Basic service agreement

A service agreement is not there to be read while things are going well. It is there for the week the client stops answering emails, the month the scope quietly doubles, or the day something breaks and somebody has to carry the loss. This one runs to sixteen clauses and two schedules. Here is what each does, where the money sits, and which terms are worth arguing about before anyone signs.

What this document does and when to use it

This is a written agreement between a service provider and a client for ordinary commercial services: design, installation, consulting, maintenance, marketing, bookkeeping, IT support, trades work. It covers scope, fees, payment, the client's obligations, intellectual property, confidentiality, personal information, warranties, liability, termination and disputes.

Use it before the work starts. That sounds obvious and it is the most ignored rule in small business. An agreement signed after a dispute has begun is a negotiation, not a contract.

Do not use it for an employment relationship. Clause 16.4 says the parties are independent contractors, but a clause cannot turn an employee into a contractor if the substance says otherwise. If you control someone's hours, supervise their work and integrate them into your business, you probably have an employee, and what are my obligations when I hire my first employee is the page you want.

One structural warning. Where your client is an individual, or a small business under the turnover and asset thresholds the Minister sets, the Consumer Protection Act 68 of 2008 applies. That Act requires plain language, prohibits terms that are unfair, unreasonable or unjust, and gives the client cancellation rights on a fixed term agreement. Where a clause conflicts with the Act, the Act wins and the clause is void. Clauses 3.3, 6.7, 11.3, 12.5, 14.7 and 16.8 make that explicit rather than fighting it.

Before you start: get these facts straight

Full legal names, registration or identity numbers, and physical addresses for both parties. A trading name is not a legal person and can neither sue nor be sued. Check a company's registration number on the CIPC records rather than on the letterhead.

Who signs, and whether they may. Clause 15 requires the signatory to confirm they are duly authorised. For a company that usually means a director or someone with a written mandate.

What exactly is being delivered. Write Schedule A before anything else. Deliverables, the standard each must meet, the due dates, and what is expressly excluded.

What the client must supply, and by when. Artwork, site access, approvals, decisions, information. Half of all late projects are late because the client was late.

The money. Total fee, whether it includes VAT, the deposit, the milestones, the payment period, the interest rate on overdue amounts, and the hourly rate for out-of-scope work.

Whether personal information will be processed, and on whose instructions. This decides whether clause 10 stays in full.

Walking through it, clause by clause

Clause 1 defines four things and, in 1.5, says the body beats a schedule where they conflict. Keep that. Schedules are drafted quickly and bodies are drafted carefully.

Clause 2 is the Services, and clause 2.2 does the heavy lifting: "Anything not described in Schedule A is excluded." Clause 2.3 requires every change to be recorded in writing and signed before the additional work begins, stating the change to scope, fees and timeline. Clause 2.4 moves the provider's dates when the client is late. Clause 2.5 allows subcontracting while keeping the provider responsible.

Clause 3 is the term. Choose one of three: until complete, a fixed period, or indefinite. Clause 3.2 handles the end of a fixed term. Automatic renewal is the option clients push back on hardest, and where the Consumer Protection Act 68 of 2008 applies, clause 3.3 preserves the client's statutory rights over anything you write here.

Clause 4 is the fees, including the VAT position in 4.2, the out-of-scope hourly rate in 4.3, the annual increase in 4.4, and disbursements in 4.5. Fill in 4.2 properly. "R50 000" without saying whether VAT is included is a fifteen percent argument waiting to happen.

Clause 5 is the exclusions list, and it prevents more disputes than any other clause in the document. Be specific. "Rework caused by the Client changing its requirements after approval" is worth more than three paragraphs of general drafting.

Clause 6 is invoicing and payment. Clause 6.3 sets the payment period. Clause 6.4 is the one providers overlook: the client must dispute an invoice in writing, with reasons, within a stated number of days, and may not withhold an undisputed amount because of a dispute about a different amount. Clause 6.5 runs interest and allows collection costs. Clause 6.6 lets you suspend the Services on notice once an account runs past due, which is the most useful commercial remedy in the agreement, because it stops you funding a client who has stopped paying.

Clause 7 is the client's obligations, read least and relied on most. Clause 7.2 names one person with authority to approve. Clause 7.3 gives a deemed approval after a stated number of business days, which stops a project stalling on somebody's silence.

Clause 8 is intellectual property. Choose one option in 8.2. Either it vests in the client on full payment, or it stays with the provider under a licence. "On full payment" is deliberate, because it gives the provider leverage that survives handover. Clause 8.3 keeps the provider's own tools and templates.

Clause 9 is confidentiality, with a survival period in 9.4 and indefinite survival for personal information and trade secrets.

Clause 10 is POPIA, and it is a full operator clause. Where the provider processes personal information on the client's instructions, the client is the responsible party and the provider is the operator. The Protection of Personal Information Act 4 of 2013 requires that relationship to be governed by a written agreement, which is exactly what 10.2 is. It covers documented instructions, confidentiality, security measures, sub-operators, cross-border transfers, breach notification within a stated number of hours, assistance with data subject requests, and return or deletion at the end. Clause 10.3 puts the warranty of a lawful ground on the client, where it belongs. See the POPIA privacy notice template.

Clauses 11 and 12 are warranties and liability. Clause 11.2 gives a defects warranty for a stated period. Clause 12.1 preserves liability for fraud and for death or personal injury, which cannot be limited. Clause 12.2 excludes indirect and consequential loss. Clause 12.3 caps total liability, either at fees paid over a stated period or at a rand figure.

Clauses 13 to 16 cover termination, disputes, notices and the general terms. Clause 13.4 is the money clause on termination: the client pays for work done and for work in progress that cannot reasonably be stopped. Clause 14 escalates through discussion, then mediation, then court. Clause 15.1 fixes the domicilium, which must be a physical address in South Africa because legal process is served there.

A worked example

This example is illustrative only and the business is invented.

Blue Hadeda Studio is a two-person design shop. It takes on a website and brand refresh for a mid-sized bakery for R86 000 excluding VAT.

Schedule A lists five deliverables: a logo suite, a brand guide, a five-page website, two rounds of revisions per deliverable, and a handover session. The standard column says what each must meet, including file formats. Under "expressly excluded" it lists photography, copywriting, hosting, a third revision round, and any social media work.

Schedule B sets a 40 percent deposit before work begins, a milestone payment on approval of the brand guide, and the balance on acceptance. Payment terms are 14 days from invoice. Out-of-scope work is R650 an hour.

Clause 7.2 names the bakery's marketing manager as the single approver, and clause 7.3 gives five business days to respond to an approval request. In clause 8.2 the studio picks the option where copyright vests in the client on full payment, and keeps clause 8.3 so it can reuse its own grid systems and code components. In clause 12.3 it caps liability at the fees paid in the preceding six months.

Two months in, the bakery asks for a booking system on the website. The studio sends a one-page written variation: what is being added, the extra R18 000, and the new launch date. The marketing manager signs it and work starts the next day. Without clause 2.3 and that variation, the studio does the work and then argues about it.

The clauses people get wrong

Payment terms in clause 6.3, and the dispute window in 6.4. Leaving 6.3 blank means everybody has a different idea of what is normal. Leaving out 6.4 lets a client sit on an invoice for four months and then raise a complaint about something unrelated. The cost is your working capital, every month.

Clause 2.3 and scope creep. The extra work that starts with "while you are in there, could you just" is how a profitable job becomes a loss. A written variation stating the change, the price and the new date, confirmed by the other side, is the entire fix. Do the work only after the reply arrives.

Clause 12, limitation of liability. Providers either leave the cap blank or write a number without thinking. A cap left blank means no cap at all. A cap set very low against a consumer client risks being unfair under the Consumer Protection Act 68 of 2008 and being read down anyway. Set it rationally against the fee, and never try to exclude fraud or personal injury.

Clause 10, the operator clause. Providers delete it because it looks like boilerplate. If you touch a client's customer list, run their mailbox, host their database or process their payroll, you are an operator, and the Protection of Personal Information Act 4 of 2013 requires the relationship to be in writing. Deleting the clause removes your protection, not the obligation.

Clause 8.2, intellectual property. Choosing "vests in the Client" and then deleting the words "on full payment" is a common and expensive edit. It hands over the work before the invoice is settled.

Clause 15.1, the domicilium. Using a post box or an email address. It must be a physical address in South Africa, because that is where legal process is served.

Signing it and keeping proof

Print two complete sets, including both schedules. Both parties initial every page of the body and of the schedules, and sign the signature block. Fill in the place and the date. The schedules matter most, because Schedule A defines the job and an uninitialled schedule is the easiest thing in the document to dispute later.

The signatory should complete the capacity line and confirm they are duly authorised. Where the signatory for a company is not a director, ask for a short written mandate or a board resolution and keep it with your copy. Witnesses are not required for an ordinary commercial services agreement, but a witness signature costs nothing and closes off a signature dispute in one sentence. Use them where the value is high.

Clause 16.7 permits counterparts and electronic exchange, so a scanned signed copy sent by email is effective. Either way, each party must end up with a full signed set, schedules attached, and a saved scan. A contract nobody can produce later is worth nothing. In a payment dispute, the party who can produce the signed scope schedule and the signed variation is the party who gets paid.

Then diarise the dates on the day you sign: the deposit, the milestones, the client's input dates in Schedule A, the invoice dates, and the end of any fixed term.

What happens if it goes wrong

Follow your own agreement in order. Clause 6.6 first: if the account is overdue past the stated period, suspend the Services on written notice. Then clause 14: written notice of the dispute, a meeting within the stated period, then mediation before anyone litigates.

If it is simply an unpaid invoice, send a letter of demand. The letter of demand for an unpaid debt sets out the amount, the ground and a deadline, and it is the document you hand to a court later. Read how to recover a debt from a customer who will not pay.

The free and cheap routes are real. The Small Claims Court costs nothing to bring, allows no lawyers on either side, and handles claims under the limit. Check where your claim falls on the small claims court calculator, and work out interest with the debt interest and in duplum calculator. Where the client is a consumer, they may also refer a complaint to the National Consumer Commission, a consumer court or an accredited industry ombud, which clause 14.7 preserves. Where a fixed term is being cancelled, the fixed-term contract cancellation calculator shows what a reasonable cancellation charge looks like.

Legal Aid South Africa on 0800 110 110 applies a means test, and university law clinics assist small businesses in most major centres.

LawMatch is not a law firm and this is general information, not legal advice about your situation.

Frequently asked questions

Do I need a written agreement at all for a small job?

An oral agreement is valid, but nobody can prove what was agreed. For anything with more than one deliverable, more than one payment, or any real risk, write it down. A one-page Schedule A and a signed quote beats nothing.

The client keeps adding work. What do I do?

Use clause 2.3 every time, without exception. One email stating the change, the additional fee and the revised date, confirmed in writing by the client's named approver under clause 7.2. Start the extra work only after that confirmation arrives.

Can I really suspend work when I am not paid?

Clause 6.6 allows it after the stated period, on written notice. State the amount, the date it fell due, and that work resumes when the account is settled. Suspension does not cancel the client's obligation to pay.

How should I set the liability cap in clause 12.3?

Relate it to the fee. Fees paid in a stated number of months before the claim is the common approach, with a fixed rand figure as the alternative. Never try to exclude fraud, or death or personal injury caused by negligence.

Am I an operator under POPIA?

If you process personal information on the client's instructions and for the client's purposes, yes. Hosting their customer database, running their mailing list, doing their payroll or managing their inbox all qualify. Keep clause 10, and see does POPIA apply to my small business.

Which clauses survive termination?

Clause 13.5 lists them: intellectual property, confidentiality, POPIA, limitation of liability, dispute resolution and notices. That is deliberate, because those are the clauses you need after the relationship has ended.