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This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M. Sandvick worked as a civil litigator in California for over 7 years. He received his JD from the University of Wisconsin-Madison in 1998 and his PhD in American History from the University of Oregon in 2013.
This article has been viewed 46,094 times.
When you purchase a particular item, most often vehicles and appliances, you may have an opportunity to enter into a service contract. Service contracts provide repair or maintenance services on the item you buy for a specific period of time.[1] A service contract is often compared to an extended warranty.[2] However, a service contract usually costs extra while an extended warranty is usually included in the price of the item.[3] If you are buying an item and are considering the addition of a service contract, read this article to understand when a service contract may be needed, how to draft the contract, and how to execute it.
Steps
Part 1
Part 1 of 3:
Deciding Whether You Need a Service Contract
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Determine the likelihood of needing the service. Before creating and signing a service contract, think about the product you are purchasing and whether that product is likely to need the services covered by such a contract.[4] Oftentimes, the product you are purchasing is not likely to need repairs or, if it does, the cost of repairs may be low.[5]
- For example, you may not need a service contract for a washing machine you buy from a reputable company with a great track record for making quality products. Also, if your washing machine comes with a warranty, that warranty may cover all of the repairs you think you will need.
- However, you may want to consider a service contract for a used vehicle you purchase when that vehicle has a reputation for breaking down and needing frequent, expensive repairs. Also, in this situation, it is unlikely a warranty will be included with your purchase, so a service contract may be a good idea.
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Ask yourself whether you need extra coverage. When you are purchasing an item with a warranty, read and analyze that warranty so you understand exactly what it covers. In a lot of situations, a service contract will not include a lot of additional coverage so it may not be a wise addition. Compare the warranty's coverage to that of your potential service contract to determine if the service contract is worth the cost.[6]
- Consider the duration of a service contract. In some situations, a service contract may only last for a period of months, and therefore may not be worth the cost.[7]
- Look at the terms of a service contract. In some situations, a service contract may only cover a very limited set of repairs, and therefore may not be worth the cost.[8]
- However, remember that if you are going to write your own service contract, you will be able define the length of coverage as well as what will be covered.
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Know who you will be contracting with. If you are purchasing an item and want to enter into a service contract, you need to research the company or individual you will be contracting with. If you enter into a contract with another party, and that other party goes out of business or cannot repay claims, you may not be able to receive the benefits contemplated in the contract.[9] Before you enter into a service agreement, think about the other party's financial stability as well as their reputation.[10]
- For example, if you are buying a used car from a used car dealership, consider that dealership's history before entering into a service contract with them. If the dealership has been around for a long time, has a proven track record of holding up their contractual promises, and seems to have a solid financial foundation, then you may be okay entering into a service contract with them. However, if the dealership seems untrustworthy or has not been around for a long time, you may want to consider not signing a service contract with them.
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Think about alternative options. Instead of entering into a service contract, consider saving that money by putting it into some sort of savings account. In this situation, the money you save can be used for any repairs you may need. However, if you think you may need a substantial number of repairs, or if repairs would be prohibitively costly without a service contract, your money may be better spent entering into a service contract.Advertisement
Part 2
Part 2 of 3:
Writing the Service Contract
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Start with each party's general information. At the beginning of every contract, you should include a title, a date, and any general information about the parties to that contract.
- For example, your service contract may be titled, "Vehicle Service Contract" and might open with a paragraph stating: "This Vehicle Service Contract is entered into as of the ____ day of _____, 2015 between [your name] and [other party's name or title]." You may follow this up with a description of each party, including each of their addresses, phone numbers, and email addresses.
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Define the product at issue. Before you get into the body of your service contract, you need to define the product being bought, which is the product that will be the subject of any maintenance or repairs.
- For example, if you are entering into a vehicle service contract, you will want to include a description of the vehicle being covered under the contract. This will include the vehicle VIN number, make, model, year, the vehicle's purchase price, and any other identifying information about the vehicle you have.[11]
- As an additional measure of assurance, you may want to include a copy of the purchase and sale agreement as an exhibit at the end of your service agreement.
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Include a description of each party's consideration. To have a valid and enforceable contract, each party must give up something of value. In a service contract, the seller of an item will be giving up their services, which will be used when the item needs to be repaired or maintained. On the other side, the buyer of an item will usually give up money, which can either take the form of an up-front lump sum or something similar to a deductible.
- If you will be writing this provision to include a lump sum payment, consider stating: "Buyer shall pay seller [dollar amount], as consideration for the services provided by Seller under this Agreement. In exchange, Seller shall provide Buyer with the services set forth in this Agreement."
- If you will be writing this provision to include a deductible, consider stating: "In the event Seller is required to perform a Repair or Maintenance on Buyer's product as provided in this Agreement, Buyer will be required to pay a deductible in order to receive service. For each request for Repair or Maintenance made by Buyer to Seller, Buyer shall pay seller in the amount of [dollar amount]."
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Determine the length of coverage. A service contract will usually be a term contract, meaning it will stay in effect for a period that is defined in the contract. The length of coverage can be defined by any number of factors, but is usually defined by a length of time or by the occurrence of some event.
- If your service contract's effective period will be defined by time, consider stating: "This Agreement will become effective as of [date] and will expire on [date]."
- If your service contract's effective period will be defined by a set of event's it may look something like this: "This Agreement will become effective on the date Buyer purchases vehicle from Seller. This Agreement will terminate when Buyer's vehicle surpasses [number of miles on odometer]."
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Include a near-exhaustive list of what will be covered. Once you have defined the parties, the product, and the length of coverage, you will begin drafting the body of the service contract. One of the most important provisions of your contract will be the discussion of what will be covered under the agreement. In a service contract, coverage will include any number of maintenance or repair activities.
- For example, if you have purchased a sound system from a seller, that seller may request language that looks like this: "We, as Sellers, will cover the maintenance and repair activities under this Agreement: "Sellers will provide an annual inspection of Buyer's sound system; Sellers will provide initial testing and installation services to Buyers; and Sellers will provide Buyers with repair services for any repairs needed as a result of normal wear and tear."
- Any list you draft can be expanded and as detailed as you feel is necessary. In general, you will want to be as detailed as possible so there is no misunderstanding between parties.
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List any exclusions to coverage. Once you have listed what will be covered under your service contract, you will have to define what will NOT be covered under the service contract.
- For example, if you have purchased a sound system from a seller, that seller may request language that looks like this: "This Agreement will not cover the following items: All labor for maintenance and repair for any equipment that is not part of the System; all labor for the movement, removal, reconfiguration, or other changes to any portion of the System; all charges by any third parties in connection with the services Sellers provides under this Agreement, including utilities and other contractors; all state and local taxes or fees imposed with respect to the services provided under this Agreement; and any cost, including labor, necessary to repair equipment due to improper use or storage of the System."
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Describe additional duties. In some service contracts, especially those regarding vehicles, a contract may include a provision about duties. In this provision, which usually favors the seller, there may be extra requirements a buyer will have to comply with before they will be covered under the service contract.
- For example, in a service contract regarding a vehicle, a seller may request language that looks like this: "Before Seller is obligated to perform their duties as defined in this Agreement, Buyer will be required to check and service their vehicle in accordance with the manufacturer's recommendations, as outlined in the vehicle's Owners Manual. All verifiable receipts must be retained for any service work and may be requested by Sellers before performing their duties."[12]
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Determine how claims will be filed. Another important section will define how claims will be filed, which is to say how the buyer will ask the seller to perform any maintenance or repair.
- For example, if you are writing a service contract about a vehicle, a filing provision may look something like this: "If Buyers vehicle requires maintenance or repair, Buyers must follow these steps in order in order to file a claim: (1) Buyers must prevent further damage; (2) Buyers must take vehicle to a licensed repair facility; (3) Buyers must provide repair facility with a copy of this Agreement; (4) repair facility must obtain Sellers authorization to complete the work requested; (5) Buyers shall pay the required deductible (if applicable); and (6) Buyers shall provide Sellers with any and all receipts received as a result of a repair or maintenance."[13]
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Include any necessary boilerplate language. Boilerplate provisions are specific clauses included in almost all contracts that have a known meaning and a predictable outcome. These clauses often include severability clauses, entire agreement clauses, arbitration agreements, and choice of law provisions.[14]
- For a list of common boilerplate provisions, as well as their specific language, look here.
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Add space for signatures. At the end of your service agreement, you will provide space for all parties to sign and date the contract.Advertisement
Part 3
Part 3 of 3:
Executing the Service Contract
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Make an offer. When the contract is ready, send it to the other party. The other party will examine the contract to ensure that the terms suit them. In some cases the other party will sign and return the contract right away. More often, he or she will respond with a counteroffer. If there is a counteroffer, be sure to read any changes carefully and decide whether they are acceptable before you sign.
- If you want to speed things along you can include a date by which the contract should be signed, addressed or rejected. Otherwise, the other party is obligated to respond "within a reasonable amount of time," but this is highly subjective.
- You can revoke an offer that has not yet been accepted. For example, if you present someone with an offer and he is considering it but has not accepted the offer, you can tell him that you have changed your mind. However, once the offer has been accepted, you've entered into a binding agreement.[15]
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Negotiate until an agreement is reached. It's common for the parties to go back and forth with changes to the contract until they are both satisfied with the terms.
- The parties are welcome to change the contract in any way that they want, so long as the other party sees the changes and has the opportunity to respond.
- Make sure that you are completely satisfied with the terms before signing the contract. It is very important to read through the whole contract before signing it to insure that there are no changes added without your knowledge. After signing, you are legally obligated to perform under the terms of the contract.
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Sign the contract. When you and the other party are both in agreement that the contract is final, sign and date the contract and have the other party do so as well.
- Be aware that many companies use electronic signature services such as DocuSign or Adobe Document Cloud with eSign. These electronic signatures are used in place of a written signature and are legally binding.[16]
- Keep a copy of the contract for your reference, and make sure the other party (or parties) has one as well.
- You may want to stipulate that the contract takes effect upon signing. In other cases, you may want the contract to take effect at a certain date.[17]
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Tips
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You can find templates for many types of contracts online. Rocketlawyer, Law Depot, and Tidy Form all provide templates. All contracts must be prepared in accordance with state laws, so be sure you are aware of any requirements in your area.Thanks
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When signing a contract, you should sign as many copies as needed so you can keep them for your records.Thanks
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Until an offer is accepted, the person who made the offer, called the offeree, may revoke or modify the offer.Thanks
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Warnings
- You are legally obligated to abide by the terms of any contract you sign. You can be sued for breach of contract, so make sure you understand exactly what the contract covers. Consult with an attorney if you are unsure.Thanks
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References
- ↑ http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts
- ↑ http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts
- ↑ http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts
- ↑ http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts
- ↑ http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts
- ↑ http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts
- ↑ http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts
- ↑ http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts
- ↑ http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts
- ↑ http://www.consumer.ftc.gov/articles/0240-extended-warranties-and-service-contracts
- ↑ https://www.endurancewarranty.com/pdfs/supreme.pdf
- ↑ https://www.endurancewarranty.com/pdfs/supreme.pdf
- ↑ https://www.endurancewarranty.com/pdfs/supreme.pdf
- ↑ http://www.nolo.com/legal-encyclopedia/common-boilerplate-provisions-contracts-32654.html
- ↑ http://www.nolo.com/legal-encyclopedia/contracts-101-make-legally-valid-30247-2.html
- ↑ https://www.docusign.com/electronic-signature-legality
- ↑ http://www.shakelaw.com/blog/when-does-a-contract-take-effect/
About this article
Clinton M. Sandvick, JD, PhD
Doctor of Law, University of Wisconsin-Madison
This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M. Sandvick worked as a civil litigator in California for over 7 years. He received his JD from the University of Wisconsin-Madison in 1998 and his PhD in American History from the University of Oregon in 2013. This article has been viewed 46,094 times.
Co-authors: 14
Updated: November 6, 2022
Views: 46,094
Thanks to all authors for creating a page that has been read 46,094 times.
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