Why do I need a client services agreement?

31 October 2019
Posted by Sarah Luttrell

If you are in the business of providing creative services to clients which involves creating intellectual property (for example as part of branding, marketing or advertising), it’s important to have a written agreement in place with your clients.

Most agencies produce pitch documents, briefs or proposals which set out the services they are proposing to provide to a client and the fees, but often these documents do not include other important terms of the arrangement.  Entering into written terms and conditions (or a ‘client services agreement’) with your client can prevent stressful and costly disputes once the project is in progress.

Below are some of the key terms a client services agreement should cover and examples of how these terms can protect you.

The scope of work and output materials

It’s important to specify in the agreement exactly what it is that you will be creating and delivering to the client and when. If there’s ambiguity about this, it can create a misunderstanding between the parties and ultimately lead to issues later.  This is often called the ‘scope of work’ or ‘deliverables’.

A useful way to manage clients’ expectations about the work and ensure the client will be happy with the end product is to give the client an opportunity to review the material to be delivered (the ‘output materials’) in draft form and give feedback or request changes. For example, you may give a client one or two opportunities to give feedback and request changes, but they must do so within a certain timeframe. If they don’t request revisions within 7 days, for example, you can assume that they do not require any changes and continue finalising the work so you can meet the delivery date.

Intellectual property rights

It is very important to consider how IP rights will be dealt with in a client services agreement.  There are usually four different categories of intellectual property that may need to be dealt with in a client services agreement:

Developed IP: IP which has been created by your business as a result of providing the scope of agreed services to your client (i.e. the output materials);
Third Party IP: IP which belongs to third parties (that may be included in the output materials);
Service Provider IP: IP which has been created by your business independently of providing the agreed services to your client (that may be included in the output materials); and
Client IP: IP supplied by your client (for use in the output materials).

In consideration for the payment of fees and expenses under the agreement, you can assign (this means transfer) ownership of the Developed IP to your client and set conditions of the assignment (if required).  Alternatively you may provide an exclusive or non-exclusive licence to your client to use the Developed IP and set conditions of the licence (if required).

It must be clear in the agreement that you maintain ownership and control of the Service Provider IP (so you can use it for other client projects and within your own business). The client will maintain ownership and control of their Client IP and the relevant third parties will maintain ownership and control or any Third Party IP.

For further information about dealing with intellectual property in client services agreements, see our recent blog here.

Cancellation

Issues commonly arise for service providers when a client decides they want to cancel a project before completion. This can be stressful if you have already invested time and resources into a project. If there are no clear terms agreed between the parties about how to deal with this scenario, businesses can suffer serious financial and other losses.

In a client services agreement, you should state in what circumstances you will accept a cancellation and the liability of the client to pay all or part of your fees. It should also be stated whether there is a limited time frame in which a client can cancel the services, whether you are willing to accept a cancellation for ‘change of mind’ and whether you wish to charge an administration fee for cancelling. If you wish to retain a deposit, charge an administration fee or invoice the client for costs up until the date of cancellation, you should clearly stipulate this in the agreement to avoid any disputes about what the client is liable to pay upon a cancellation.

Australian Consumer Law

Under the Australian Consumer Law, businesses must give mandatory guarantees to consumers. A consumer is someone who acquires your services for personal, domestic or household use, or other purposes if the services are under $40,000.

Under the ‘Consumer Guarantees’, the services you provide must:

– be provided with acceptable care and skill or technical knowledge and taking all necessary steps to avoid loss and damage;
– be fit for the purpose or give the results that you and the business had agreed to; and
– be delivered within a reasonable time when there is no agreed end date.

If your services do not comply with the Consumer Guarantees, the consumer may be entitled to a range of remedies including refunds and compensation for consequential loss and damage.  Under the Australian Consumer Law, a business may limit its liability when providing services to a consumer (other than services which are being used for personal, domestic or household use) to the following:

– resupplying the services; or
– paying for the services to be resupplied.

Therefore, it is important to make sure your client services agreement contains the appropriate limitation of liability clause to protect your business in the event of a claim.  When using a client services agreement, you must be very careful not to include terms which are inconsistent with your obligations under the Australian Consumer Law or otherwise misrepresent a customer’s rights at law.

Still have questions?

If you run a creative business providing services to clients and want to introduce a client services agreement to your business, or you want to review your existing client services agreement, please contact us on 03 9521 2128, or email us at hello@studiolegal.com.au.

DISCLAIMER

The information in this article is of a general nature. It does not constitute formal legal advice, and should not be relied on as such. Please see the full disclaimer in our website terms. Please contact Studio Legal if you are seeking advice about a specific legal matter.