Best Practices and Ideas
In a previous article Establishing a Customer Experience Strategy, we used Deloitte’s definition for customer experience – “the sum of all of the interactions a consumer has with a brand, as well as their opinion of the brand.” Using this definition as a backdrop, we would argue that your service agreement and approach to service agreements are essential to your customer experience strategy. This article discusses the importance of service agreements and provides some practical tips to ensure your service agreement process aligns with your customer experience goals.
Why Have Service Agreements?
You may have had a customer or someone inside your organization ask, “Is it really necessary to have a service agreement in place?” We believe it IS important to have an agreement in place with each customer, preferably your agreement (more on that later). Below are three reasons why service agreements are important:
- Defines expectations – This is the most obvious reason for having a service agreement in place. Simply put, the agreement is a document whereby you and your customer have settled on where and how you will perform your work, how much the customer will pay for your services, and who is responsible if someone gets injured or something is damaged.
- Protects your company – As mentioned above, the service agreement offers protection and clarity surrounding the risk that each party (you and the customer) is willing to accept regarding injuries and damages.
- May increase your company’s value – Should you ever consider selling your business, having executed service agreements may increase your company’s value. Potential buyers may be reluctant to purchase a company where no agreements are in place or agreements have expired. But, a company with executed, up-to-date agreements in place offers buyers more assurance that potential revenue is more secure.
Service Agreement Sections
We advise seeking the counsel of an attorney who can more fully guide you regarding what is best to include in your service agreement based on your business circumstances. The sections below are simply examples of sections you may wish to consider. Practically speaking, your service agreement should be no longer than 2-3 pages.
- Terms of the agreement – This section will define where and how you will perform your work. Typically, this section will reference your scope of work as an attached addendum (or exhibit). This section should also address how you and the customer will handle requested work outside the scope of work.
- Duration of the agreement – The purpose of this section is to define the length of the agreement. A few thoughts/ideas on this section
- Agreement length – Before COVID, we would have recommended 3-year agreements. Post-COVID, we might still recommend three years, but we would encourage adding an inflation/CPI clause in your pricing.
- Evergreen clause/auto renewal – An auto-renewal clause has advantages and disadvantages. On the one hand, auto-renewals are nice because you don’t have to approach the customer with changes. Conversely, if you miss the window to notify the customer of YOUR intention to adjust terms/conditions or price, you may be locked into the existing agreement for another cycle.
- Termination of service – This section should provide language surrounding the customer’s remedy if your work is unacceptable. Most companies request a written/emailed notification and 2-3 weeks to correct the service issue.
- Materials and Equipment – This section defines who (your company or the customer) will be responsible for providing janitorial supplies, consumable supplies, and janitorial tools and equipment. Additionally, this section should state that the customer will provide a secure area to store your supplies and equipment. Practically speaking, some (many) buildings do not have adequate storage space. Unfortunately, there isn’t much that can be done about that, but it is helpful to have in the agreement if your supplies/equipment go missing.
- Indemnification Clause – Indemnification clauses are a needed risk allocation tool between you and your customer. These clauses define each party’s willingness to assume the risk for damages, injuries, etc. As stated previously, please consult an attorney when crafting this portion of your agreement.
- Compensation –This section details several items: (1) your compensation for services, (2) clarification of how additional work outside the scope will be priced (simply indicating that it will be priced separately is usually enough), (3) payment terms, and (4) a statement regarding your to collect taxes. If applicable, this section would include a price escalation clause (mentioned above).
- Waiver and Modification/Disputes, Choice of Law, and Attorneys Fees/Entire Agreement Statement – An attorney should craft these sections.
- Prohibition on Hiring Employees – This section may prove helpful to you in the event a customer(s) actively recruits one of your team members to join their organization. However, this clause should NOT be used to prevent one of your team members from applying for and accepting a position with the customer.
Signing The Customer’s Agreement
It is not uncommon for the customer to ask you to use their standard vendor service agreement, especially when working with large corporations. If/when this occurs, we encourage/recommend that you consider using their service agreement AFTER you have had an opportunity to review the agreement. Below are a couple of suggestions:
- Look for the items mentioned in the previous section – Find the sections in their contract that correspond with those in your agreement. Review these carefully, looking for anything that seems extraordinary. There are two items we find in many customer agreements which we ask to be omitted or modified:
- Termination without cause – When we encounter this language, we ask the customer to consider our language. We cut and paste the language in our agreement and submit it for consideration. Most agree with this change.
- Cost for a suitable replacement clause – We ask that this section is omitted. Essentially, this clause states that if the customer is not pleased with your service and terminates service, your company will be responsible for the difference between your price and what they have to pay to find a replacement.
- Have an attorney review the customer’s agreement – If the dollar amount of the agreement is significant and the customer’s agreement is overly complex, we advise having an attorney review it.
In conclusion, having a well-crafted, easy-to-understand service agreement provides value to your organization. Likewise, having a well-planned process for submitting and executing the agreement can bring value to the customer and, hopefully, enhance the overall customer experience.