Why Custom Contracts Matter for Service Sector Businesses and What To Look Out For

Welcome to another edition of The Alex Unplugged Series. Today, we’re diving into a critical topic for businesses in the service sector: the importance of custom contracts and what to look out for in them. As service providers, you face unique challenges and opportunities. You may be asked to start providing your services before a formal agreement has been reached or an up-front payment been made. Or changes to your specifications may be requested halfway into the project timeline.

However, before starting any work, I strongly recommend to lay out your agreement and its terms in writing. How? By using one of the most powerful tools, you have at your disposal: a well-crafted, custom contract.

Let’s first though look at the big WHYs of investing in custom contracts.

Why Custom Contracts Matter

Protecting Your Interests

Custom contracts are designed to specifically address your business's unique needs and circumstances. Because let’s be honest, to some degree, every business is unique!

Such customised contracts provide a tailored approach that ensures your interests are protected in every transaction. Generic contracts may leave gaps that could expose you to unnecessary risks - we do not want that.

Mitigating Risks

Which brings us to the next reason: every business transaction carries risks. Some may be more imminent and obvious; however, most are actually not. Custom contracts help identify and mitigate these risks by addressing potential issues before they arise. This proactive approach can save you time, money and stress in the long run.

Reflecting Your Brand and Values

I am an advocate of my values, so I try my best to uphold them in my business dealings, too. I see my business as an extension of my values and vision. A custom contract can reflect these elements, ensuring that your agreements align with your brand ethos. This alignment helps to build trust with your clients and partners, reinforcing your professional image.

Enhancing Professionalism

A detailed and well-structured contract demonstrates professionalism. It shows that you are serious about your business, you know your values and things to look out for and meticulous about details…not afraid to address them!

What to Look Out for in Custom Contracts

Clear Definitions and Scope

• Define Terms: Ensure all terms are clearly defined to avoid misunderstandings – usually capitalised words are those which are defined.
• Scope of Work: Clearly outline the services being provided, including timelines and deliverables (this one is a crucial one and can often lead to disputes! So be clear about what you can / want and can’t / do not want to deliver).

Payment Terms

• Pricing and Payment Schedule: Specify the total cost, payment schedule and any late payment penalties – top tip: use Annexes to your main contract, so you do not have to edit the main contract each time.
• Refund Policies: Include terms for refunds or cancellations to protect both parties – be transparent and clear about processes so there are no hidden surprises.

Intellectual Property Rights

• Ownership of Work: Clearly state who owns the intellectual property created during the project, when the ownership fully transfers or if any such rights are limited in regards to your services.
• Licensing Terms: If you’re granting usage rights, specify the terms and limitations of these rights – are they worldwide? unlimited? free?

Indemnity and Liability

• Indemnification Clause: Protection from claims, including third-party claims related to the contract is key. You should be held liable to what you are actually responsible for, not more.
• Limitation of Liability: Limiting your liability to a reasonable extent to prevent excessive claims is not one to ignore. Check with your insurance policy up to how much you are covered for!

Termination Clauses

• Grounds for Termination: Define the conditions under which the contract can be terminated by either party. Be aware here, because part of the service might have already been performed, subcontractors may be involved, you may have already done payments…
• Consequences of Termination: Detail what happens in the event of termination, including payment obligations, return of material or transfer of IP rights.

Dispute Resolution

• Resolution Mechanisms: Outline the steps for resolving disputes, such as mediation or arbitration, as well as resolving matters first internally and in good faith.
• Jurisdiction: Specify the legal jurisdiction that will govern the contract – where do you offer your services? Where is the customer located? Which laws are more favourable to your business? Which courts would be the most suitable?

Custom contracts are not just legal necessities; they are strategic tools that empower service sector businesses to operate confidently and professionally. By taking the time and invest in the creation of detailed, customised contracts, you safeguard your business and pave the way for smoother, more successful transactions.

Remember, a great contract is one that reflects your business’s unique needs and values, providing clarity and protection for all parties involved.

So, my advice, stay away from general templates!

About the author: Alexandra is an award winning serial entrepreneur who has been active in the gaming, tech and e-commerce fields. She is a lawyer specialised in commercial contracts, IP & IT law and holds two LL.M.s from King's College London and University of Paris I: Panthéon-Sorbonne She has lived in 7 countries & 3 continents to date and speaks 4 languages. She enjoys to connect and network with like-minded individuals and entrepreneurs.