A service agreement is essential to manage the contractual and legal arrangements between building professionals, developers and land owners within the construction industry. Essentially, a service agreement is an enforceable contract regarding the scope of services to be provided by one party (the service provider) to another (the principal) and the terms upon which those services are carried out. Various commercial relationships in the construction industry, such as those between builders, architects, design consultants and homeowners may be governed by a service agreement.
Following are some key terms typically included in a service agreement:
Retainer – scope of services
Identifying the precise nature of the work to be performed is fundamental to ensure the parties are on the same page as to which components are included or excluded from the scope of services. Clear lines of responsibility between the parties will facilitate the efficient management of the contract and may help to minimise unnecessary delays in providing, and being paid, for the services.
Fees and schedule of payments
The service fee may be a fixed price, an hourly, daily or other rate calculated in accordance with a schedule of fees. The agreement should specify when fees are to be paid whether weekly, monthly, in stages or upon achieving certain milestones, whether the fees are inclusive of GST or if the service provider is entitled to be reimbursed for certain expenses.
Intellectual property rights, licensing and confidentiality
Generally, a service provider has access to a principal’s confidential information during the term of the retainer. The agreement should make it clear as to ownership of the information and include obligations on the service provider to protect and prevent against the information’s misuse. These obligations should endure termination of the agreement.
If a service provider creates original material, such as architectural drawings, the agreement should include provisions regarding ownership of the intellectual property created by the provider as well as incidental licensing rights, where relevant.
Indemnities, liability and insurances
All service agreements should allocate risk and liability and provide appropriate indemnities to protect against loss sustained by the other or a third party. Indemnity clauses need to be considered in light of the scope of works to be provided and the individual circumstances of the parties.
The agreement may be drafted to limit or exclude liability (as far as legally possible) with careful consideration by each party to ensure adequate insurance is in place to mitigate loss.
The terms may require one or more parties to the agreement to have certain insurances in place and / or the interest of another party to be noted on the policy.
Term and termination clauses
The agreement should specify the proposed term. Some agreements end once the scope of works is completed, however many are entered for long-term or ongoing projects. Irrespective of the term, all agreements should include clauses which provide a party with termination rights upon the occurrence of specified events such as bankruptcy, death, insolvency, changes to legislation and failure to secure further contracts.
A carefully drafted service agreement provides certainty between the parties – it defines the scope of services to be performed, the fees payable, allocates responsibility and risk, and clarifies incidental matters such as payment of taxes and superannuation.
Our building and construction team has a wealth of experience in the construction industry to ensure that all important issues from a practical and legal perspective are integrated into your service agreements.