwill;

• a mechanism for terminating the agreement;

• processes for sharing and handling any personal data shared between the parties; and

• a force majeure clause, which will allow the termination of the agreement without fault in the event that it is no longer possible to provide the services.

What are the common pitfalls of a Services Agreement?

It is important to consider who the services will be provided to when choosing what contract to use for the supply of services. A common mistake we see is businesses trying to adapt a services agreement that was originally drafted for the provision of services to consumers, rather than businesses. In the UK consumers (i.e. individuals acting for non-business purposes) benefit from various consumer protection laws that do not apply in business to business relationships. Failing to appreciate these differences can materially prejudice your position as a supplier.

Another common mistake is a lack of flexibility to change the scope or pricing of services. The agreement should include a clear process for agreeing changes to the services that will be provided. This process should give the supplier ultimate discretion to accept the change and the ability to quote a new price for the services as a result of the change. A supplier friendly agreement should also allow the supplier to pass on any increase in costs associated with the supply of services. The failure to provide for this could result in the supplier being required to continue to provide services at a loss.

Even though the contract will include flexibility to agree changes, there will be times when it becomes necessary to terminate the relationship between the parties. A supplier friendly agreement should give the supplier the ability to terminate in the event of a material breach or failure to pay fees. It is also essential that the agreement requires the customer to pay all outstanding fees for work done at the point the termination occurs.

Finally, the limitations of liability in the services agreement must be tailored to the value of services being provided. Often businesses will use old templates and forget to adjust the liability cap to align it with the value of the services. Failing to include a proportionate liability cap needlessly exposes the supplier to risk for no commercial benefit.