Services and vendor agreements
Service agreements, contractors, and getting scope and payment right
Two things cause most service-agreement disputes: what exactly was in scope, and when exactly payment was due. A third — whether the person was a contractor or an employee — is decided by a government agency, not by the title on the document.
A services agreement sets what will be done, by when, for how much, and who owns the result. Calling someone an independent contractor does not make them one: the IRS applies a common-law test that looks at how much control the hiring party has over the work, and several states apply stricter tests of their own. Getting classification wrong is expensive, and the paperwork is not what decides it.
What the law generally requires
Worker classification is determined by the facts of the relationship, not by the label in the contract. The IRS groups the common-law factors into three areas: behavioral control (who directs how the work is done), financial control (who bears expenses and the chance of profit or loss, whether the worker offers services to others), and the type of relationship (written terms, benefits, permanency, and whether the work is a core part of the business).
Some states apply a stricter test for some purposes — the 'ABC' test, in which a worker is presumed to be an employee unless all three of its conditions are met. California's is the best-known, but the states that use one do not use it identically or for the same programs.
Payment terms in commercial deals are largely a matter of contract, with two common exceptions: prompt-payment statutes on public and sometimes private construction, and state-law limits on interest charged on late payments.
Ordinary commercial services agreements can be signed electronically under ESIGN and state UETA.
Scope: the clause that decides the argument
Say what is included, and say what is not. An out-of-scope list prevents more disputes than an in-scope list.
Name the deliverables, in the form they will be delivered, with dates.
Say who accepts the work, on what criteria, and what happens if they say nothing — silence-is-acceptance after a stated number of days is common and worth deciding deliberately.
Define how a change gets approved, in writing, before it is done. Most scope fights are really change-order fights.
What most services and vendor agreements include
Scope, deliverables, and acceptance.
Fees, invoicing schedule, payment window, and late-payment terms.
Term, renewal, and how either side can terminate — for cause and for convenience.
Ownership of work product, and any license granted back.
Confidentiality, data handling, and — where personal data is involved — what each side may do with it.
Insurance, indemnity, and limitation of liability.
Independent-contractor status, with a statement that the contractor controls how the work is done and is responsible for their own taxes.
What XOsign does about it
- Sends the agreement for signature in the order you set, and records each signer's consent.
- Explains what a clause says in plain language, in the signer's language, so nobody signs a scope they did not read.
- Keeps the original and the executed version together, with an append-only trail of what happened between them.
- Fingerprints and timestamps the executed file so a later copy can be checked.
- Never decides anything for you: it surfaces what a document says, and leaves the judgment to you and your attorney.
What to ask an attorney
- Is this person or company properly classified as an independent contractor for federal and for state purposes?
- Do my payment terms comply with any prompt-payment statute that applies to this work?
- Is my limitation of liability enforceable in the governing-law state?
- Who owns the work product under this language, and is that what I intended?
Frequently asked questions
Does a contract saying 'independent contractor' settle it?
No. Agencies look at how the relationship actually works. The clause is useful evidence of intent, and it is only one factor.
What is the difference between a master service agreement and a statement of work?
The MSA holds the terms that stay the same across every engagement. Each SOW adds the scope, schedule and price for one specific piece of work under it.
How should late payment be handled?
State the due date, the grace period, the consequence, and any interest rate — and check that the rate is allowed by the governing-law state before you use it.
Keep reading
XOsign is not a law firm and this page is not legal advice. It explains, in plain English, what the law generally requires so you can have a better conversation with your own attorney. Laws differ by state and change over time, and only a licensed attorney who knows your situation can tell you what to do about yours.
Try it on a real document
Open the sample to see the plain-language explanation, the signing flow, and the record it leaves behind.