Key Service Contract Points
This guide covers the key aspects of a contract that individuals and businesses should pay attention to before they agree to be bound by a service agreement. Always contact a lawyer before signing a contract, to make sure that your rights are being protected and nothing is hidden in the fine print.
Limitation on LiabilityWhen reviewing a contract, pay special attention to the limitation on liability section. It usually exculpates the service provider from liability for their own actions or inactions. There are many different types of damages (I.e. financial penalties) for failure to perform on a contract, and it is pretty typical for some to be completely disclaimed in contracts (such as special, incidental, consequential, exemplary, punitive, etc), but you should be careful to not disclaim all types of damages. Direct damages are the damages that directly result as a consequence from a party's actions or inactions. These damages may be limited, but they should not be entirely disclaimed.
WarrantiesThere are some warranties that are automatically provided by law. However, these warranties, such as fitness for a particular purpose and merchantability, are generally provided for goods, not services. In service contracts, service providers generally like to disclaim all warranties, so they don't have to re-perform the services when something goes wrong. However, you shouldn't agree to this. If a service provider provides a service, they should be willing to stand behind their work and make sure it is functional for at least 30 days, if not a year. The length of the warranty will depend on the nature and type of service being provided, so think about how long the deliverables of the service should last before needing maintenance when determining how long the warranty should be in place.
IndemnificationIndemnification is a legal principle and procedure that is set in place to protect from third-party lawsuits. While this is generally implemented in order to protect against things such as intellectual property infringement, where the service recipient is unaware that the service provider is infringing on a third-party's rights but the third-party is suing the recipient and not the provider, some parties to to a contract create overly broad indemnification requirements which can specify that a party is required to indemnify for actions that are not actually that party's fault.
Intellectual PropertyThe key question here is who owns the copyrights, trademarks, and patentability of the deliverables being produced by the service provider. The service provider is the one creating them, but the service recipient is paying for that service and the deliverables. Whilst it would make sense for the service recipient to always require that the ownership of the deliverables be transferred to them, that is not always practicable since the service provider may have a business model that is structured upon reusing deliverables that have been created for previous recipients in order to keep costs low for their clients. However, in the event that ownership is not being granted, service recipients should be granted a license to use and modify the deliverables, and the terms of such a license would vary based on the type of deliverables.