Should a services agreement provide for a term? It depends.
Imagine that Acme engages me, as an independent contractor, to service every Sunday the fleet of Segways at Acme’s headquarters. Acme asks me to sign a contract, which provides for a term of one year. Including a term makes sense, in that having Acme instead make an open-ended commitment would leave room for dispute when Acme decides that it doesn’t need my services anymore: But they said it would be for five years!
Imagine instead that Acme asks me to service its Segways just once—the first weekend in September. In that case, it doesn’t make sense to provide for a term: the contract simply states when I’m to perform. It follows that after I perform, the agreement would continue to exist, but who cares! In the same way, if I sign a contract to buy 100 Segways, that contract doesn’t have a term: it continues to exist after I’ve made the purchase.
But it would be sensible for Acme to make it clear that it can put a stop to my services. (I in fact know nothing about Segways.) What would be the best way to express that? The contract could provide that in certain contexts Acme may terminate the contract, but I’m wondering whether it would be clearer to be more specific and say that in those contexts Acme may terminate my performance of the services. Any thoughts?
In many ways, I think being explicit about “you will perform X services” and “we can terminate your performance of those services under Y conditions” is clearer than any term of the agreement. And you could still discuss an expectation that you will perform those services for a specific period or provide for a warranty or indemnity that extended beyond the performance of the services. However, I can think of reasons where I might want the contract itself to end, instead of just terminating the performance of services: if the contract still exists, there may be issues (for example, conflicts of interest) that would apply because of the existence of the contract, where termination of the contractual relationship itself might be useful.
Agreed. Termination of services should be dealt with separately from termination of the contract. It’s not unusual for these termination rights to be exercised at the same time in practice. But more commonly, only services are terminated because I do not want to have to renegotiate a contract if we do business again.
I do, though, want the separate right to terminate the contract for the reason you note above. Also, if the service provider is sleazy in a public way, it’s nice to be able to say “we had a contract with them but we’ve terminated it” without there being a question as to whether we had the contractual right to terminate. Also, there are provisions that I probably want to turn off at some point in time (e.g., right of publicity). Having a right to terminate the contract helps for those provisions too.
Reviving an old thread here . . .
I’m wondering if your reasoning in the first example (the open-ended commitment) would hold even in the case of a services contract with an automatic renewal clause and separate termination for cause and convenience clauses.
For example: The initial term of this agreement is for one year (or, if you prefer, “The initial term of this agreement terminates on Octembruary 5, 2036″). This agreement will automatically renew for successive one-year periods unless either party provides written notice of its intention not to renew no less than 60 days before the termination of the then-current term;” together with “Either party may terminate this agreement for any reason by providing the other party with no less than 30 days’ written notice.”
It seems to me that one could just as well do without the term at all, and simply state the termination for convenience clause – in the end both methods amount to the same thing, but the second option does so with one less clause.
So, is there a reason to provide for a term in a services agreement if the term provided is an automatically renewing clause with no set end date?
Reviving an old thread is a good thing to do: there’s a lot buried in the archives!
Allowing either party to terminate whenever it wishes is fine, but one or other party might want a measure of commitment. Automatic renewal provides that commitment. It wouldn’t make sense to have automatic renewal plus the right to terminate whenever.
By the way, somewhere on this blog, and in MSCD, I explain why I’m not a fan of the phrase “terminate for convenience.”