If your business is not selling a good or a product (can you touch it?), but rather a service (such as computer consulting, electronic repair, computer program writing, cleaning services, accounting services, etc.), then the contracts that your business will enter into with customers will generally be service contracts, not sales contracts. This section of the Entrepreneur's Help Page lays out the most common issues involved in service contracts (although certainly not all).
In what must now be a familiar refrain to the masochistic few who have read much of this web site, we remind you that this advice is general and not detailed enough to cover all of the legal issues involved in your business, so please use the given information as a starting point for educating yourself about the legal aspects of your business, not as a substitute for a lawyer.
To ``Form" (your customers) or not to ``Form" (your customers)?
If your business is going to provide the same type of service to a number of different customers, and most service businesses do just this, or if you are going to hire independent service-providers on a contract basis, then your business needs to develop a standard contract or ``form".
This form should cover many topics. Of course, the form must contain everything your business absolutely requires before it will enter into a contract with a customer, such as fees to be paid, description of work to be done, dates for completion and payment, and other money and time issues, along with whatever unique terms that your particular industry requires. To the untrained eye, these parts of the contract are usually fairly straight forward. So you are probably assuming that you can figure out the time, place and money part of your form. After all, people who can find this web site can read well enough to understand those portions of a contract, right? Well, you are fairly correct, or at least correct enough to risk it when your business is not worth suing, but here is a list of things that should be included in any service contract:
- Identification of the parties (duh!)
- Precise definition of what services will be provided and when, including a measure of what will constitute failure or success in providing services.
- How the fees are to be determined (i.e., set figure versus hourly fee versus combination).
- Warranties/guarantees/liability for negligence/etc.
- Ownership of any intellectual property created or disclosed during the course of the service contract.
- Non-competition agreements between customer and service-provider.
Numbers 1 and 2 are fairly easy to understand. A simple, well-drafted contract (written by your attorney!) should cover these topics in a few paragraphs.
The issue of fees (3) and how to pay them is, again, not a particularly difficult item, and your attorney should have some standard contract language he can use for any one of the different payment options.
The warranties, guarantees, and liability apportionment section of the contract is very important, and this is where you lawyer earns her money. You see, the warranties and guarantees section is one of the areas where the parties decide who takes on the risk of something going awry during or after the life of the contract. For instance, suppose an independent computer engineer is hired to retool a corporation's web site. The web site, a pornography site, is making a lot of money for the corporation already, but the corporation wants to jazz it up a little and increase the amount of traffic the site can handle. Instead of making the site better, the independent computer engineer crashes the very-busy server. (We will assume that negligence by the engineer is an open issue.) Who pays for the lost revenue due to the crash? Who pays for a new engineer to come in and fix the problems? (Because the old one is not going to be allowed to touch the web site again!) A few quick clauses can take care of such headaches. Quick tip: At the very least, make sure that your largest fears are covered by the contract language.
The sections dealing with the ownership of intellectual property rights are also crucial, especially if you are operating in an industry where all your company really owns is the copyright to a program or a patent on a product. If you are a company hiring service-providers who have access to your company's intellectual property, then your company's service contracts should contain large chunks of language concerning the true ownership of any intellectual property to which the service-providers may have access. Also, your contracts should reserve the rights to any intellectual property created during the course of the service contract. If you are a service-provider, on the other hand, you will want the same provisions, except you will want the terms to grant you rights to use any intellectual property you help create or to which you have access. We doubt that the latter will be granted, but you may get the former. In any event, make sure that your lawyer is well-versed in work-for-hire agreements and intellectual property law.
The sections covering the service-provider's agreement not to compete is, yet again, crucial. When a service-provider is brought in, the service-provider is often given access, intentionally or not, to the customer lists, pricing and cost information, product ideas, and other important information concerning the company's business. Assuming that the service contract contains language forbidding the disclosure of such information to third parties (language which should appear in the section governing intellectual property rights), companies must still worry about the service-provider using such information to start up a competing venture. The non-competition section should cover this problem.