NEGOTIATING A SERVICE AGREEMENT – TIPS & CONSIDERATIONS

When you are negotiating a service agreement, you have to make sure that you are well aware of all the terms and the basic elements of contract formation. Here are some tips and consideration that you should keep in mind while negotiating a service agreement.

Contract Formation Basics

Parties to poorly prepared service agreements can often find themselves in dispute.  Careful planning in the early stages can alleviate such risk.  An important way to reduce the risk of litigation is by ensuring that the basic elements of contract formation are clear.  Allied Legal’s commercial lawyers are well placed to assist you with such arrangements.

To have an enforceable contract, you should have:

  1. An offer of services from one party (or parties).
  2. An acceptance of the services by the other party (or parties).
  3. An exchange of consideration where each party gives up something of value or promises to give up something of value.

Generally speaking, without all three elements you will not have an enforceable contract.  To reduce the risk of litigation, all of the required elements for contract formation should be clearly stated in a written document that is signed by both parties.

Offer of Services

An offer is an expression of willingness to enter into a contract with the intent that if the other party accepts the offer, there is a contract.  Offers can be made orally or in writing or even by your conduct.  To make an effective offer, it must be clear:

  1. Who is offering to provide the services?
  2. What services are being offered?
  3. Who is receiving the services?
  4. When and where are the services being provided?

All of this information should be provided with reasonable definiteness and clarity when negotiating a service agreement

For example, if your business offers to provide web design services to another business, your written contract should identify:

  1. the exact parties involved;
  2. the website involved;
  3. the specific web design services that are being offered; and
  4. when the services will be provided.

Provide as much detail and be as clear as possible.  A good practice to manage the length of the written contract is to use a separate project proposal or estimate with details of the services being offered and their cost.  The estimate or proposal should be specifically identified in the written contract and the contract should state that the estimate is incorporated by reference into the contract.

Acceptance of Services

Acceptance of an offer is the other party’s expression of willingness or desire to assent to the terms of your proposed offer.  To have a binding contract, the other party must accept and agree to all of the terms of your offer.  Otherwise, there is no binding contract but the parties are still engaging in negotiation.

One important thing while negotiating a service agreement is that your written contract should make it clear how the other party can accept your offer of services.  This is accomplished by requiring the other party to sign (please seek advice on how contracts are duly executed) and agree to the terms and conditions of the written contract that includes (or refers to) an adequate description of the services that your business is offering to provide.

Consideration

Consideration is something that is given or promised to be given by the other party in exchange for your offer of services.  Presumably, this is a promise to pay your business for the services that are being provided.   Your contract should state exactly how much your business will be paid when your business will be paid and what happens if your business isn’t timely paid for its services.  Ideally, your written contract should also state what methods of payment you are willing to accept, such as cash, electronic funds transfer, credit card or any other method.

Be specific and clear!  Don’t leave the most important part of the contract unstated as this can cause unnecessary collection headaches for your business down the road.

Conclusion

The above provides a high-level overview of some of the key considerations you should keep in mind when entering into and negotiating a service agreement.  Other important provisions will also form part of your contract depending on the prevailing facts and circumstances.  Please contact Allied Legal’s Melbourne based commercial lawyers should you have any questions or seek a free initial consultation.