Understanding Service Provider Agreements, Their Functions, and How to Make Them

Corporate Secretary Service Indonesia – When you need services from another party, a service provider agreement is a crucial document. All parties feel safe and protected as this agreement provides clarity on what to do, when to do it, and how to make payments. Without an agreement, business relationships can become complicated. This agreement can regulate every detail, from the scope of work to the responsibilities of each party. Thus, you can avoid potential conflicts and ensure that the cooperation runs as expected.

This article continues our discussion of service provider agreements or Legal Agreement Service, their contents, and how to write them. Read the explanation until the end!

Service Provider Agreements and Their Functions

A service provider agreement is an official agreement that regulates the relationship between the service provider and the service recipient. This document explains in detail the duties and responsibilities of each party, the scope of work, and the agreed costs or compensation.

The main purpose of this agreement is to ensure that both parties have a clear and shared understanding of their cooperation. In addition, this agreement serves as legal protection for both parties. If one party does not fulfill its obligations, this agreement can be the basis for resolving the issue.

When is a Service Provider Agreement Needed?

This agreement is usually needed in various business situations, such as:

1. Procurement of Professional Services:  For example, when a company hires a consultant, lawyer, accountant, or IT service provider. The agreement outlines the scope of work, schedule, and fees to be paid.
2. Collaboration with Freelancers:  This agreement describes the specific tasks, deadlines, and payments to be received when the company works with a freelancer.
3. Digital Service Providers:  In digital services such as app development or digital marketing, this agreement ensures that the services provided are as promised and includes technical support and maintenance.
4. Equipment or Facility Rental:  If you rent equipment or facilities, this agreement sets out the rental duration, fees, and condition of the equipment to avoid disputes later.

Read Also: 7 Conditions Why Companies Must Use Recruitment Agencies

What is the Content of a Service Provider Agreement?

A legal agreement service usually includes several important elements, namely:

1. Identity of the Parties: This document lists the identities of the service provider and recipient to ensure that both parties have the authority and responsibilities agreed upon.
2. Scope of Work: The job description, duration, and work standards are explained in detail so that both parties have a clear reference regarding the work being done.
3. Fees or Compensation: This section regulates the amount, method, and schedule of payment. Some agreements also include refunds or penalties in the event of a discrepancy.
4. Dispute Resolution: This provision explains the mechanism for resolving disputes, whether through mediation, arbitration, or legal channels.

Provisions for Making a Service Provider Agreement

According to Article 1320 of the Civil Code (KUH Perdata), there are four valid requirements for making an agreement:

1. Agreement of the Parties: The agreement must be based on an agreement without any element of coercion or fraud.
2. Competence of the Parties:  The parties must be legally competent to make an agreement. Those who are declared incompetent are minors, under guardianship, or have mental health problems.
3. Object of the Agreement: The agreement must have a clear object that both parties can understand.
4. Halal Cause: The contents of the agreement must be in accordance with applicable legal provisions without violating the rules.

Presidential Regulation No. 16/2018 concerning Procurement of Goods/Services regulates five types of contracts: proof of payment, receipt, work order (Surat Perintah Kerja / SPK), agreement letter, and order letter.

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