Service Contract: how to prevent disputes between suppliers and clients?
Collaboration between clients and suppliers can bring significant benefits to both parties, but it is often marked by misunderstandings that affect the final results and the business relationship. The source of many conflicts lies in the clauses of the contract signed by the parties, which often lack clarity regarding the obligations of each party, expected deliverables, deadlines, or the method of calculating contractual compensation.
The service provision cotract is a key tool in preventing potential disputes between parties, and when it includes the right clauses, it can ensure a productive and efficient partnership.
The most common misunderstandings between clients and suppliers that you can avoid when using the service provision contract template from Docs & Deeds are:
1. Unclear requirements for scope of work
Potential contractual issue
A frequent source of conflict occurs when the client and supplier have differing interpretations of the deliverables. This misalignment can result in unrealistic expectations from the client and frustration on the part of the supplier, who may lack a clear understanding of the project's specific requirements.
Practical examples
A client engages an IT service provider to develop an e-commerce platform with basic features but fails to specify the need for integrating a specific payment system, reporting functionalities, or other critical features necessary for their business. The client assumes these functionalities are implied. The supplier, however, delivers a functional platform without the requested integrations, viewing them as optional rather than essential components of the service provision contract
The client requests a “sales growth strategy” from a marketing services provider. The contract does not specify that the services include an active social media campaign with daily content. The supplier delivers a strategy focused on SEO optimization and email marketing, without including social media.
In a construction project, the client requests the renovation of a space but fails to specify in the contract the exact type of finishes and materials required. As a result, the supplier uses standard materials that are considered to be of average quality.
How does the service provision contract template help?
The service provision contract template is structured to assist clients in providing a detailed description of the required services, encompassing technical specifications, quality standards, and performance metrics.
This contract template includes specific clauses to ensure that both parties share a clear understanding of the final deliverables by incorporating reporting requirements, a transparent delivery process, and measures to address any qualitative or quantitative deficiencies.
2. Delays in delivering the agreed services through the service provision contract
Potential contractual issue
Delays in delivery, alongside non-compliance with the service provision contract, are among the most common issues that can occur between clients and service providers. In many cases, such delays can disrupt the client’s plans and strain relationships with third parties, potentially resulting in financial losses.
Frequently, delays in delivering services as outlined in service contracts stem from factors like resource shortages, technical challenges, or unexpected changes in project requirements. These delays may be attributable to either the client or the supplier.
Practical examples
A publishing house hires a supplier to translate a volume of books scheduled for release within a specific timeframe. Delays due to a shortage of specialized translators and the extensive revisions needed to ensure quality delay the book’s printing, causing the launch event to be postponed and affecting planned marketing and reservations.
A company hires a supplier to organize an international conference, including catering, logistics, and audio-visual equipment. Delays in delivering audio-visual equipment and decor materials due to transport issues and customs hold-ups make it impossible to organize the event optimally on the agreed dates.
A fashion house orders textiles from abroad to produce a limited collection for a fashion show. Delays in producing and delivering key materials due to employee strikes and global supply chain disruptions postpone delivery by more than 2 months, with no local manufacturer available for substitution. The fashion house is forced to delay the collection launch, losing the ideal seasonal window and investments already made in promotional events.
How does the service provision contract template help?
The service provision contract template includes specific clauses for setting delivery deadlines, along with remedies and penalties in case of non-timely delivery. The contractual liability of the parties is detailed through provisions that motivate the supplier to meet deadlines and offer the client assurances of appropriate remedies in case of delays.
3. Supplier causes unforeseen additional costs through the service provision contract
Potential contractual issue
A significant source of frustration for clients engaging service providers is the occurrence of additional costs during the project without prior approval. These costs may arise from extra requests or changes in project specifications (attributable to the client) or from the supplier’s failure to accurately anticipate the project's complexity, leading to an underestimation of the necessary resources.
Moreover, extra expenses beyond those specified in the service provision contract can result from inefficient project management by the supplier, misuse of materials, or the need to address unforeseen errors that emerge during execution.
Practical examples
A client hires a contractor to renovate an apartment, including the overhaul of electrical and plumbing systems. After tearing down the walls, the renovation team discovers that the electrical wiring is much older than initially estimated and needs a complete replacement to meet new safety standards. The supplier requests additional costs for the full replacement of the wiring, materials, and labor, which were not included in the initial budget.
A client orders a promotional video from a creative agency for a product launch campaign. During filming, the client decides that an additional location and the hiring of actors for extra scenes are needed, which were not included in the initial script. The agency bills for the team's extra hours, location rental, and actor fees.
How does the service provision contract template help?
The service provision contract template includes explicit clauses regarding additional costs, notification requirements from the supplier, and the client's approval procedure. Additionally, the service contract template addresses situations where the client refuses to cover additional costs or where these are absolutely necessary to prevent imminent damage.
4. Unclear payment terms in the service provision contract
Potential contractual issue
Payment-related issues are common, regardless of the type of contract used by the parties, and often create tensions between clients and suppliers. These problems include payment delays, refusal to pay for delivered services, or misunderstandings regarding payment deadlines.
Practical examples
A marketing consultant is hired by a company to optimize social media campaigns over a 3-month period, with payment due at the end of each month. After the first month, the client delays the payment, claiming that they did not see a significant increase in sales immediately, even though the services were delivered in line with the service provision contract. As a result, the consultant is forced to suspend their services until the payment is made, further impacting the client’s ongoing campaign.
A software service provider is contracted to develop a custom application, with payment split into three installments: 30% upon signing the contract, 40% upon delivery of the beta version, and 30% upon final delivery. After the beta version is delivered, the client refuses to pay the 40% installment, citing the need for additional changes that were not initially specified in the service provision contract.
How does the service provision contract template help?
The service provision contract template includes dedicated sections specifying the total amount, payment methods (bank transfer, card, etc.), and the exact deadlines by which payments must be made (e.g., within 15 days of issuing the invoice). By using this service provision contract template, you can specify an advance payment (e.g., 30% before starting the project) and staggered payments as services are delivered, or a lump sum payment at a predetermined date.
Additionally, this template includes specific penalties for late payments and remedies available to the supplier in the event of such issues.
5. Ad-hoc changes to project requirements
Potential contractual issue
During the course of a project, situations may arise where the client requests changes that were not initially agreed upon in the service provision contract. Such circumstances often lead to exceeding the project budget and delivery deadlines, generating conflicts between the parties.
The project requirements initially agreed upon in the service provision contract may be modified due to factors attributable to the client (e.g., failing to correctly anticipate the scope of services needed or providing inaccurate descriptions of requirements), the supplier (e.g., discovering that the initially agreed technology is not compatible with achieving the desired results), or external factors (e.g., changes in legal requirements or industry standards).
Practical examples
A company hires an IT service provider to develop a software application. Halfway through the project, the client decides to add additional features to adapt to recent changes in user behavior. These modifications were not included in the initial requirements.
In a product design project, the client requests changes to the initial specifications after receiving feedback from the sales department, which identifies new requirements from the market.
A limited liability company hires a supplier to create a website, but after the project starts, new regulations regarding data protection come into effect (e.g., GDPR). The client requests changes to ensure the website complies with the new legal requirements.
How does the service provision contract template help?
This service provision contract template includes provisions regarding the management of changes to the agreed project requirements. The contract template outlines under what conditions additional requirements can be introduced, who approves them, and how they affect costs and delivery timelines.
Download service provision contract template or explore alternatives!
Using a professionally designed service provision contract template is crucial for a successful collaboration between clients and suppliers, helping to avoid incidents like those described above. To eliminate any legal risks, consult a contract lawyer before signing the final version.
Depending on the project you are involved in, you may consider using alternatives such as:
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