If your company provides services, as opposed to a product, there are some specific items you should be sure to include in your Contract or Engagement Letter. This type of agreement should lay out the terms and conditions under which your business will provide certain services. Services include those such as consulting, accounting, property inspection, engineering, lawn care services, etc.
Here are some of the key points to incorporate into your Agreement:
The contract should clearly state the precise services you will perform. Broad or ambiguous terms should be avoided. For example; “… Company will provide all the services necessary to make the Client’s computer network run smoothly”. This ambiguity may create problems down the road as your definition and the client’s definition of a smooth running computer system, as of the day you stop working, may be very different.
Instead, try to be concise. For example; “… Company will provide up to 40 hours of consulting time to assist Client in modifying its computer network to operate more quickly … (preferably to some benchmark). In this way, the time and service commitments can be measured. The Agreement should, if necessary, also state where the service will be performed.
Be careful when you state the time to completion of services. If you don’t complete your services by some absolute deadline, what rights does the customer have? For example, are you covered in a case where some disastrous situation has impeded your ability to meet a deadline, that would prevent the client from terminating the contract or withholding part of the quoted fees?
Force Majeure: This is legalese for a clause that says that if you are prevented from completing your work due to an act of G-d or other unforeseen event (power failure, earthquake, labor strike, etc.), then your inability to complete the task will be excused for a reasonable period of time.
Fees should be spelled out clearly as should be the expected terms of payment. Do you expect payment based on an hourly rate, by percentage of work completed or by lump sum? Do you charge a retainer? When are payments due and what are the terms for late payments?
Some engagements require the reimbursement of expenses such as travel or lodging. If this is the case, be certain to spell it out in the Agreement and be prepared to provide the client with an accurate and complete accounting of the same.
You may also want your standard contract to state that if you are not being paid timely, you have a right to terminate or suspend services.
Consider a clause addressing the non-solicitation of employees. This prohibits the client from trying to hire away employees that are working on the project under contract. This could be of special importance if you have employees with highly specialized skill-sets.
In the best scenario, you want to limit your liabilities to the extent possible. One common practice is to limit liabilities to your fees received. You may also want to consider using clauses that address consequential, punitive, speculative or loss-of-profit damages. Various laws may limit the enforceability of these provisions, but you generally have no downside to including them in your contract. Of course, the best route is to have an attorney draft or review your Standard Agreement. Likewise, you may want to specify a period for bringing claims.
If there is an area related to the service you provide that you think may commonly be seen as related, when it fact it is not, be sure to add a legal disclaimer. Again, it is better to err on the side of safety. For example: “… not intended as tax advice, see your tax professional”.
Here comes our Legal disclaimer (of course): This list of items to be included in your Service Agreement/Contract/Engagement Letter is intended to be a primer on some of the main points to include in your Document. It is always prudent to have an attorney review your Agreement. If you require referral to an attorney, feel free to call us.