Service agreements

Scope, and the variation clause that saves you

Write the scope as two lists: what is included, and what is expressly not. The second list is the one that prevents arguments, because it forces the conversation to happen at quoting stage rather than at invoicing stage.

Then give yourself a variation process that a busy person will actually use. If your contract says variations must be agreed in writing signed by both parties, and in practice your project manager agrees them by text message, you have a contract that does not describe your business. A workable clause allows written confirmation by email, sets a short deadline for objection, and states the rate that applies to additional work.

Add assumptions and dependencies. Most service delivery depends on the client giving you access, information, approvals or materials. If they do not, your timeline slips and your costs rise. Say what happens then: the timetable extends, standby time is chargeable, and delay caused by the client is not your breach.

Getting paid for services

• Deposits and progress payments. Structure payments so you are never far out of pocket. Milestone billing tied to deliverables beats monthly billing tied to nothing.
• Clear payment terms. A number of days from invoice, not "on completion" and not "30 days end of month" unless you mean it.
• Interest and recovery costs. State the rate and state that you may recover the costs of recovery. A term that imposes a disproportionate penalty risks being an unfair term, so keep it proportionate.
• Suspension. A right to stop work while an invoice is overdue, with notice. Continuing to work for a non-paying client is a business decision, not a legal obligation.
• A lien or retention of deliverables where it is appropriate to your industry, drafted carefully because a lien over the client's own property is a different thing from withholding your work product.
• Security. For larger engagements, a director's guarantee or a deposit held on account.

For businesses that supply on standing account rather than by project, the equivalent document is your terms of trade.

Limiting liability without breaking the law

You cannot contract out of the consumer guarantees. Section 64 of the Australian Consumer Law voids any term that purports to exclude, restrict or modify them. That applies to supplies to a consumer, which includes many business customers because the definition catches goods and services under the relevant threshold amount regardless of the buyer's status.

What you can do is limit remedies where the law allows it. For services that are not of a kind ordinarily acquired for personal, domestic or household use, section 64A permits a term limiting liability for failure to comply with a guarantee to supplying the services again or paying the cost of having them supplied again. That limitation is not available where it would not be fair and reasonable to rely on it.

Beyond the consumer guarantees, a proportionate liability cap is standard commercial drafting: an aggregate cap by reference to the fees paid or the insurance held, an exclusion of consequential and indirect loss, and carve-outs for fraud, wilful misconduct and personal injury. If your contract is standard form and your customer is a small business, an uncapped indemnity running one way only is exactly the kind of clause the unfair contract terms regime targets.

Match the cap to your insurance. A liability cap of ten million dollars with a two million dollar professional indemnity policy is not protection, it is an uninsured exposure.

Intellectual property, confidentiality and ending the engagement

Decide who owns what is created. The default for a contractor is that they own it, which surprises most clients. If your client expects to own the deliverables, the agreement should assign them, usually on payment in full, while you retain ownership of your pre-existing materials and your general know-how with a licence to the client to use them as part of the deliverable.

Deal with confidentiality both ways, or by reference to a separate confidentiality agreement. Deal with data and privacy if you will hold personal information belonging to your client's customers, because your client's obligations under the Privacy Act flow through to you by contract.

Then write the ending. Termination for convenience with notice, termination for breach with a cure period, what happens to work in progress, what must be returned or destroyed, and which clauses survive. Add a dispute clause requiring a meeting of senior representatives and then mediation before proceedings. It is not just a formality: courts will hold parties to a properly drafted dispute clause, and it is far cheaper than the alternative.