Services Contract

What is a service contract?

A service contract is an agreement that sets out the terms and conditions under which the service provider (or supplier) will provide designated service(s) to the customer (or client).

What are the different types of service contracts?

A service contract can either be B2B (i.e. between two businesses or commercial entities) or B2C (i.e. between a private consumer and a business). Where the service contract is B2C, the consumer or client will always be the private consumer while the business will always be the service provider. For a more detailed difference between a service contract and an employment contract, please see our legal guide on the Differences between an Employment Contract, Service Contract and Consulting Agreement.

What is the difference between a service contract and an employment contract?

The main difference between a service contract and employment contract is the element of control. Under a service contract, the service provider has more control and autonomy over how they carry out their assigned tasks and contracted work. They also bear full responsibility tax payments and other overhead costs (e.g. subscriptions, sick pay, office supplies etc).

Under an employment contract, the employer has more control over the employees and the employees do not have autonomy over how they carry out their assigned tasks contained in the employment contract. As a consequence of this control, the employee receives regular wages and benefits, along with the employer covering other overhead costs (e.g. subscriptions, sick pay, holiday pay, office supplies etc).

Is it mandatory to have a service contract?

No, it is not mandatory to have a service contract. This is because under UK law, an oral agreement is also recognised as a valid contract. However, it is highly advisable to have a written service contract that clearly outlines the terms and conditions under which the services will be provided, and the obligations of each party as well as corresponding penalties or remedies available to each party in the agreement. Especially where both parties involved are commercial entities (i.e. a B2B contract), it will be beneficial to have a written service contract due to the higher stakes involved and the sensitive nature of commercial agreements.

What must a service contract contain?

A service contract should contain the following important clauses:

• The identity of the parties;
• The details and scope of the services;
• The term of the contract (i.e. how long the contract will be in effect);
• The price of the services and how payment should be made;
• Obligations of the parties;
• How the contract can/will be terminated;
• How disputes will be resolved; and
• The governing jurisdiction.

Who can enter into a service contract?

Where both parties or one of them is a natural person, that party has to be legally an adult (at least 18 years old) and have the mental capacity to understand the contract's terms and conditions. Businesses also have the capacity to enter into service contracts. Where the Business is a corporate entity (i.e. a company or a limited liability partnership), the person who is representing the corporate entity should be at least 18 years old and have the requisite authority to act on behalf of the corporate entity (e.g. being a director, CEO, Chairperson etc). If the business is a general partnership, then all the partners who will be signing the contract on behalf of the general partnership should all be at least 18 years old.

What can be the duration of a service contract?

There is no maximum duration for the length of a service contract and the parties are free to set a time length for the contract as they see fit.

What has to be done once a service contract is ready?

The contract should be provided to both parties to be signed and exchanged. If either party is a company, the document should be signed by an authorised person such as a director or a secretary. Both parties should then keep a copy of the signed contract.

Is it necessary to have witnesses for a service contract?

No, it is not necessary to have witnesses for a service contract. The contract needs to only be signed by the parties (or their authorised representatives) and it will become properly executed.

 

Any Applicable Law

The contract is governed by the general principles of contractual law.

A minimum standard of care will be implied under the Supply of Good and Services Act 1982.

Rights regarding third parties are also addressed in the Contracts (Rights of Third Parties) Act 1999 (for users in Northern Ireland and England and Wales).

Rights and obligations regarding the termination of agreements when a party is facing insolvency are governed by the Corporate Insolvency and Governance Act 2020 and Insolvency Act 1986.

Both parties should also be aware of the provisions of the Unfair Contract Terms Act 1977.

Both parties must also meet the requirements of the Data Protection Act 2018 and the retained EU General Data Protection Regulation 2016/679 (UK GDPR).

 

Help from a lawyer

You can choose to consult a lawyer if you need help.

The lawyer can answer your questions or help you through the process. You will be offered this option when you complete the document.

 

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