Service agreement

What it means

A service agreement is a contract under which a provider undertakes to perform certain services for a client, such as bookkeeping, IT administration, cleaning, marketing or consulting, and the client undertakes to pay the agreed fee. It is one of the most common types of contract between businesses.

Slovak law does not name this type of contract expressly. The parties conclude it as an innominate contract based on freedom of contract, and some services resemble named contracts such as a mandate contract or a contract for work. In an innominate contract, the essential terms must be sufficiently definite.

Because the law does not fill in the details, most rules have to be written into the contract itself. These mainly cover the scope of services, quality, deadlines, how the price is set, liability for damage, protection of confidential information and personal data, and termination.

How it works in practice

A well-drafted agreement starts with a precise description of the services, often in an annex, and states what the price does not include. Long-term services tend to use a flat monthly fee with a cap on work, one-off services an hourly rate. Where availability and response time matter, as in IT support, a service level agreement with measurable parameters is added.

Liability is a key section. The parties can agree a contractual penalty for delay, a cap on damages or a duty for the provider to hold professional indemnity insurance. Where the provider processes the client's personal data, a data processing agreement under data protection rules is also needed.

For tax purposes, a service supplied is a taxable supply for VAT, and the date of supply determines when the invoice must be issued. For recurring services, the date of supply is usually the last day of the period the payment covers. For services from a foreign provider, the customer may have to account for the VAT under the reverse charge.

What to watch out for

The most common source of disputes is an unclear scope. If the agreement only mentions "comprehensive services", each party imagines something different. It is better to list activities, deadlines and deliverables and to agree how extra work is handled, for example by prior approval by email.

Pay attention to termination and handover. The agreement should set the notice period, the duty to hand over documents, access rights and data at the end, and reasonable cooperation when switching to a new provider. When outsourcing key functions, this matters as much as the price.