Documents · Glossary

What is a service agreement?

A service agreement is a contract under which one business provides services to another: what is provided, to what standard, for how long, at what price, and what happens if either side wants out. It is a complete contract on its own rather than a schedule under something broader.

It is the document most small businesses actually need and most often replace with an email and an invoice. Nothing goes wrong until the first disagreement about what was included.

Indunil Asanka · Co-founder

5 min read · Published 12 September 2026

Four documents that look similar and do different jobs
Document	What it covers	How it is priced	How it ends
Service agreement	Ongoing services between two businesses	Monthly, or per unit of service	Notice, expiry or breach
Statement of work	One defined project, under a master agreement	Per project or per milestone	Completion of the work
Retainer	Reserved capacity or a bundle of hours	A recurring fee, whether used or not	Notice
Employment contract	A person's employment, not a business service	Wages or salary, with leave and superannuation	Resignation, dismissal or expiry

Describing the service without writing a manual

The temptation is to list every task, and the result is a document that is out of date in a month and still has gaps. A better structure defines the service by outcome and boundary: what is covered, what is excluded, how quickly the supplier responds, how much is included before extra charges apply. Managed support for twelve workstations with a four hour response during business hours is a clearer commitment than a page listing forty activities. Put the operational detail in a schedule that can be updated by agreement, and keep the agreement itself about obligations. Then a change to how the work is done does not require a variation to the contract.

The clauses that decide the arguments

Five of them carry most of the weight. Term and termination, including whether either party can leave for convenience and on what notice. Fees, when they increase and on what basis, since an agreement with a fixed monthly fee and no review mechanism gets worse for the supplier every year. Liability, capped at something proportionate to the fee. Confidentiality and data, particularly where the supplier holds client records. And what happens on exit: who owns the documentation, how data is returned or destroyed, whether the supplier must assist a successor and at what rate. That last clause is the one most often missing and the one that matters most on a bad day.

Contractor or employee, and why it matters here

A service agreement between a business and an individual can be recharacterised as employment if the reality of the relationship looks like employment, regardless of what the document says. The factors include control over how the work is done, whether the individual can delegate, who provides equipment, whether there is a right to refuse work, and how the individual is presented to the outside world. The consequences of getting it wrong include unpaid superannuation, leave entitlements, and penalties. Writing contractor in the agreement does not settle it. Structuring the actual arrangement so it matches the label does.

Service levels, kept realistic

Response times, resolution targets and availability commitments are useful when they are measurable and achievable, and actively harmful otherwise. Three habits help. Define the clock: business hours, from when, excluding what. Distinguish response from resolution, since a supplier can promise to start work within four hours and cannot promise to fix an unknown problem in that time. And decide what happens on a miss, which for most small agreements should be a review conversation rather than a service credit, because credits create administration out of proportion to the fee. Where credits are agreed, cap them and say they are the sole remedy for that failure.

Pricing and review

Two structures dominate. A fixed monthly fee, which suits the client's budgeting and puts volume risk on the supplier, so it needs boundaries on what is included. And a fee per unit, per device, per user, per transaction, which scales with the client and needs a minimum. Either way, include an annual review mechanism tied to an index or to a stated percentage, notified in advance. The alternative is the conversation every supplier dreads, where three years of absorbed cost increases are raised at once and the client experiences it as a sudden demand. Small annual adjustments are accepted; large occasional ones are negotiated.

Signing and keeping it current

Get it signed by somebody with authority on each side, and keep the signed file rather than the final draft. Diarise the review date and the notice date, because an agreement that rolls over automatically will roll over whether or not anybody intended it. Where the service changes materially, vary the document rather than letting practice drift, since a supplier delivering more than the agreement describes has no basis for charging for it and no protection if it goes wrong. A short annual check of what is actually being delivered against what was agreed takes half an hour and catches most of this.

Questions people ask

Do I need a service agreement for small jobs?

For a one off job of modest value, a detailed quotation with terms attached usually does the work. A service agreement earns its place where the relationship is ongoing, where the supplier holds client data or systems, or where the value is large enough that a dispute would matter. The test is exposure rather than the size of the invoice.

Can a service agreement include the scope?

Yes, and for a single ongoing service it should, usually as a schedule. The reason to keep scope separate is where one relationship covers several distinct projects, in which case a master agreement with project documents is tidier. For one continuing service, folding the scope in produces a single document everybody can find.

What notice period is reasonable?

Thirty days suits most monthly services and is short enough that neither party feels trapped. Where the supplier has invested in setting up, or where the client depends on continuity, ninety days is more common, sometimes with a minimum initial term. Match the notice to how long a replacement would realistically take to arrange.

Who owns the work product?

Whatever the agreement says, and it should say something. The workable position for service work assigns client specific outputs, such as configuration documentation and reports, to the client, while the supplier keeps its own tools, templates and methods with a licence to the client to use them as part of the service.

Should the agreement mention insurance?

Yes, stating the types and minimum amounts each party holds, and requiring evidence on request. Public liability and professional indemnity are the usual requirements, with cyber cover increasingly relevant where a supplier touches client systems. A clause requiring cover to be maintained for a period after the agreement ends is worth including for advisory work.

How is a service agreement different from terms of trade?

Terms of trade are one party's standard conditions applying to every customer, usually attached to orders and invoices. A service agreement is a negotiated document between two named parties for a specific service. Many businesses use both: terms of trade for transactional work and a service agreement for ongoing clients.

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Sources

Written and checked by the OneCraft team. Last checked 12 September 2026.