Drafting service contracts

Godknows Hofisi

The use of contracts for the provision of commercial services is used widely in business. Some of the services include engineering, maintenance, information technology (IT), human resources, legal, accounting and auditing and healthcare services.

Some professionals have standard or specific contract templates, for example, engagement letters in the case of legal practitioners, accountants, and auditors. 

In the construction industry there are construction contracts which are guided by the standards used in the industry.

Generic or universal service contracts 

In this article, I explain generic or universal contracts, which parties may then vary or tailor-make to suit their situation. Key provisions in such contracts include those explained below.

Parties

The parties to the contract have to be legal persons in the form of natural or juristic persons. Where trade names are used it is important to include the official or registered name and then indicate “trading as”. 

Their contact details have to be included as well.

Preamble

This is important to give context or background to the contract. This may include a description of the parties, the intentions of the parties and any relevant background.

Definitions and interpretation

These are necessary in the case of complex contracts to eliminate or reduce ambiguity or differences in understanding keywords or terms.

Tenure

The duration of the contract ought to be agreed upon and stated clearly. This may include a renewal option.

Services to be offered

The services that the service provider will provide under the contract have to be captured correctly and in sufficient detail. In the case of a company a representative with sufficient knowledge and instructions has to represent the business, for example, an IT or maintenance person. Input from procurement may also be important.

Performance standards

Standards required for the service are usually specified in the contract. In some situations, this may be done through service level agreements (SLA). It is normal to find standards such as a reasonable degree of care or skill. Industry or professional standards may also be set.

Fees

In most deals, pricing can easily be a deal breaker. In contracts, it is important to agree on the currency to be used. Determination of fees is of utmost importance, for example, whether fees are based on hourly or daily rates or they are agreed upon per assignment or activity.

Warranties and guarantees

It is standard for the service provider and client to give each other warranties and guarantees such as availability, turnaround, skills, equipment, staff, payments, etc.

Liability

It is advisable for parties to agree on who is responsible for what in the event of delays, extended timeframes, or a mishap such as an accident or damage to equipment.

Confidentiality

This is a normal clause in most contracts. It is meant to protect the confidentiality of the parties and the contract.

Termination

Conditions for termination have to be stated clearly. I have been confronted with agreements with no provision for termination of contracts as if they were drafted by a young couple on honeymoon where the idea of a divorce is foreign or never imagined.

Force majeure

This clause provides for situations such as acts of God, natural disasters, war, civil unrest, etc.

Conclusion

Services are used widely in business. Their provision has to be documented properly in the form of service contracts or as per the standards in specific situations or industries.

Disclaimer

This simplified article is for general information purposes only and does not constitute the writer’s professional advice. It is not targeted at anybody. 

Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected]

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