Service Agreement Template: Every Clause That Protects You

Essential Sections Every Service Agreement Needs

1. Scope of Services — The most important section. Define deliverables with specificity: what's included, what's explicitly excluded, how changes are requested and priced (change order process), and what constitutes acceptance of each deliverable. Vague scopes create disputes.

2. Payment Terms — Include: total project price or hourly/daily rate, payment schedule (50% upfront, 50% on delivery is standard for project work), late payment penalties (1.5%/month is common), expenses reimbursement policy, and invoicing schedule.

3. Term and Termination — Start date, end date or ongoing term, termination for convenience (typically 30 days notice), termination for cause (typically immediate), and what happens to work in progress and payments on termination.

4. Intellectual Property — Who owns the work product? Default rule in most contracts: the service provider owns IP unless explicitly assigned. Include a clear assignment clause if the client needs to own the deliverables.

IP Ownership: The Most Contentious Clause

Work-for-hire vs. assignment: In the US, 'work made for hire' status is limited by copyright law — not all services qualify. To be safe, include both a work-for-hire clause AND an IP assignment clause as a backup.

Licensed tools and pre-existing IP: Clearly state that the service provider's pre-existing tools, libraries, methodologies, and IP are licensed to the client (not assigned). This protects the provider's ability to reuse their own tools on other projects.

Background IP vs. Foreground IP: Background IP = what you brought into the project. Foreground IP = what was created for this project. Good service agreements assign Foreground IP to the client while keeping Background IP with the provider.

Liability, Warranties, and Indemnification

Limitation of Liability: Cap your total liability at the fees paid in the prior 3-12 months. Without a cap, a $5,000 project could expose you to unlimited liability. Standard carve-outs: IP infringement, gross negligence, willful misconduct.

Warranties: Only warrant what you can guarantee. Common: 'services will be performed in a professional manner' and 'deliverables will not infringe third-party IP.' Avoid broad fitness-for-purpose warranties.

Indemnification: You indemnify the client for claims arising from your negligence or IP infringement. The client indemnifies you for claims arising from materials they provided. Keep indemnification obligations narrow and mutual.

Dispute Resolution and Governing Law

Jurisdiction: Specify the governing state and whether disputes go to courts or arbitration. For smaller projects, small claims court is faster than arbitration. For larger engagements, binding arbitration (AAA or JAMS rules) may be preferable to reduce costs of full litigation.

Fee-Shifting: Some contracts include attorney fee provisions — the losing party pays the winner's legal fees. This can cut both ways; negotiate carefully.

Cooling-Off Period: Consider adding a 30-day good-faith negotiation period before formal dispute resolution. Most commercial disputes settle early when both parties communicate directly.

Red Flags to Watch For

• ⚠No defined change order process — scope creep happens by default
• ⚠No cap on service provider's liability — unlimited exposure for small contract value
• ⚠IP assignment clause is missing — client may not actually own deliverables
• ⚠No payment schedule — full payment on delivery creates cash flow risk
• ⚠Acceptance criteria undefined — client can reject deliverables without objective reason
• ⚠Non-solicitation clause that survives for 2+ years post-engagement
• ⚠Broad IP assignment that includes service provider's pre-existing tools
• ⚠Jurisdiction in client's location with mandatory arbitration they control