Contracts; Recepient
Overview
The purchaser of a service may be in a position to negotiate the inclusion of terms and conditions in its interest. The following refers to clauses which are drafted largely from the perspective of the purchaser /client and in his interests.
A services agreement commonly applies to a range of services applied under it. It may be provided that terms and conditions apply from time to time as and when purchase orders or jobs are undertaken pursuant to it.
The relevant purchase order, job specification or work package may be required to specify minimum details so as to have sufficient certainty in order to have contractual effect. This may include particulars of
- the relevant services;
- any physical deliverables;
- the fees, costs and expenses or method of calculation;
- the key personnel et cetera.
The agreement of both parties is required for each individual order. Typically, the purchase order is made by the buyer, and it is subject to acceptance by the supplier.
Application of General Terms
It may be provided that the general terms and conditions apply, save to the extent that they are amended in the relevant purchase order, work package or job description. Conversely, it may be provided that the terms of the purchase order are subject to the terms of the agreement which prevail over it, in the case of inconsistency.
The agreement may be stated to apply for a particular period. This may be an indefinite period subject to the rights, either unconditionally or of both parties or one party to terminate it on giving a period of notice.
If the agreement contains general standing terms, there may be no contract, unless and until there are particular jobs and orders. Many service agreements involve personal factors and make it difficult to enforce an ongoing obligation to deal with the other.
In other cases, the agreement may provide that the supplier will undertake or has the right to undertake the relevant work for the customer within the relevant period. This is more feasible in the case of a larger scale entity and a homogenised service
Required Outcome or Result
At common law and by statute, the implied obligation in relation to a service is (broadly) that the provider will exercise due skill and care in accordance with the standard for that type of service provided generally. There is rarely an unconditional obligation to achieve a particular result. This contrasts with the position on the sale and supply of goods, where many of the obligations are unconditional in nature.
It is possible in principle to provide that the supplier will provide a particular outcome or result. The supplier may effectively take the risk of not achieving the outcome. The required result needs to be defined. The consequences of failure to meet the standard should be defined.
Whether or not a service provider might undertake an absolute obligation depends on the circumstances. It would be necessary to define the required outcome with sufficient certainty and verifiability. Some aspects of the service may be definable whereas others are more subjective in nature. In the latter cases, the supplier’s obligation is more likely to be one to exercise due skill and care.
Extension of Supplier’s Obligations I
The buyer may seek to raise and expand the default statutory and common law conditions, warranties and other obligations on the part of the supplier. The obligation may be stated in more onerous terms. Its detail and elements may be specified.
It may be provided that the services are to be provided promptly, with due care and diligence in a good and workmanlike manner and in accordance with best industry practice.
There may be further clauses and obligations to the effect that the relevant personnel with the relevant qualifications and experience to carry out the functions will be provided. It may be confirmed that the supplier is responsible for selecting and training the relevant personnel so that they are in a position to perform the services.
The deliverable items may be warranted to conform with the specification in all respects, be fit for purposes and be of satisfactory/merchantable quality.
Extension of Services Obligations II
On termination, it may be provided that the supplier must give reasonable assistance to its replacement supplier and on request provide the successor with the necessary documentation and assistance to ascertain the status of any existing work or deliverables and as may be necessary to complete any outstanding works.
The supplier may be obliged to warrant that it has full capacity and authority to enter the contract and has all the relevant licences, consents and authorities etc. required to provide the services.
Provision may be made for the date of provision and completion of the services as specified in the agreement, or in the relevant order/work package. There may be requirements that the work be done by a certain date or within a certain time frame as set in the order. It may be agreed in the service agreement in the case of a standardised service, or it may be specified in the relevant order.
The buyer may require progress reports and evidence as to the status of the works and other information in the course of the provision of the service. It may have a right to request information from time to time. The supplier may agree to provide progress reports or access to its IT system showing the progress of the works.
Reinforcing Obligations I
The supplier may be obliged to maintain insurance in connection with the provision of the services. The insurance may be required to be maintained for a number of subsequent years. It may be provided that the buyer can review this insurance and /or specify the type of insurance required.
The supplier may be required to warrant that its relevant personnel will undertake the works safely and that no third party or member of the buyer’s staff or personnel will be affected by failures to take reasonable steps to safeguard their own safety.
The supplier may agree to indemnify the buyer from all liabilities, obligations and expenses arising by reason of the loss or damage caused to the buyer or third parties by the supplier’s personnel in this regard.
Reinforcing Obligations II
The supplier may be obliged to ensure that its personnel cooperate with the buyer and its personnel and agents. It may be obliged to comply with the buyer’s instructions and ensure that its personnel comply with instructions in relation to the services where appropriate or relevant. It may be obliged to comply with the buyer’s internal policies as notified from time to time where applicable.
The supplier may be obliged to undertake and implement disciplinary action in relation to its personnel where there is a breach of any of the relevant obligation.
The supplier may undertake that will comply with all laws and regulations, applicable to the service including those relating to tax and employment requirements.
Further Supplier’s Personnel Matters
The buyer may require the supplier to warrant the availability of the key personnel required or identified for provision of the services. Their availability may be warranted continuously during the relevant period. The buyer’s consent may be required to changes in the key personnel. This may be subject to a requirement that it not be unreasonably withheld.
The supplier may be obliged to submit particulars of the persons who are to provide the services together with their curriculum vitae and substitutes. The buyer may be permitted to interview proposed personnel and substitutes. The buyer may have a right a role in accepting substitutes.
The customer may require the requisite or defined personnel to be provided on a dedicated and full-time basis. The supplier may be obliged to ensure that they work full time on the provision of the services and not for any other third parties during the relevant period/
The buyer may be entitled to require termination of the involvement of any particular person on the supplier’s side in the provision of the services /project by giving notice. The supplier may be obliged to provide a suitable replacement promptly.
The supplier may be obliged to give notice where personnel are not available or ill as soon as practicable. They may be under an obligation to provide a substitute.
Competition / Conflict of Interest
There may be an obligation to ensure that the relevant personnel shall not perform services that are the same or similar to the project services to any direct or indirect competitor during the period of the agreement and for a period thereafter, for example, six months.
It may be provided that neither party will seek to directly or indirectly to solicit or entice lay employees of the other party who have been engaged in the provision of the services.
It may be provided that the supplier may not during the agreement or for a period thereafter solicit or discourage any employee or any person, firm or company who was a client or customer or the buyer, from dealing with the buyer.
Fees and Costs
The fees may be fixed. They may be based on a budget with the agreed set charging rates. There may be a mechanism for the calculation of fees and payments. Where there are general terms and each job is a specific contract, the fees, whether fixed or determined by a formula are likely to be specified in the work / services package as applicable from time to time under the relevant purchase order.
VAT is usually payable on the fees. The obligation to pay is usually subject to production of a valid VAT invoice.
The buyer may agree to pay undisputed invoices at the end of the relevant period. In the event of a dispute, there may be a mechanism for resolution. This may involve escalation within the supplier’s and the customer’s organisations. In some cases, there may be a reference to an independent expert for determination. This may arise where there is a dispute on the calculation of the fee with reference to the basis of charge.
Provision should be made for the due payment date. The buyer may seek to have payment made in arrears upon the completion of the works, a phase of the works or periodically in arrears.
It may be confirmed that the buyer is responsible for no other expenses or costs other than the direct fees. The buyer will not wish to pay charges that are properly the suppliers overhead and general expenses. On the other hand, it may be clear that certain costs and expenses should be added to the fee / price are to be paid by the buyer.
Termination
The buyer may seek the right to terminate the agreement by giving notice for any reason or for none. A specific period of notice is likely to be required. There may be provision for the completion of ongoing jobs. There may be provision for their hand over to a new supplier.
The buyer will wish to have the right to terminate the agreement and all ongoing work immediately if the supplier becomes insolvent or commits a material breach of the contract. The buyer may seek to provide the most expansive grounds possible for termination. It may, for example, want to have the right to terminate where the company unreasonably fails or refuses to perform the relevant services (perhaps after written warning to cure the relevant breach).
There may be rights of termination where there is a failure at an earlier stage; for example, the failure to provide the relevant personnel or the accumulation of a number service failures. There may be provision for termination where the supplier fails to meet any relevant criteria once or on a number of occasions. The criteria may be defined by reference to tests and evaluations with reference to which the services must conform.
Damages / Service Credits
In accordance with the general law of contract, a breach of contract may give rise to a claim for damages for the loss thereby occasioned. Generally, only direct loss which flows from the breach in the ordinary course may be awarded as damages.
Damages are available for a breach of contract which causes loss, which does not necessarily give the customer the right to terminate. They may also be available where there is a material breach, but the customer does not elect to terminate the contract unless the right to damages (and not just the right to terminate) are waived.
There may be provision for liquidated damages for failures of performance. They must be a genuine pre-estimate of the loss and must not be a penalty
There may be provision for service credits against fees where the supplier fails to meet the relevant criteria once or on a number of occasions. The criteria may be defined by reference to tests and evaluations with reference to which the services must conform. The service credits allow for a certain quantum of services without payment of fees.
Upon termination, the agreement may provide for the return to the other party of all work, books and documents, materials, customer lists, data, technical report, together with all property in whatsoever form in its possession or under the other’s control
Completion and Acceptance of Work
The buyer may require provisions in relation to acceptance of the work in accordance with the defined criteria relative to the work package specification. The payment obligation is likely to be postponed until the relevant acceptance criteria have been completed.
There may be a provision that the works are deemed completed only after a certain period following delivery of the relevant work, provided that no objection, issues or concerns are raised in relation to the due completion of the work during that period.
Where an item of work is rejected, the supplier may be obliged to submit or have the opportunity to submit performing work. It may not be entitled to payment / the fees until the work has been accepted.
There may be provision for escalation of disputes in relation to the completion of the work within the supplier and customer organisations. There may be a reference of the dispute to an independent third party who determines them as a binding expert determination.
Authority and Responsibility of Others
It may be confirmed in general that the supplier has no authority on behalf of the buyer. The supplier’s exclusive obligations to and responsibility in relation to its own personnel may be confirmed. The supplier may agree to indemnify the customer against possible liability to or incurred by the supplier’s employees or agents. The supplier may be obliged to indemnify the buyer and all group companies in respect of claims by those employees, tax authorities or otherwise.
Confidentiality and Intellecual Property
Each party may provide mutual undertakings regarding confidentiality and intellectual property. The customer may require specific non-disclosure undertakings relating to confidential information coming to the supplier’s attention in the course of the provision of the services. There may be restrictions on disclosure except those to employees or consultants where they are strictly necessary for the purpose of providing the services.
The supplier may warrant that the provision of the services does not infringe the intellectual property rights, quasi-intellectual property rights of another party or breach any non-disclosure obligations.
The customer may require additional protections in respect of intellectual property rights. In particular, it may require that for any work arising out of the services, that the intellectual property rights arising out of those services vests in the customer and not the supplier.
The supplier may be required to assign, confirm and procure that all relevant personnel transfer all such title to intellectual property to the buyer. The supplier and its personnel may be obliged to waive moral rights on any alleged copyright. There may be limitations to the extent that the intellectual property belongs to a third party.
Intellectual Property
Generally, the supplier will wish to give a non-exclusive licence only in relation to the use of its intellectual property which may be disclosed or arise out of the provision of the service. The buyer may require that this be a worldwide, non-exclusive, perpetual, irrevocable, royalty-free license for any intellectual property included in or provided incidentally to the services
The supplier may be obliged to indemnify the buyer from claims in respect of breach of intellectual property rights by a third party. It may extend to claims against group and related companies.
The buyer might be required to be informed about claimed breaches of copyright and alleged infringements. The buyer may have an input in relation to any steps or action which may be detrimental to its commercial interest.
There may be a provision requiring the supplier to procure substitute intellectual property rights where an intellectual property infringement is claimed. It may be required to desist from infringements.
Template Type Causes
The general template clauses applicable to commercial agreements may be incorporated. They may include such matters as confirmation that
- variations may only be made by written consent to specified parties.
- undertaking not to make the subject matter of the agreement or the terms public,
- restrictions on assignment and sub-contracting.
There may be provisions in relation to force majeure excusing future performance where the circumstances are such that they prevent giving effect to the contract services.
Force majeure may be defined as events not caused by and outside the control of the affected party. The list of events may be specified which may be samples but are not necessarily a definitive list of force majeure clauses.
Applicable Law
The applicable law and relevant place for enforcement agreement will be specified at the buyer’s jurisdiction, place of business.