Supplier Service Agreement: Negotiation & Contracting Tips

Aug 31, 2015
Reading Time: 3 minutes
Written by Dominic Woolrych

Once you have found the right supplier for your business, it’s time to document the terms of the trade in a written contract. As a business owner it is very important for you to understand that service agreements are the lifeblood of any service business. Do not be one of those business owners who skips this step and risks their entire business. You have done the hard part of finding the right supplier for your business. Now its time for the easy part. Use the following tips as a guide to negotiate and contract your service agreement.


Tip 1: Clearly define the services

The essential terms in your Service Agreement will depend on the kind of supplier providing the goods or services. For example if it’s a supplier of goods, then you may wish to consider whether time is of the essence (meaning the goods must be supplied by a certain time or date). Unless the scope of services is carefully defined it can be difficult if the supplier charges any additional payment.


Tip 2: Be crystal clear about payments

The agreement should be clear about the amount of money paid for the services, when is to be paid, procedures for invoicing and penalties for late payments. Also, be clear about what additional expenses (third-party assistance, travel, accommodation, etc.) the customer is expected to bear.


Tip 3: Draw boundaries

The agreement should include a provision that clearly states that the relationship is not a partnership, joint venture or employer-employee. Since some of these relationships can be implied by law, this is an important provision. Define the relationship very clearly.


Tip 4: Protect your business

One of the main benefits of a service agreement is that it can protect your business in dispute. If there is an exchange of confidential information between you and the supplier then a provision about the protection and the use of that confidential information must be included. If the services may also involve the disclosure or use of personal information, then the agreement should address applicable privacy law.

If there is any new IP created during the relationship then the services agreement need to specify who owns the rights to the product. If possible, avoid joint ownership of IP as it has a potential of creating many issues in the future.


Tip 5: Consider all liabilities carefully

As a business owner you need to be very careful about risks and liabilities. In standard service agreements, businesses that offer services (i.e the suppliers) include a limited liability clause to insulate themselves from potential contractual damages that arise from a breach of contracts.


Tip 6: Clarify the termination procedure

Your contract should include a termination clause that defines the circumstances, for example non payment of fees, under which either party may end its legal relationship and, depending on who initiates the action, specify the rights that each party has when the termination occurs. Avoid signing a contract where the language permits only the supplier to terminate the contract. You should also clarify what obligations apply on termination – for example, the supplier should refund any amount paid in advance for services not provided.


Tip 7: Define the jurisdiction

It is sensible to state in the service agreement which set of laws will govern it. Otherwise, if the contract terms become relevant later in a dispute between the parties, there will be a risk of a wasteful preliminary battle about which set of laws should be used to interpret the parties’ obligations. This is particularly beneficial if your supplier is outside Australia.


Tip 8: What to do when a dispute arises?

Last but not the least important tip is to include a dispute resolution clause.

This does not have to be in complex legal terms. It can simply state that the parties will try to resolve any disputes amicably and in good faith before escalating to court. Your contract should include a clause that calls for mediation as the first step in settling disputes.

By following these simple tips you can help protect your business and have a professional relationship with your suppliers. If you need more information, have a read of our introductory blog on Services Agreement. With LawPath you can now get your customised Services Agreement in under 10 minutes.


Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from one our network of 600+ expert lawyers or to get answers to your legal questions.

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