Protect your Ontario business with a solid Service Contract
How many clients do you expect will hire you in the next year? What about the next five years? Each time you enter into an agreement for services with your clients you assume new obligations and therefore new financial liabilities for your business. These liabilities can come from implied terms (those not actually written in your agreement) or under statutes such as the Consumer Protection Act or Sale of Goods Act. This is why it is important to avoid service agreement templates and have properly drafted contracts prepared by an Ontario contract lawyer to limit your financial risk and protect your profits.
Limiting Risk with Proper Contracts
What happens if an unforeseen circumstance prevents you, or your client, from fulfilling their obligations under the contract? What happens if there is a dispute over the amount of payment owing to you after your work is complete? Properly drafted service agreements help protect your business by managing client expectations and limiting the potential that your business will be found liable for any damages suffered by your clients in the event of a contract dispute. This post will focus on 5 areas where your business service contract may be lacking and changes you can make to prevent contract disputes.
So, what should be included in a Contract for Services in Ontario?
Clearly identify who the contract is between. Are you operating your business under a registered trade name? Are you contracting with another business owner personally or with their operating corporation? It is not uncommon for a business dispute to arise and, because the parties are not clear on who the actual contracting parties are, they won’t be able to recover payment or other damages from the actual contracting party. Or even worse, be found liable personally for the obligations of their business. It is important to determine the proper parties to the contract because the parties that entered into the agreement will be the ones assuming contractual obligations such as payment for services and will ultimately determine what remedies are available against a defaulting party.
It goes without saying that a contract for services should clearly outline the services that your business will be provided under the agreement. The key word however being “clearly”. It’s easy to include vague references to services that will be provided such as: “Ontario Digital Marketing Company Inc. shall provide promotional services such as Instagram posts, email marketing, and search engine optimization”.The problem with providing vague descriptions of the services that you will be providing to your clients is two-fold. First, managing client expectations. If there are no clear targets or metrics to assess whether you’ve been filling your contractual obligations, there is no way to determine whether the obligations have been fulfilled. Especially problematic in the above example is the modifier “such as”. Your clients should know exactly what they’ve bargained for, and you should know exactly what you have to deliver. The second issue with vague descriptions of services is, that as the relationship with your client continues, the original scope of work can become unclear. If you know exactly what you’ve agreed to provide under the agreement, for a price your client has agreed to in advance, any “extras” can be clearly accounted for and negotiated for an additional cost. This means that your clients will be more ready to accept that what they are asking you to do is beyond the scope of the original contract price and should come as an additional expense. Let’s go back to our original broad definition of services and modify the clause as follows:
Ontario Digital Marketing Company Inc. shall provide the following promotional services:
– 5 Instagram posts per month;
– 1 biweekly email marketing outreach to the client’s email subscriber list; and
– 3 hours of search engine optimization (including on-page and off-page optimization for targeted keywords on Google and Bing search engines)
We can see how the above example helps more clearly set out the agreed-upon work. This way the client has a better idea of what they are paying for and what would be considered an extra that should be billed separately or in addition to the services already being provided. In practice, the services will usually be more detailed than outlined above and therefore, it is common for lawyers to define Services via reference to a schedule attached to the agreement where the scope of work can be set out by the client in depth. Clarity prevents disputes and ensures you are adequately compensated for your time.
- Timelines for completion and payment
An often-overlooked portion of a service contract is when work will be delivered and when the client is expected to pay for the work following completion. If work and payments are to be completed in milestones as work is delivered this can be set out in the schedule outlining the services. If payment is due after work is complete, how long after is payment due and when is a payment considered late? Will late payments accrue interest? If so, how much interest and how will interest be calculated? Providing clear deadlines for completing work and payment instructions once work is complete will encourage your clients to make timely payments and provide you with recourse when a client goes M.I.A. when it’s time to pay.
- Warranties and Limitations of Liability
Depending on whether you are providing services to the public or “consumers” (referred to as B2C contracts) or to another business (referred to as B2B contracts) there will be different provisions you will need to include or disclaim (expressly waive) in your service contract. If you are providing your services directly to consumers, you may need to include mandatory provisions under the Consumer Protection Act such as a 10-day cooling-off period. Your failure to include the mandated statutory provisions could result in your contract being invalidated or rescinded by the consumer and your business on the hook for any costs incurred in providing the services. When dealing directly with another business, there is much more leeway in terms of waiving statutory warranties and therefore you should seek to limit your warranties to the maximum amount possible. Many business owners make the mistake of providing unnecessary warranties or even agreeing to “indemnify” clients for losses. Doing so creates additional obligations for no reason and can result in significant financial risks. Draft your contracts to provide for the maximum protections allowable and deal with any amendments on a case by case basis depending on the size of the project and specific risks you are willing to undertake to take advantage of that opportunity.
- Customer Responsibilities
Often times service contracts will place too many obligations on the service provider and fail to create the necessary obligations the client will need to assume in order for you to complete the work. If we continue with the example of Ontario Digital Marketing Company Inc., the client will likely want the ability to approve any promotional materials before they are published and will likely request revisions to proposed drafts of your work. If you don’t account for how work is to be approved, who has authority to approve work, and how many revisions the client will be allowed, you can easily end up in a scenario where the work is done and you cannot collect your invoice because you are stuck waiting on the client’s approval or you can’t finalize the work because the client can’t make up their mind. You can help prevent this scenario by creating obligations on the client to approve work within a specific amount of time i.e.: “the Client shall appoint a representative responsible for approving publishing materials (the “Client Representative”). The Client Representative shall approve publishing material or request revisions within 5 business days of receipt. The Client Representative may request up to 3 revisions of the publishing materials. Additional revisions will be invoiced to the Client in accordance with the Fees set out in Schedule ‘A’”.The effect of creating obligations on the client such as those set out in the provision above is that it sets expectations for your client in terms of the commitment you will need from them in order to complete your work. The other benefit is that in the event you are unable to perform your obligations because the client is not complying with the agreement, you may be able to terminate the agreement and still issue an invoice for your time because the client is clearly in breach of their obligations necessary for the performance of the contract.
Contracts are an evolving and essential part of your business. Because each client you sign represents more obligations you need to fulfill, it is important to have proper, clear, agreements for your services. Proper contracts will help prevent disputes and preserve your relationships with existing customers, they will also help minimize financial risks when things don’t go according to plan. Supply Law provides flat-fee contract drafting for Ontario businesses. Let’s get started today.