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Supply of services contracts

EM Law are experts in drafting, negotiating and advising clients on supply of services contracts. Our lead contracts lawyer is Neil Williamson who has extensive experience in advising clients on a wide range of commercial law matters.

Supply of Services Contracts: Main terms

Description of services

Supply of services contracts must include a clear and accurate description of the services. This generally forms part of the contract at the time the parties enter into it, such as in a schedule or in a specification. Where a customer requests services from time to time, the service description for each service may be produced by the parties at such times. In such circumstances, the contract should expressly provide for a process by which such descriptions are produced, for example by the supplier and agreed by the customer.

Obligation to provide services

Supply of services contracts must include an express obligation on the supplier to provide the services to the customer. There may also be more general obligations on the supplier, such as compliance with applicable laws and maintaining records.

Standard of services

In supply of services contracts there is an implied term that the supplier will carry out the services with reasonable skill and care (section 13, Supply of Goods and Services Act 1982).

In a contract for professional services or where the commercial arrangement requires the use of a special skill or competence, the degree of care and skill required is that which is to be expected of a member of that profession (or specialism) with ordinary or reasonable competence and experience.

Transferred goods

Some services may include ancillary goods, spare parts or materials which are transferred to the customer. There are implied terms in supply of services contracts that where the supplier is transferring goods as part of a contract of services, it transfers such goods with good title, quiet possession and free from encumbrances (section 2, Supply of Goods and Services Act 1982).

In addition, there are implied terms that such goods must be of satisfactory quality, fit for their purpose and correspond with their description or sample (section 3-5, Supply of Goods and Services Act 1982).

Time for performance of services

The time for performance of services should be expressly dealt with in the supply of services contract, by expressly setting out a commencement or start date, and a completion date (or setting out the mechanism or process by which completion is determined).

A customer will wish to expressly provide that a supplier must start the services by a definite start date, and perform its obligations by a specific completion date. It will frequently seek to include an express right to terminate the contract for the supplier’s failure to meet the completion date.

A supplier will want to try to limit the scope of its obligations for performance times, by stating that it will use only best or all reasonable endeavours to meet certain dates. A supplier will also commonly seek to limit its liability for breach of this obligation.

If there is no express completion date or mechanism in the contract, or no course of dealings between the parties as to a completion date, there is an implied term that the supplier will carry out the service within a reasonable time (section 14(1), Supply of Goods and Services Act 1982).

Intellectual property rights

Depending on the nature of the supply of services contract, ownership of intellectual property rights can be an important consideration for both the customer and the supplier. From the supplier’s perspective, it is relatively straightforward to set out in the standard terms what the supplier’s position on ownership of intellectual property rights is, because its knowledge of the services will inform the drafting of the clause.

Charges

The charges for supply of services contracts can be structured in different ways, such as on a time and materials basis or a fixed price basis, or a hybrid of the two. A supplier may also want to include terms allowing it to increase the charges if necessary.

VAT

VAT will be treated as included in the price unless the contract provides otherwise (section 19(2), Value Added Tax Act 1994). Therefore, it should be made clear in the standard terms that all prices are exclusive of VAT, assuming that the supplier wishes to quote its prices on an exclusive basis.

Price variation

If the supplier wishes to vary the charges after the supply of services contract has been concluded, there must be an express provision entitling it to do so. The supplier may wish to invoke such a clause where, through no fault of its own, its costs have increased, for example, where the price of materials has increased or its employee salaries have been raised. A clause may be incorporated enabling the supplier to increase prices generally, or in line with increased costs, or by reference to a formula or a price index. Such a clause may be unnecessary in respect of services provided over a short period.

A customer will seek in its standard terms to maintain some degree of control over price increases, either by providing that any such increases require the customer’s prior consent, or giving the customer the right to terminate the contract following notification of a proposed price increase.

Payment

In supply of services contracts the customer’s principal obligation is to pay the charges for the provision of the services. The supplier will invariably seek to include an express provision requiring the customer to pay for the services within a certain period of time or by a certain date.

The supplier will also seek to build in remedies for late payment, such as interest for late payment, suspension rights or termination rights. The supplier may seek to expressly provide that time for payment is of the essence (allowing it to terminate if the customer fails to pay).

Interest

A supplier has statutory protection from a customer’s late payment through the application of the Late Payment of Commercial Debts (Interest) Act 1998, which provides that simple interest be payable on outstanding payments. Alternatively supply of services contracts may include express provisions dealing with interest on late payments.

Termination

Termination provisions must be clear taking into account events such as a party breaching the contract, going into liquidation or failing to make payments on time.

Boilerplate terms

Business-to-business standard terms for the provision of services and goods will not usually include a full set of boilerplate terms, but will normally incorporate the following provisions:

  • Force majeure.
  • Notices
  • Severance
  • Variation
  • Waiver
  • Entire agreement.
  • Third party rights.
  • Choice of law and jurisdiction.

For any questions you may have concerning supply of services contracts contact Neil Williamson.

EM Law Neil Williamson

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