Your Guide to Service Agreements in Singapore

Last updated on March 27, 2020

It is not uncommon to find companies providing and soliciting services from other companies or industry players. While some may rely on the element of trust between the parties involved and form the agreement solely based on the oral agreement between the representatives of each company, this may be a risky move.

It is advisable to reduce such an agreement into writing in the form of a service agreement. The service agreement will clearly set out the rights and obligations of both parties to reduce the likelihood of any disputes arising in the future.

What Terms Should a Service Agreement Contain?

A service agreement should generally contain the following essential terms:

(1) Scope and nature of service(s) provided

The service agreement should clearly state the scope and nature of the service(s) which the service provider will provide to the client.

In this regard, the service agreement may also state whether the service provider is allowed to engage other companies as clients at a given time, or if it is limited to rendering services to only one client at a time.

(2) Terms of remuneration

Another term of crucial importance in all business contracts would be the terms of remuneration and the agreed billing structure. For example, the service agreement should state whether the service provider will be paid on a monthly basis, or a lump sum payment upon completion of the project.

A complete service agreement would also state the grace period within which the client can make payment after the date stipulated. The standard practice is 30 days, but this is subject to the parties’ agreement.

The service provider may also consider charging late fees and/or interest for late payments. If so, this term should be clearly stated in the service agreement.

(3) Expenses incurred in the course of work

Depending on the agreement between the client and the service provider, a clause on which party will bear the cost of out-of-pocket expenses and other overhead expenditure incurred by the service provider in the course of its engagement may be included.

For example, the service agreement may provide that the service provider will be reimbursed for all out-of-pocket expenses reasonably incurred in provision of the service(s), subject to the production of the relevant receipts.

(4) Rights to intellectual property created in the course of the service provider’s engagement

The service agreement should clearly state which party will own the intellectual property rights to work created by the service provider, if any.

Service providers generally prefer to retain the rights to whatever content they create in the course of their service. In such situations, the service agreement should clearly state so, and also the client’s rights (if any) to modify or use the final product (if any).

(5) Indemnity clause

An indemnity clause will state which party will be required to indemnify the other party if that other party is sued in relation to the work created by the service provider.

(6) Termination clause

The service agreement should clearly state that either party has the right to terminate the agreement if notice is given to the other party within a certain specified timeframe.

The service agreement may also state that the service provider may terminate the agreement with immediate effect without liability to pay any compensation or damages under certain specified circumstances, and vice versa.

(7) Unforeseen or sudden termination of a project

In the event the performance of the service is disrupted or if it becomes impossible to continue on a project in progress, the client needs to know the alternatives made available to them.

The service agreement may therefore state that in such an event, the service provider is to hand over all files and assets used and/or created by the service provider to the client. This way, the client will be able to have the work continued by another service provider if the project is prematurely terminated.

(8) Conflict of interest

Under a conflict of interest clause, the service provider will warrant that, to the best of its knowledge, no conflict of interest exists or is likely to arise in the performance of its obligations under the agreement.

The service agreement should also include a clause stating that the service provider shall not engage any activity that would compromise its ability to provide its services fairly and independently.

(9) Data protection

Service agreements typically also include a data protection clause. Such a clause requires the service provider to comply with its obligations under Singapore’s data protection laws in the course of rendering its services to the client.