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Service Contracts & Warranties: Legal Protection For Your Business & Customers

Ready to learn how to craft contracts and warranties like a pro? We’re about to cover everything you need to know about creating your own contracts and warranties.

 

It’s very important that you pay close attention to the contents of your contracts and warranties, as they provide a certain level of legal protection to both you and your customers. They can also help you avoid disputes via the included terms of the agreement, and a clear outline of what services will be performed.

 

We’d recommend that you hire a lawyer to review your contracts and warranties templates prior to use. Every legal professional’s rates are different, but you can usually expect this type of service to cost between $300 and $500.

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Business Contracts

It’s essential that you make sure your contracts are comprehensive, however, pay even closer attention to the language and terminology used. Remember, you’re creating a legally binding contract.

 

A great contract will always specify the terms and conditions around the services provided, but allow for the type of service provided to vary. Let’s take a look at the two most common contracts you’ll be dealing with in the trade industry.

Service Agreement

A service agreement is a contract set between a customer and a service provider. Your typical service agreement will address the following points: parties to the agreement, services being performed, terms of agreement, and compensation to the provider.

 

They can also go into further detail with clauses about how to treat confidential information upon the completion of the service, and how disputes between the parties should be settled.

 

Be sure that you always get your service agreement signed and in writing, oral agreements simply won’t cut it. The main issue with oral agreements is that they’re difficult to prove in a court of law. If an issue does arise, the evidence will need to be heard to decide which side’s story is the truth. If you have a written agreement, the court will be obligated to uphold the terms outlined regardless if they agree with them.

A great contract will always specify the terms and conditions around the services provided, but allow for the type of service provided to vary.

Maintenance Agreements

Maintenance agreements are used when a business offers periodic check-ins and other benefits, such as priority service. In these agreements, the customer must agree to pay a certain amount in exchange for the service provider to maintain their equipment, and sometimes other perks. These contracts are most often offered on an annual basis.

What Should Be Included In Contracts

While contracts can vary depending on the type of service, duration, and other aspects you should generally include the following:

Contact Information

This would be your company’s legal name, address, phone number, and email. You should also include the customer’s (and associated company if needed) name, address, phone number, email.

Scope of Work

This defines the services provided and the specifications surrounding them. Your scope of work should include a timeline with dates for when the service will begin and end. You should also include here some conditions and obligations for the service.

 

For example, if the customer damages or destroys the equipment either during the time of the service or afterwards, you can void the obligation to complete the service. The most common way to include the scope of work in a contract is by including the contract as an attachment to the estimate.

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Terms and Conditions

A terms and conditions contract will identify the rights and obligations of both parties involved. A general condition is common in most contracts, however you’ll also sometimes see special conditions that are specific to the contract, such as payment terms and penalties.

 

Remember that when someone refers to the terms and conditions, they’re not referring to the entire contract. While having terms and conditions in your contract isn’t legally required, it’s still important that you include them for added legal protection for yourself and your client should something go awry.

 

Having terms and conditions will give you the right to terminate the contract if either party does not adhere to the terms dictated. You’ll want to include a termination clause to ensure that this is possible.

Cost and Payment Terms

This section describes your billing terms and conditions, late fee policy, and the processes you’ll utilize for declined cards and bounced checks. You should also specify here how you expect the payment to be received, whether that payment is flat, ongoing, or periodic, and how non payment issues (such as liens) will be handled.

Service Modifications

In your service modifications section, you’ll want to go over how you’ll handle any changes that need to be made to the agreement. This is important to include because the customer may want to add or remove certain services, or because of circumstances beyond either parties’ control.

Termination

Be sure to take your time on this section, as it may be your saving grace. This section should include circumstances that will terminate the contract like service provider not meeting deadlines. If they paid up front, you should discuss how much money (if any) they will get back should the contract be terminated.

Dispute Resolution

A common issue with service agreements is that they don’t adequately address liability – if the client suffers loss as a result of the services provided by the provider, who bears the cost? You should also include provisions regarding indemnities, limitation of liability and insurance.

 

  • Indemnification cause – who pays for which damages
  • Governance – if disputed, which laws will be applied to address issue

Date and Signature Lines

Be sure to include lines for the date and signature(s). You may want to consider going digital when it comes to signatures, as this can make things more convenient and save you time by taking signatures from phone or sending signature request through email

 

While it may sound counterintuitive, electronic signatures can offer a higher level of security. Electronically signed documents store exact times and dates of signing, the type of device, and more. There’s also less of a chance of the contract being lost or misplaced.

 

When signing a service contract that’s worth more than $10,000 be sure to have a notary present.

Business Warranties

If you choose to offer warranties, be sure that you go over them with the client present because odds are, they won’t read them once the service is complete. This is great for setting expectations in advance, and will help you avoid future conflicts that could arise, like normal wear and tear issues or damage from improper use.

 

Before you start offering warranties, you should consult the equipment manufacturer’s specifications first, as well as federal, state, and local building codes.

Workmanship Warranty

Workmanship warranties are often confused with labor warranties. These types of warranties cover mistakes made by laborers during installation – i.e. roof leaks and other workmanship issues. It also covers how the products/materials were implemented.

 

Most states require 1 year warranties against installation errors, but how long you have to offer warranties varies depending on your area. For example, NJ requires one year. Check out this resource for construction laws by state to find your state’s specifications.

 

If an issue arises with the warranty, the customer is supposed to contact the contractor first before filing a legal complaint in either civil court or small claims court, where the contractor will be required to handle the expenses. The customer can also contact a third-party agency like a licensing board to perform inspections which will help settle the dispute.

 

The current trend is to offer longer-term warranties, as they can be a great selling point. A few years ago, you’d normally see 1-year warranties, but now they often range from 5-10 years.

Labor Warranty

Labor warranties cover all the work performed on the property provided by you, the contractor. Typically labor warranties for repairs are offered for 90 days alongside a manufacturer’s warranty on parts – so if a part breaks 4 months down the line, the customer has to pay the labor cost to replace the part.

 

It’s good to include this in your contract for legal reasons – there’s always the off-chance you’ll get a customer who tries to take advantage of your time. However, it’s a good idea to make it clear to customers that you still want to know if issues occur, so that you can avoid future issues and maintain the relationship.

 

Sometimes, if it’s a quick job, it’s often a good idea to fix it on the house, or just charge for gas and labor – this creates goodwill with customer, instead of making them feel like you’re nickel and diming them and can be worth the cost of referrals and great reviews.

 

It’s important to note that labor warranties don’t cover installation errors. You should also decide if you’ll structure your warranty to cover repairs or maintenance done by someone else, or if that will void your warranty.

Manufacturer Warranty

Manufacturer warranties, also known as material warranties, are provided by the manufacturer of the equipment you’re using. They usually cover malfunctions and failures due to manufacturing defects or poor product performance over a short period, and typically only cover the main components of the product (not it’s accessories).

 

The length of warranty differs dramatically depending on industry – ex. HVAC units often offer 5-year warranty while most roofing shingles come with a basic, limited lifetime warranty.

 

Homeowners can pay extra for an extended warranty. Warranties differ from product to product, but typically only cover materials or sometimes offer a credit towards replacement. Keep in mind that some manufacturers will ask for contractors to become certified (sometimes through classes) in order to use their line of products.

Full-System Warranty

A full-system warranty is all encompassing. This means it covers materials, accessories, labor, and possible repairs/maintenance down the road. The rising cost of labor and materials can impact the bottom line, so it’s good to clearly lay out what your warranty covers, especially because such a general name can be misleading.

 

And just like that, we’ve covered everything you need to know about warranties. Now, you’re ready to streamline your day-to-day administrative activities with FieldPulse’s business management software.

 

With FieldPulse, you can easily pull out one of multiple contracts you have saved on the app to attach to invoices and quickly accept signatures through email or on the spot from your phone.

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