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BFV Perspectives, Corporate Matters, | Sep 15, 2023

Contracting for Services? Pay Attention to These 5 Provisions

In our service-based economy, we are comfortable hiring individuals or companies to provide services. Typically, the engagement is carried out to everyone’s satisfaction. Sometimes, however, issues arise, and the parties scramble to read the fine print to see what options they have.

 

If you are contracting for services, make sure you pay special attention to these provisions before entering into an agreement:

  1. Description of the Services

Review the description of the services to make sure what is written matches your expectations for what should be completed. Be specific rather than believing something is implied. If it’s not in the agreement, the service provider will have ample justification to not provide it. Ideally, the description of the services should include any applicable standards and specifications the service provider must meet.

 

  1. Ownership of Work Product

The agreement should provide, explicitly, that any work product resulting from the services should belong exclusively to the party contracting the services. This is especially true if you are contracting for services on behalf of your business.

The (simplified) baseline legal starting point is the following:
Any third party that creates something can claim an ownership interest in what it creates, unless there is an agreement that provides otherwise.

As such, take action to ensure that your agreement is not silent as to ownership. By doing so, the contractor you hired to create a business-specific and significant software feature cannot claim an interest in that software.

 

  1. Indemnification

Your agreement should include some indemnification provision under which the service provider agrees to hold you or your business harmless from any damages it causes in performing the services. Depending on the type of services, it may also make sense to seek indemnification for other things as well. For example, include any damages that arise by the service provider infringing on the intellectual property of a third party.

 

  1. Acceptance of Services and Deliverables

Does your agreement specifically provide for when and how you will be deemed to have accepted any services or deliverables? You may need a stated period of time after delivery or performance to assess if the services meet the contracted standards.. Be wary of “deemed accepted” upon delivery language and make sure any stated time-period is realistic.

 

  1. Warranties and Limitations

Review the warranties the service provider offers (if any) to understand your options if an issue arises with the services. Likewise, many service providers include blanket limitation of liability provisions that may impact what you can claim if the relationship goes sideways.

While some form of limitation is commonplace, in many situations it is wise to exclude certain claims from the limitation. For example, consider if your business is sued for infringement of a third party’s intellectual property based on a deliverable provided by a service provider. In this scenario, you may want to seek indemnification from that service provider to the same extent you are damaged, unaffected by a stated cap on liability.

 

Of course, these are only a few of the provisions that you should pay attention to when contracting for services. These are generally applicable whether you are contracting for a simple personal need or complicated business deliverables.

A total review of a contract should take into account the type of services provided and acute concerns for your business. If you are also in the shoes of the service provider from time-to-time, check out my blog post here.

Please reach out to me directly if you have any questions about the contents of this blog or if you have an agreement you would like an attorney to review.

BFV Perspectives, Corporate Matters, | Sep 15, 2023
Ruari J. O’Sullivan
Ruari J. O’Sullivan

Ruari O’Sullivan takes the proactive approach. In working with business owners, he anticipates their issues and puts structures in place to protect their interests.