What is a Service Contract?
By Any Other Name
First, for the most part, it does not matter what a contract is named. This might be a minor thing. However, it’s important to note your service contract can be called many things.
For example, you could call a service contract a “contract for services,” “scope of work,” “engagement letter,” or something entirely different. I use “Service Contract.”
A service contract is a regular contract, but one party is giving up money and the other provides a service. For example, when you hire someone to mow your lawn, he’ll have you sign a service contract. Hopefully this contract will be simple.
Service contracts can be verbal. However, if either party cannot complete the contract within one year, it must be in writing. This is the statute of frauds. It is important to note that it only applies if you cannot complete, not if you don’t.
To be valid, you must list the parties, scope of work, and price. To be useful, you should also list expectations in the work product, time for completion, and some boilerplate.
As with all contracts, you can make these super complicated. For example, if you allow your customer to pay over time, you’ll need strict payment terms.
Here are some common complex scenarios:
- Payment Over Time.
- Binding Arbitration.
- Monthly or Yearly Subscriptions.
- Bonuses or Penalties for Milestones.
- Licensing Arrangements.
- More Than Two Parties.
- Payment Through Anything Other Than Money.
For each of these scenarios, there’s an extra amount of complexity involved. Can you management successfully? Yes. Just be extra careful when your agreements start getting complex.
Options For Service Contract Creation
So, outright, I’ll tell you I charge $500 for most service contracts. These are reusable, customizable, agreements for your business to keep on using as many times as you’d like. However, I like to have an option for businesses of all sizes. Knowing that $500 is not in the budget for all businesses, my advice is as follows:
The very best thing you can do if you’re writing your own service contract is to write a bullet point list of the expectations you have. It should look something like this:
- Price: $150
- Scope of Work: I’ll mow your lawn twice a month for 3 months.
- Parties: Richard Bobholz (Service Provider) and Bob Richholz (Customer)
- Address: 101 Streetway Ln, Durham, NC 27713
- Payment Due by April 1, 2021.
- If you don’t pay by the Due Date, you’ll owe 8% annual interest compounded monthly.
- The deadline for mowing can be extended if there is inclement weather.
Make it your own. The apex rule of contracts is that both parties understand them. It’s more important that both parties understand the important terms than cover every scenario.
Richard is the managing attorney for Law Plus Plus, a local small business law firm. As managing attorney, he helps small businesses and nonprofits startup, creating the contracts, and navigate the legal needs of businesses. Some of his practice areas include: corporate, contract, mergers & acquisitions, corporate litigation, and estate planning.