Recital:
This states what the person providing the service will provide, e.g. repairing refrigeration equipment, and that this is what the customer receiving the service desires to be provided.
Interpretation clause:
This defines that certain words will have a certain meaning in order to avoid confusion. If, for instance, there was a phrase along the lines of “he will pay the invoiced amount within thirty days” and the person who has to pay the invoice is a woman, it could be argued on technical grounds that this did not apply to the woman since the clause referred to a man!! Interpretation clauses such as the one in this agreement aim to get round such technical arguments.
Term and Termination clause:
This is an important clause, and what some business people consider the most important clause of an agreement. If things start to go wrong, or one of the parties to the agreement decides that, for commercial reasons, they want to end the relationship then they will turn to this clause to find a way out.
Not only does it state how long the agreement is to last (clause 2.1), but also that either party can end the agreement for any reason (so long as the other party has thirty days notice of this intention (clause 2.2)). The termination clause goes further at 2.3 by allowing either party to end the agreement immediately if one of the events outlined in this clause occurs and effects one of the parties.
Notice also at clause 2.4 the obligation placed on either party to fulfil their legal obligations even after the agreement has ended for any of the reasons in clause 2. So, if Joe Blogg’s Limited fails to pay for the services provided by Widgets Limited, and Widgets Limited decides to end the agreement for non-payment, just because the agreement has ended doesn’t mean that Joe Blogg’s has escaped payment – he hasn’t!! He still has the legal obligation to pay for the services provided by Widgets Limited up to the date of termination (assuming Widgets Limited has provided the services with reasonable skill and care).
Obligations of the Service Provider:
This is the all important clause which spells out what the service provider has to do – as set out in Schedule 1 – in order to receive payment – as set out in Schedule 2.
Clause 3 states what standard the Service Provider has to maintain when providing the service – it is reasonable skill and care. Reasonable skill and care is not measured according to what the service provider actually thought was reasonable skill and care, but what other members of the service provider’s profession/trade practice. So, the test is ‘objective’ rather than ‘subjective’. A good analogy is that when we get in our cars we all believe we are the best drivers in the world. A court wouldn’t ask us, if we were charged with dangerous driving, what we thought of ourselves as a driver, it would ask what would the reasonable car driver have done, i.e. a driver who adheres to the highway code and so on.
Clause 3.4 addresses the issue of indemnification and limitation of liability. This is quite a difficult issue where the service provider is, as is most likely to be the case in such contracts as this, a natural person, i.e. not a company. It is unrealistic of the customer to impose unlimited liability, but, at the same time, not fair that the service provider should escape with no responsibility at all. The condition to clause 3.5, navigates a middle way by imposing liability on the service provider to take out professional indemnity insurance, and to produce proof of current cover, while, at the same time, capping the service provider’s liability at the assumed limit of cover under the insurance. However, clause 3.4 makes it clear that the service provider is liable up to the relevant limit, even if they have been negligent to take out the policy. This provides the proper incentive for the service provider to take out and maintain cover. Of course, in practice, the customer might find he were suing a man of straw, if he attempted to enforce liability in the absence of insurance cover, but the service provider’s failure to take out (and maintain) insurance cover would allow the customer to terminate the agreement for breach under either clauses 2.2 or 2.3.1.
Clauses 3.6 and 3.7 deal with administrative provisions to enable the service provider to provide their services in a manner which is properly supervised by his customer.
Clause 3.8 is a useful clause for permitting what is in effect a kind of subcontracting by the service provider to enable them to fulfil their duties under the contract.
Clause 4 relates to the ownership of intellectual property rights arising from work carried out by the service provider pursuant to the provision of services to the customer.
Clause 5 provides for reimbursement of expenses.
Clause 6 deals with everything else! It contains useful formal provisions, such as notices on how to end the Agreement, what type of law governs the agreement, all of which may be added to with further boilerplate clauses as appropriate.
Specifically, clause 6.1states that the service provider is working as an independent contractor, and is therefore not an employee of the customer. The consequences of the service provider being an employee of the customer are twofold: first, over time they may secure rights not to be unfairly dismissed, and to be paid redundancy payments in the event that the contract is terminated; secondly, the customer will become liable to deduct income tax from the service provider’s fees at source, and account for them to the Inland Revenue under the PAYE Scheme. The customer will also become liable for the payment of employer’s and employee’s social security contributions in respect of the service provider. This simple clause conveniently gets round these potential problems.
A point to note is that an indication of an independent contractor is that they are entitled to subcontract to a third party the supply of their services to the customer under the service agreement. An employee is obliged to discharge his duties personally and cannot send a substitute. So, the inclusion of clause 6.1 would help a court to hold that the supplier is an independent contractor, even if not entirely conclusive.
A trusted method is to compare the service provider with employees of the customer. If the only distinguishing feature between the service provider and the customer is not what they do or how they are managed, but the nature of the contract with the customer, then the service provider will almost certainly be an employee.
Schedules 1 and 2 simply need filling out after the relevant negotiations have taken place over what the service provider is to provide and what the customer is to pay for that service.
