An operational services agreement, also known as an operating level agreement defines how the requirements of service level agreements should be met. These are typically entered into by service providers and their client companies. For example, if ABC company wishes to hire the services of XYZ company which outsources IT support services, such a contract would need to be entered into between them. It is a guiding document which defines the rights and obligations of both the service provider and the client company.
It is pertinent that this agreement is entered into whenever a company is hiring services from a service provider. However, before one starts to draft the agreement, one should have some basic information about the arrangement at hand. Such information would inter alia typically include the names of the parties, their registered addresses, the compensation to be paid, the duration of the agreement, and timelines (if any).
Purpose of Operational Services Agreement
The main purpose behind such an agreement is the explicit outlining of the goals, timelines, level of quality, and commitment required from the service provider. It also protects the service provider’s rights as everything including compensation, the desired levels of commitments, and objectives to be achieved is outlined in the same.
It creates a basic framework within which the service provider discharges his obligations. Put across in simple terms, it brings both the client company and the service provider together and provides clarity of vision. It provides a graded structure and form to the work expected to be performed. It is an essential requirement for the company which commissions the work, as this helps them achieve the desired quality, punctuality and commitment to the work.
Key Terms of Operational Services Agreement
The following key terms should be included:
- Scope of Services: As it highlights the technicalities around the provision of services, it is essential that this contract clearly highlights what is the scope for the services to be provided.
- Duration: If the agreement is a fixed-term agreement, then the duration of the agreement should be mentioned clearly.
- Nature of engagement: The agreement should clarify that services are being hired in the capacity of an independent contractor. This has implications from an employment law and tax law perspectives.
- Compliance: The service provider should agree to comply with applicable laws and any code of conduct/policies which the client company may have while performing services.
- Performance schedule/Timeline: A graded timeline should be provided in order to give clarity to the service provider and encouraging them to achieve timely objectives. In the event of an ongoing IT support services hire, response time may be mentioned. For instance, “the service provider shall address any issue raised within two working days.”
- Planning: The service provider should submit a strategic plan which outlines how the service provider aims to achieve the stated objectives. Such a plan should be subject to approval by the client company.
- Objectives
- Confidentiality and Non-Disclosure: The service provider during the performance of services may access information that is confidential to the client company. Hence, it is pertinent to have a confidentiality and non-disclosure clause in the contract.
- Intellectual property: An obligation upon the service provider to not breach the intellectual property of the client company should be included.
- Indemnity: An indemnity is essential in order to prevent risk. Indemnity for certain purposes is absolutely essential.
- Limitation of liability: Inclusion of this clause is essential to prevent exposure to unlimited liability.
- Termination
- Compensation
- Liquidated damages
- Dispute Resolution
- On-premise compliance
Drafting an Operational Services Agreement
The following guidelines may be followed for drafting:
- Mention the names of the parties clearly.
- Set out the scope of services, preferably in an appended annexure. Explain each service availed clearly. For example, if ABC company hires XYZ firm for IT support services and for developing a particular software, both should be mentioned clearly.
- The objectives should be contained in a separate clause and should be mentioned precisely. Vague objectives may create issues later on. For example, the statement that ‘Service provider promises to give timely performance’, maybe labeled vague.
- Mention timelines.
- While drafting the confidentiality clause, make sure to make all the information provided to the service provider as confidential.
- Include milestones to be achieved along with the timeline.
- While drafting termination for breach clause, one may provide a cure period.
Benefits of Operational Services Agreement
An operational services agreement has the following benefits:
- Clarity of objectives and timelines for both the service provider and the client company.
- Assurance of timely performance.
- The broad framework for performance
- Clearly stated goals
- Spelled out rights and obligations.
- Set an agreed-upon dispute resolution methods
- Assurance that the information exchanged with the service provider shall be maintained as confidential.
Operational services agreement, in short, is a ready reckoner for both, service provider and the client company. Any breach may be settled through litigation or out of court settlements. As litigation may prove to be inordinately expensive, arbitration should be made the preferred method of dispute resolution. It is always advised to capture every minute detail in this agreement to prevent any further disputes from arising. However, it should be simple in form, and unnecessary lofty language should not be used. This contract can also be used for internal stakeholders.
Sample for Operational Services Agreement
A sample of the agreement can be downloaded from below.
