Defining a Continued Service Agreement
A continued service agreement (CSA) is a commonplace contractual arrangement with significant use in the construction and infrastructure project delivery sectors, and other such industries.
At its most basic, a CSA will contractually commit an entity to provide a service to a certain entity upon the occurrence of specified circumstances. The nature of the circumstances can be project based, or on a more general level. CSAs are commonly used to secure long-term recurring works for utility companies to cover maintenance and servicing obligations, and to cover those obligations imposed by legislation and regulatory bodies.
In the construction and infrastructure context, CSAs are typically entered into at the completion of a contract where the contractor will be required to provide certain services at defined points in the future. For example, the contractor may agree to return to site after completion of the works to carry out rectification works, or to undertake periodic inspections of a building under warranty etc. The periods for remedying defects are commonly specified in the contract governing the principal works, and are often referred to as a ‘defects liability period’ (DLP) . These periods may range from three months up to several years, and are usually specified upon the contract for the principal works being prepared. However, these periods may not allow for any delay in practical completion – particularly if the parties are unable to agree upon the application of extensions of time to the date for practical completion. The DLP may also be of crucial importance for the contractor to be capable of claiming back retention monies and/or insurances.
These periods are important for the contractor and should be adhered to. For the principal, if a supplier is required to implement remedial works within a specific timeframe and fail, liability may arise. These obligations will be captured in the CSA, which will also identify any warranties or assurances that may be implied by the supplier. There is an extensive catalogue of what might constitute a CSA, including the granting of warranties or novation agreements to third parties.
The CSA is set up from the outset of the principal contracts and will usually include a warranty of some sort. Understanding the CSA and how it interplays with the other principal contracts in the project delivery chain is important for the principal to ensure that a contractor does not default or go into administration before the DLP.
Important Aspects of a Continued Service Agreement
A continued service agreement is a mutually binding contract between the purchaser of a product or service and the provider. The customer pays a subscription fee for a defined period of time, and in return they receive an unlimited amount of service for the duration of the agreement.
The agreement generally lays out the terms of service, the obligations of the provider, the obligations of the purchaser, the pricing structure, terms and method of renewal, the terms of termination, and how disputes will be handled. Every aspect should be clearly covered to avoid confusion and disagreement in the future.
Terms of Service
At the most basic level, the terms of service state which services will be provided under the agreement, and which services will not. For example, if the agreement concerns the shredding of documents, then it can cover how the documents will be transported to the shredding site, how they will be appropriately stored and secured before shredding occurs, and which documents will not be accepted for shredding (e.g., certain types of photographic paper or document types that are at risk of breaking down or shattering).
Obligations of the Provider
The provider has an obligation under the continued service agreement to meet the terms of service, maintain a certain level of quality for its service, and provide the service in a timely manner.
Obligations of the Purchaser
The purchaser has an obligation to continue to pay the subscription fee according to the terms of the agreement, to timely inform the provider if its needs change in such a way that the service is no longer appropriate for the purchaser, and to follow the terms and conditions set forth in the agreement.
Renewal Policies
The continued service agreement will lay out the policies for renewal prior to the end of the term. Will the agreement automatically renew indefinitely until terminated, or does it have a limit on the renewal terms? Is there an agreed upon amount of time in between the termination of the agreement and the ability to enter into a new agreement for the same service?
Termination
The agreement should clearly lay out the terms for termination, including whether there are any obligations after the termination occurs (e.g., the return of materials from the provider) and whether the payment must be made in full immediately upon termination.
Dispute Resolution
In the event of a dispute during the life of the continued service agreement, the agreement must clearly lay out how the parties will handle the concern. Will the parties go through mediation, or directly pursue litigation? How will the settlement terms be reached? This clause is particularly important if there are any obligations after the termination of the agreement, because failure to fulfill those terms can result in "breach of contract" claims.
Advantages of Continued Service Agreements
One clear benefit of a continued service agreement for a business is the ability to provide consistent service for the client. The business can align work with specific metrics that best suit its operational abilities. For instance, a roofing business can set out an agreement that guarantees service every eight weeks, which helps the business adjust to staff headcount because its employees are given a consistent amount of work. For the customer this means knowing when to expect service, which is ideal for something like regular maintenance. Additionally, for a retail business that provides consistent service it will be easier to budget for not only payroll but for other expenses associated with service needs.
Continued service agreements also allow for financial predictability. Organizations that know they are going to use the same service provider consistently can budget a set amount of money that is going to be spend that year. Now, budgetary considerations are not perfect as things can change over a year, but continued service agreements provide a general idea of what is going to be spent on a service.
Offering continued service agreements provides more stability than a contract that renews after a set time, such as annually. These agreements are easier for both parties to renew on a rolling basis, as neither side need to review terms as they are simply ongoing. Offering continued service agreements provides marketing value as well. Businesses can add to business presence and capture a larger market share as customers are more likely to try services when there is a guarantee of sorts involved.
Frequently Encountered Issues and Their Solutions
As attractive as continued service agreements may be, they are not without their difficulties. Employers in large multinational operations can be subject to different regimes, which perhaps were overlooked at the time of drafting an agreement. This could result in a department or a region being unfairly disadvantaged in terms of their total reward or cost to the business. One example might be where an employee from an HR department in France is relocated to a territory with a less favourable tax regime and the spare cost of the move and the additional tax is not taken into account in continued service agreement calculation. The employee may very quickly become disgruntled and rate the employer on Glassdoor accordingly. A reasoned discussion with the employee should avert such an issue.
Another example might be overseas travel costs. These are a fact of life for the majority of global employees, to a greater or lesser extent. However, if there is no provision for the payment of these, that again could result in an employee becoming disgruntled when they are unexpectedly out of pocket.
There are some jurisdictions that will not recognise the principle of liquidated damages in the event of breach of a continued service agreement. In some, there are neither punitive nor liquidated damages awarded as a result of contractual provisions in connection with their employment. So there is some uncertainty as to what is recoverable in the event of a breach.
It is best to conduct a review of the main provisions and clauses of an agreement as a standard process at some point of the employee life cycle. This review should take place regularly, perhaps annually or bi-annually. This review should ideally identify any issues or problems that may have occurred since the agreement was drafted or signed or that might occur if the agreement is not amended or updated.
In the event of any major changes in the law, an annual review should be enough to catch any jurisdictions where damage awards are limited or damages are not recoverable at all. Furthermore, a review should be undertaken in the event of a commercial transaction that may involve the transfer of employees to new employer, for example a merger, sale of a division or outsourcing contract.
In practice, the review should consist of a deep dive into the local law and or practice of the jurisdictions where the company has employees and where the company is registered or headquartered as well as checking for any recent relevant case law. This will not be an easy task. It will require a thorough examination of the laws of a number of territories and that could take time and require resource and money to execute.
Legal Aspects to Consider with Continued Service Agreements
Careful consideration must be given to the legal issues that are involved when continuing a relationship with a departing or terminated employee. For example, in Canada, there is a duty to mitigate and if the employee refuses or ineffectively mitigates the damages, it will decrease the amount of damages payable for wrongful dismissal. A continued service agreement is not effective in mitigating future damages, other than offering the opportunity to mitigate their losses through alternative employment. This was demonstrated in a case where a terminated employee continued to work part time in a different capacity at the same company, for the same salary and benefits package. The Court held that the employee’s continued service working in his new position did not "mitigate" the damage of the wrongful dismissal because the employee sought the new position and the employer created a new position with the employee’s engagement in mind. It then awarded four months’ pay in lieu of notice of reasonable notice damages.
In addition, when transitioning from regular employee to independent contractor , the parties should ensure that the termination provisions of the previous employment agreement survive into the new agreement. This would then allow the previous employer to calculate the amount provided for in the agreement and pay that amount, as those amounts will then be found to be a debt due and owing. This mitigates the risk of additional wrongful dismissal claims, subsequent to the prior employer paying damages equivalent to that permitted in the agreement.
In transitioning from one company to another, care must be taken to ensure compliance with Canadian legislation respecting mass terminations and group termination notices. If there are more than 50 employees (there are similar rules applicable to federally regulated companies) to be terminated, a termination or severance notice must be provided to the employees and the relevant provincial or federal jurisdiction. Failure to provide such notice can result in significant amounts of unpaid wages payable by the employer, being awarded for a period of up to 26 weeks at the rate of three weeks’ pay per week of notice not provided. There are strict timelines for presentation of the required notices.
Drafting the Perfect Continued Service Agreement
"Enforceable service contracts are enforced by the Courts as Contracts so terms and conditions should be written as such" – Shaftesbury Golf Club v Huddersfield Golf Club
It may seem obvious, but the best outcome will usually be achieved if the agreement is in the form of a written document signed by both parties, although that does not necessarily mean it is a requirement as the Court can establish the existence of an agreement without any written documentation at all. That could be from oral evidence given at the trial and/or documentation to support what was said at the trial. The Judge has a wide discretion in determining the existence of an oral or implied agreement. Continued Service Agreements are typically drawn up for the following reasons: The best way to draft a continued service agreement which is enforceable, will be to write it as an agreement for the supply of goods or services, the Court will often regard such an agreement as a contract so it should be drafted as such. It is more robust if it is agreed and signed by both parties. Whether or not a written document exists, the fact the parties have implicitly agreed kinks them together in an unequivocal way. The terms of the agreement will govern the relationship between them and any dispute will inevitably involve the Court in deciding on the precise nature of the parties’ obligations. If the relationship between the parties is based on a formal contract, the contract will invariably need to be carefully interpreted so it is essential that any ambiguities are properly addressed at the time the contract is entered into. The contract should be clear about what obligations the parties owe to each other and the consequences of any breach of obligation. If the relationship is based solely on a course of dealing, the parties may not have negotiated any terms of the arrangement between them. The Court will then seek to imply terms as are necessary to give the relationship business efficacy if it will make sense in the commercial world. It will decide what should go in the gaps and as such, the implications of terms can be far wider than the actual services carried out. A term that is implied must not have been expressly excluded from the contract. If the parties are not happy with the implied term, they can overturn it either by expressly excluding it in the contract or by rebutting it.
Exploring Examples of Successful Implementation
A leading technology firm recently reformed its consultant engagement practices to better align them with its long-term goals and to reduce unnecessary costs associated with high turnover. Rather than paying for continual consulting services, the firm engaged its consultants in a continued service agreement, which offered flexible pricing options and incentives for long-term collaboration. Representatives from the firm reported that this led to significant savings (in some cases over 40%) per engagement as well as higher quality results, due to the integrative nature of the continued engagements and relationships. Another example comes from the retail sector. A prominent national store chain found that the majority of its consulting needs revolved around store consolidation, daily performance evaluations and quarterly financials . As a result, the chain began utilizing consultants on an as-needed basis rather than a per-project basis, something unfeasible with traditional consultant agreements but entirely possible with continued service agreements. This allowed the firm to evaluate its needs and only engage consultants that would provide consistent value in addressing its core concerns, potentially saving millions annually in consulting fees alone. After two years of strategic use, continued service agreements have become one of the most valued components of the employment strategy of a major manufacturer of electrical components. The firm, with a vast network of distributors and dealers, utilized consulting services to identify and address gaps in its capture of and delivery to channel partners. Through continued service agreements, many of these distribution stores now employ full-time staff that specialize in the company’s products and enable them to deliver superior products and stellar service to their customers.