SIST EN 17371-2:2022

SLOVENSKI STANDARD
oSIST prEN 17371-2:2019
01-junij-2019
Zagotavljanje storitev - 2. del: Pogodbe o storitvah - Navodilo za oblikovanje in
strukturo pogodb
Provision of services - Part 2: Services Contracts - Guidance for the design and structure
of contracts
Dienstleistungserbringung - Teil 2: Dienstleistungsverträge - Leitlinien für die Gestaltung
und Struktur von Verträgen
Ta slovenski standard je istoveten z: prEN 17371-2
ICS:
03.080.01 Storitve na splošno Services in general
oSIST prEN 17371-2:2019 en,fr,de
2003-01.Slovenski inštitut za standardizacijo. Razmnoževanje celote ali delov tega standarda ni dovoljeno.

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oSIST prEN 17371-2:2019

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oSIST prEN 17371-2:2019


DRAFT
EUROPEAN STANDARD
prEN 17371-2
NORME EUROPÉENNE

EUROPÄISCHE NORM

March 2019
ICS 03.080.01
English Version

Provision of services - Part 2: Services Contracts -
Guidance for the design and structure of contracts
 Dienstleistungserbringung - Teil 2:
Dienstleistungsverträge - Leitlinien für die Gestaltung
und Struktur von Verträgen
This draft European Standard is submitted to CEN members for enquiry. It has been drawn up by the Technical Committee
CEN/TC 447.

If this draft becomes a European Standard, CEN members are bound to comply with the CEN/CENELEC Internal Regulations
which stipulate the conditions for giving this European Standard the status of a national standard without any alteration.

This draft European Standard was established by CEN in three official versions (English, French, German). A version in any other
language made by translation under the responsibility of a CEN member into its own language and notified to the CEN-CENELEC
Management Centre has the same status as the official versions.

CEN members are the national standards bodies of Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia,
Finland, Former Yugoslav Republic of Macedonia, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania,
Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland,
Turkey and United Kingdom.

Recipients of this draft are invited to submit, with their comments, notification of any relevant patent rights of which they are
aware and to provide supporting documentation.

Warning : This document is not a European Standard. It is distributed for review and comments. It is subject to change without
notice and shall not be referred to as a European Standard.


EUROPEAN COMMITTEE FOR STANDARDIZATION
COMITÉ EUROPÉEN DE NORMALISATION

EUROPÄISCHES KOMITEE FÜR NORMUNG

CEN-CENELEC Management Centre: Rue de la Science 23, B-1040 Brussels
© 2019 CEN All rights of exploitation in any form and by any means reserved Ref. No. prEN 17371-2:2019 E
worldwide for CEN national Members.

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Contents Page
European foreword . 4
Introduction . 5
1 Scope . 6
2 Normative references . 6
3 Terms and definitions . 6
4 Service contracts — principles . 7
4.1 What is a service contract and what purpose does it serve? . 7
4.2 What does a “good” service contract look like? . 8
5 Service contract components . 8
5.1 General. 8
5.2 Who is entering into the service contract? . 9
5.3 What are the services – how are they specified, ordered and what are the service
performance targets? . 10
5.3.1 Service description . 10
5.3.2 Transition and preparation/transformation to or during the provision of services . 16
5.3.3 Mechanism for ordering services (ongoing, project-based, SOW/WO) . 17
5.3.4 Service performance targets . 17
5.3.5 Disaster Recovery & Business Continuity Planning . 25
5.4 How are charges calculated and paid? . 28
5.4.1 General. 28
5.4.2 Charges/remuneration for services . 30
5.4.3 Payment terms . 31
5.4.4 Taxation . 31
5.4.5 Price adjustment mechanisms — inflation, foreign exchange rates, benchmarking . 32
5.5 What legal system governs the service contract? . 32
5.6 How will the contracting parties deal with disputes? . 33
5.6.1 General. 33
5.6.2 Non-binding dispute resolution . 33
5.6.3 Binding dispute resolution . 34
5.6.4 Expert determination . 34
5.6.5 Arbitration . 34
5.6.6 Courts . 35
5.7 What is my exposure?. 35
5.7.1 General. 35
5.7.2 Apportionment of risk . 35
5.7.3 Limitation of liability . 36
5.7.4 Insurance . 37
5.8 What rights do I have in, and to the service outputs? . 37
5.8.1 General. 37
5.8.2 IP rights — ownership license . 37
5.9 When does the agreement commence, how is it terminated and consequences of
termination? . 38
5.9.1 Commencement and expiry . 38
5.9.2 Termination rights . 39
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5.9.3 Consequences of termination . 40
5.9.4 Exit management . 40
5.10 What considerations relate to information/data? . 42
5.10.1 General . 42
5.10.2 Confidential information . 43
5.10.3 IT security and data protection (GDPR) . 44
5.11 Making changes to the agreement and the contracting parties’ relationship . 46
5.11.1 General . 46
5.11.2 Variation/contract changes . 46
5.11.3 Governance/contract management . 47
5.12 What other terms do I need to consider? . 48
5.12.1 Background, recital, introduction . 48
5.12.2 Meaning of defined terms and interpretation . 48
5.12.3 Nature of appointment (exclusive and non-exclusive) . 49
5.12.4 Does the service contract allow group companies to order/receive services? . 49
5.12.5 Waiver. 49
5.12.6 Assignment and subcontracting/novation/change of control . 50
5.12.7 Export control/sanctions lists . 51
5.12.8 Force majeure . 51
5.12.9 Notices . 52
6 Service contract structures . 52
6.1 Overview . 52

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prEN 17371-2:2019 (E)
European foreword
This document (prEN 17371-2:2019) has been prepared by Technical Committee CEN/TC 447
“Horizontal standards for the provision of services”, the secretariat of which is held by BSI.
This document is currently submitted to the CEN Enquiry.
This document has been prepared under a mandate given to CEN by the European Commission and the
European Free Trade Association.
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Introduction
This document is part of a series of European Standards that address different phases in the provision
of services: the service procurement phase, the service contracting phase and the service execution
phase.

The drafting of the series was initiated after CEN presented the findings of a study on the potential and
a possible impact of horizontal service standards on the EU single market for services. This study was as
a response to the standardization request M/517 from the European Commission for programming and
development of horizontal service standards. The objective of this standardization request was to
encourage the development of voluntary European Standards covering issues common to many service
sectors. Such standards should aim to facilitate compatibility between services supplied by providers in
different Member States, improve information to the recipient and the quality of services offered in the
EU.
This document addresses the service contracting phase and has been developed to provide
organizations with guidance on the content, design and structure of service contracts. No part of this
document is intended to be mandatory for inclusion in a service contract; rather it is structured to
enable organizations entering into a service contract to identify the solution best suited to achieve the
intended business outcomes. The guidance lists the key components of a service contract that
organizations might think through as part of the broader solution being contracted. Based on the nature
of services being contracted, the service buyer and service provider can decide upon the specific
components for their service contract.
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1 Scope
This document provides guidance on the design and structure of service contracts. It is aimed at buyers
and service providers entering a contractual relationship who do not necessarily have legal training.
This document is applicable to any organization regardless of its type or size.
This document is not applicable to business-to-consumer (B2C) service contracts or for works
contracts.
NOTE 1 ‘Works contracts’ are contracts that have as their object the execution, or both the design and
execution, of a work are not covered. Contracts having as their object only the design of a work are covered.
NOTE 2 ‘Work’ means the outcome of building or civil engineering works taken as a whole which is sufficient in
itself to fulfil an economic or technical function.
2 Normative references
There are no normative references in this document.
3 Terms and definitions
For the purposes of this document, the following terms and definitions apply.
ISO and IEC maintain terminological databases for use in standardization at the following addresses:
• IEC Electropedia: available at http://www.electropedia.org/
• ISO Online browsing platform: available at http://www.iso.org/obp
3.1
consumer
individual member of the general public purchasing or using goods, property or services for personal,
family or household purposes
Note 1 to entry: Adapted from the ISO/IEC Statement on Consumer participation in Standardisation work
3.2
contracting parties
service buyer and service provider to a service contract (each a contracting party)
3.3
organization
person or group of people that has its own functions with responsibilities, authorities and relationships
to achieve its objectives
Note 1 to entry: The concept of organization includes, but is not limited to, sole-trader, company, corporation,
firm, enterprise, authority, partnership, association (3.2.8), charity or institution, or part or combination thereof,
whether incorporated or not, public or private.
Note 2 to entry: This constitutes one of the common terms and core definitions for ISO management system
standards given in Annex SL of the Consolidated ISO Supplement to the ISO/IEC Directives, Part 1. The original
definition has been modified by modifying Note 1 to entry.
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3.4
service contract
agreement between a service buyer and service provider setting out their legally binding rights and
obligations for the provision of services
3.5
service buyer
organization that buys services from a service provider
Note 1 to entry: In public procurement, the service buyer may also be known as the contracting authority/entity.
3.6
service performance target
target level of a key performance indicator to express the need, expectation, or obligation of service
buyer
3.7
service provider
organization or part of an organization that offers, supplies and/or manages one or more services
Note 1 to entry: Service providers can be external or internal to the service buyer’s organisation.
3.8
statement of work
SOW
agreement between a service buyer and service provider that sets out the scope and specifications of
services to be provided under the service contract.
Note 1 to entry: Not to be confused with works contracts which is defined separately and falls outside the scope
of this document.
3.9
works contracts
contracts having as their object the execution, or both the design and execution, of a work. Contracts
having as their object only the design of a work are covered
Note 1 to entry: “Work” in this definition means the outcome of building or civil engineering works taken as a
whole which is sufficient in itself to fulfil an economic or technical function.
4 Service contracts — principles
4.1 What is a service contract and what purpose does it serve?
Service contracts establish the agreement the contracting parties have made and assign their rights and
obligations in line with the terms of the service contract. Understanding the nature of the agreement is
key to its design and operation and importantly establishing its purpose. They impact elements such as
its term, specifications of services, performance standards, location and form of delivery of services, and
economics of the transactions to name a few. Service contracts relating to the purchase and sale of
services, which form the scope of this document, range from the simple to the more complex across
multiple parties with services, single or varied, spread over several years, across a single or multiple
location, etc.
Irrespective of the nature of the transaction, service contracts serve the key purpose of providing clarity
and transparency of the agreement between the contracting parties establishing the basis for a business
and economic relationship between the contracting parties.
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4.2 What does a “good” service contract look like?
What “good” looks like will vary depending on the circumstances (in most situations there is no such
thing as a “standard contract”) but in general a “good” service contract is one where each party is happy
that the benefits of the service contract outweigh the costs and/or risks. That doesn’t mean there
should always be equality in contract terms but where one party assumes greater risk than the other,
that party should be comfortable that the risk is sufficiently offset against the benefits that party derives
from the service contract.
The contracting parties should strive to ensure that whatever clauses are included in the service
contract, those clauses are drafted using straightforward, clear and concise wording. The service
contract should aim to be as short as possible but as long as is necessary.
5 Service contract components
5.1 General
This section provides an overview of the key components that may be found in a service contract,
details each component, their function and purpose and provides drafting examples. These examples
are only provided for illustration purposes and the contracting parties should seek professional legal
advice as to whether they may be appropriate to use for any particular service contract. The wording
and scope of such examples may also vary considerably depending on for example, the applicable law
governing the service contract, the nature of the services being provided, and the bargaining powers of
the contracting parties.
In order to enable the contracting parties to approach discussions from a business-orientated
standpoint, the contractual components to be considered have been grouped under the following
thematic questions:
• Who is entering into the service contract?
• What are the services, how are they ordered and what are the standards of service?
• How are charges calculated and paid?
• What legal system governs the service contract?
• How will the contracting parties deal with disputes?
• What is my exposure?
• What rights do I have in and to the service outputs?
• When does the agreement commence, how is it terminated and what are the consequences of
termination?
• What considerations relate to information/data?
• What is the intent and scope of the service contract and nature of the appointment?
• How will the contracting parties’ relationship be managed and what framework is in place if
changes need to be made?
• What other terms do I need to consider?
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5.2 Who is entering into the service contract?
In general, the obligations, rights and remedies under a service contract will only apply to, and be
enforceable by, the contracting parties to such agreement. Therefore, it is important to clearly identify
which legal entities are entering into the service contract.
Where the contracting parties are not identified or are not correctly or sufficiently identified (e.g. where
one of the contracting parties is referred to as XYZ and is a member of a group of companies with
similar names, it is not clear if the contracting party refers to XYZ [Subsidiary] Limited or its parent
company XYZ Limited), then there is a risk that the service contract is either not enforceable or that it is
enforceable but against an unintended party.
Service contracts should clearly identify the contracting parties to such service contract. To help clearly
identify a contracting party it is useful to include any registration details such as a company registration
number or registered office where these are listed in a national database e.g. details for all English
registered companies are stored with Companies House and are freely searchable online.
If there are more than two parties entering into the service contract (for example, more than one entity
on the service buyer or service provider side) then each additional party should be specified and
thought should be given as to which terms will apply to which parties.
The service contracts signed on behalf of an organization should be signed by authorised representative
of the contracting parties and identified in the service contract.
EXAMPLE – two contracting parties, one service buyer and one service provider
THIS AGREEMENT is made on [insert date]
BETWEEN:
[Service buyer's details] a company incorporated in [jurisdiction] under company registration number [number]
and whose registered office is at [address] (the "Customer"); and
[Service provider's details] a company incorporated in [jurisdiction] under company registration number
[number] and whose registered office is at [address] (the "Supplier").
EXAMPLE – execution blocks
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorised
representatives.
For and on behalf of: For and on behalf of:
Customer Supplier

SIGNATURE: SIGNATURE:
NAME: NAME:
TITLE: TITLE:
DATE: DATE:
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5.3 What are the services – how are they specified, ordered and what are the service
performance targets?
5.3.1 Service description
5.3.1.1 General
A fundamental component of the service contract is the service scope and description which defines the
services which are being sourced by the service buyer from the service provider. It outlines the ‘’What’’
of the service contract. In service contracts developed by the contracting parties in a collaborative
manner with the intent of building a positive relationship, the service buyer organization specifies what
it wants and shifts the responsibility of determining how the work gets delivered to the service
provider. Whilst this is a general principle, it should be remembered that in the context of some services
being contracted, the contracting parties need to consider if there is a need for a detailed description of
how the services are provided or whether the focus should be on the composition of services being
provided. In either context it is very important for contracting parties to spend time to get this
component correct as this would determine the services that eventually get delivered by the service
provider, not just what gets delivered but also its efficiency, effectiveness and future transformation.
This clause provides considerations to be kept in mind while designing the service scope and
description.
Consideration should also be given to where and when there services should be provided and then
detailed in the service contract.
5.3.1.2 Mistaking the “How” for the “What”
A common mistake made in designing contracts is for the service buyer organization to define both the
“what services are being delivered” and “how those services should be delivered” at length, including
resource numbers and ratios of management to operational employees etc. In other words, after
spending time, effort and resources on a sourcing process to determine the most competent service
provider, the service buyer then proceeds to specify to the “expert” how to deliver the work. Many
service buyers believe this gives them greater control over their supplier in the delivery of services.
This approach may in fact deliver sub-optimal results and could drive the wrong behaviour on both
sides over the term of the service contract. In the first instance, by specifying “how” the work should be
performed, the service provider’s innovation and enterprise that could potentially be brought to the
delivery of services, is constrained. What this does over the term of the service contract is to perpetuate
the old processes and performance levels obtained in the service buyer organization. If the objective of
sourcing the services was to drive innovation and transformation, then this objective could be defeated.
Secondly, it could create an unintended consequence of driving behaviour contrary to the service
buyers’ belief, i.e. a detailed specification of the “how” would enable service buyers to drive service
provider performance to desired levels. The perverse outcome of this could be to enable the service
provider avoid accountability for results. The service provider organization develops a behaviour that is
focussed on just meeting contract requirements. This is particularly true where contract economics are
based on a traditional headcount (principally on a time and material basis).
a) Think end-to-end processes/functions not tasks
Organizations often think of scope in terms of specific tasks to be performed. It is natural for managers
to think along the lines of how they currently perform their work. However, it does not work when the
service is being sourced from a service provider who will probably be working from their delivery
location which may not be located near to the service buyer.
This approach can lead to fragmented scope which could result in inefficiencies and lower quality
outputs through a greater number of hand-offs between the service provider and service buyer
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organizations and limited scale economies. Another potential proble
...

SLOVENSKI STANDARD
oSIST prEN 17371-2:2020
01-julij-2020
Zagotavljanje storitev - 2. del: Pogodbe o storitvah - Navodilo za oblikovanje,
vsebino in strukturo pogodb
Provision of services - Part 2: Services Contracts - Guidance for the design, content and
structure of contracts
Dienstleistungserbringung - Teil 2: Dienstleistungsverträge - Leitlinien für die Gestaltung
und Struktur von Verträgen
Prestation de services - Partie 2 : Contrats de services - Recommandations pour
l’élaboration, le contenu et la structure des contrats
Ta slovenski standard je istoveten z: prEN 17371-2
ICS:
03.080.01 Storitve na splošno Services in general
oSIST prEN 17371-2:2020 en,fr,de
2003-01.Slovenski inštitut za standardizacijo. Razmnoževanje celote ali delov tega standarda ni dovoljeno.

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oSIST prEN 17371-2:2020

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oSIST prEN 17371-2:2020


DRAFT
EUROPEAN STANDARD
prEN 17371-2
NORME EUROPÉENNE

EUROPÄISCHE NORM

June 2020
ICS 03.080.01
English Version

Provision of services - Part 2: Services Contracts -
Guidance for the design, content and structure of contracts
Prestation de services - Partie 2 : Contrats de services - Dienstleistungserbringung - Teil 2:
Recommandations pour l'élaboration et la structure Dienstleistungsverträge - Leitlinien für die Gestaltung
des contrats und Struktur von Verträgen
This draft European Standard is submitted to CEN members for second enquiry. It has been drawn up by the Technical
Committee CEN/TC 447.

If this draft becomes a European Standard, CEN members are bound to comply with the CEN/CENELEC Internal Regulations
which stipulate the conditions for giving this European Standard the status of a national standard without any alteration.

This draft European Standard was established by CEN in three official versions (English, French, German). A version in any other
language made by translation under the responsibility of a CEN member into its own language and notified to the CEN-CENELEC
Management Centre has the same status as the official versions.

CEN members are the national standards bodies of Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia,
Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway,
Poland, Portugal, Republic of North Macedonia, Romania, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey and
United Kingdom.

Recipients of this draft are invited to submit, with their comments, notification of any relevant patent rights of which they are
aware and to provide supporting documentation.

Warning : This document is not a European Standard. It is distributed for review and comments. It is subject to change without
notice and shall not be referred to as a European Standard.


EUROPEAN COMMITTEE FOR STANDARDIZATION
COMITÉ EUROPÉEN DE NORMALISATION

EUROPÄISCHES KOMITEE FÜR NORMUNG

CEN-CENELEC Management Centre: Rue de la Science 23, B-1040 Brussels
© 2020 CEN All rights of exploitation in any form and by any means reserved Ref. No. prEN 17371-2:2020 E
worldwide for CEN national Members.

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Contents Page
European foreword . 3
Introduction . 4
1 Scope . 5
2 Normative references . 5
3 Terms and definitions . 5
4 Service contracts — principles . 6
4.1 What is a service contract and what purpose does it serve? . 6
4.2 Service contract structures . 6
5 Service contract components . 7
5.1 General. 7
5.2 Who is entering into the service contract? . 7
5.3 What are the services – how are they specified, ordered and what are the service
performance targets? . 8
5.4 How are charges calculated and paid? . 13
5.5 What legal system governs the service contract? . 15
5.6 How will the contracting parties deal with disputes? . 16
5.7 What is the exposure? . 17
5.8 What rights are there in, and to, the service outputs?. 18
5.9 When does the agreement commence, how is it terminated and what are the
consequences of termination? . 19
5.10 What considerations relate to information/data? . 20
5.11 Making changes to the agreement and the contracting parties’ relationship . 21
5.12 What other terms need to be considered? . 22
Annex A (informative) Service agreements - example structures. 25
Annex B (informative) Drafting examples . 32
Annex C (informative) Service scope and description . 49
Annex D (informative) Pricing models . 52
Annex E (informative) Exit management . 54
Bibliography . 57
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European foreword
This document (prEN 17371-2:2020) has been prepared by Technical Committee CEN/TC 447
“Horizontal standards for the provision of services”, the secretariat of which is held by BSI.
This document is currently submitted to the CEN Enquiry.
This document has been prepared under a mandate given to CEN by the European Commission and the
European Free Trade Association.
3

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Introduction
This document is part of a series of European Standards that address different phases in the provision of
services (see Figure 1): the service procurement phase (FprEN 17371-1), the service contracting phase
(prEN 17371-2) and the service execution phase (FprEN 17371-3).
Each part of the series can be used individually or in combination with the other parts.

Figure 1 — Phases in the provision of services
The drafting of the series was initiated after CEN presented the findings of a study on the potential and a
possible impact of horizontal service standards on the EU single market for services. This study was as a
response to the standardization request M/517 from the European Commission for programming and
development of horizontal service standards. The objective of this standardization request was to
encourage the development of voluntary European Standards covering issues common to many service
sectors. Such standards should aim to facilitate compatibility between service providers and improve
information and the quality of services to the recipient.
This document addresses the service contracting phase and has been developed to provide organizations
with guidance on the design, content and structure of service contracts. No part of this document is
intended to be mandatory for inclusion in a service contract; rather it is structured to enable
organizations entering into a service contract to identify the solution best suited to achieve the intended
business outcomes. The guidance lists the key components of a service contract that organizations might
think through as part of the broader solution being contracted. Based on the nature of services being
contracted, the service buyer and service provider can decide upon the specific components for their
service contract. This document does not provide guidance regarding the applicable legal rules and
regulations.
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1 Scope
This document provides guidance on the design, content and structure of service contracts. It is aimed at
buyers and service providers entering a contractual relationship who do not necessarily have legal
training. The guidance set out in this document does not constitute legal advice.
This document is applicable to:
a) service buyers and service providers regardless of type, size or the nature of the services;
b) service providers who may be inside or outside the service buyers' organization; and
c) any interested parties who are directly or indirectly involved in or affected by a procurement process.
This document is not applicable to business-to-consumer (B2C) service contracts or for works contracts.
NOTE 1 ‘Works contracts’ are contracts that have as their object the execution, or both the design and execution,
of a work are not covered. Contracts having as their object only the design of a work are covered.
NOTE 2 ‘Work’ means the outcome of building or civil engineering works taken as a whole which is sufficient in
itself to fulfil an economic or technical function.
2 Normative references
There are no normative references in this document.
3 Terms and definitions
For the purposes of this document, the following terms and definitions apply.
ISO and IEC maintain terminological databases for use in standardization at the following addresses:
• IEC Electropedia: available at https://www.electropedia.org/
• ISO Online browsing platform: available at https://www.iso.org/obp
3.1
contracting parties
service buyer and service provider being parties to a service contract (each a contracting party)
3.2
service buyer
organization that buys services from a service provider
Note 1 to entry: In public procurement, the service buyer may also be known as the contracting authority/entity.
3.3
service contract
agreement between a service buyer and service provider setting out their legally binding rights and
obligations for the provision of services
3.4
service order
agreement between a service buyer and service provider that sets out the scope and specifications of
services to be provided under the service contract
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3.5
service performance target
target level of a key performance indicator to express the need, expectation, or obligation of service buyer
3.6
service provider
organization that offers or delivers one or more services
4 Service contracts — principles
4.1 What is a service contract and what purpose does it serve?
Service contracts form legally binding agreements between the service buyer and service provider that
enter into them and have the key purpose of providing clarity on who is ordering a service, who is
providing the service, what service should be provided, where and when and for what remuneration. The
service contract should be in writing, as well as dated and signed by the service buyer and the service
provider. What does a “good” service contract look like?
What “good” looks like will vary depending on the circumstances (in most situations there is no such
thing as a “standard contract”). The contracting parties should strive to ensure that whatever clauses are
included in the service contract, those clauses are drafted using straightforward, clear and concise
wording. The service contract should aim to be as short as possible but as long as is necessary.
4.2 Service contract structures
It is important that the necessary contents of a service contract are brought together into a clear
structure. While there are certain basic elements that should be present in all service contracts (as
mentioned in subclause 4.1 above), the length and structure may vary considerably.
Service contracts based on common law systems (such as English law) tend to be longer than in civil law
systems (like much of the rest of Europe) as few provisions are implied by law therefore the service
contract tends to be more comprehensive in setting out all of the terms which will govern the supply of
services. In civil law systems much of the law is codified and will apply to contracts they govern unless
otherwise specified.
The service contract may take the form of a framework agreement which provides a structure and
mechanism for ordering and providing services from time to time on the terms established under the
service contract. Often this mechanism involves completing a service order which sets out, within the
terms under the framework, the specific services, specifications and obligations in respect of the services,
service standards, economics and other considerations that determine and impact the delivery of
services.
In order to keep larger and more complex service contract easier to read and manageable, specific
elements of the service contract are often dealt with in schedules, exhibits or attachments to the main
agreement such as with lengthy service descriptions, service level and credit mechanisms or charging
mechanisms.
Examples of simple service contract structures are set out as EXAMPLE 1 and 2 in Annex A. More complex
framework agreement examples are set out as EXAMPLES 3 and 4 of Annex A. There is no fixed rule on
which party will establish the basis of the service contract. In some cases, it may be established by the
service buyer possibly through and as part of the service procurement process (see FprEN 17371-1)
while in other cases it may be established by the service provider.
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5 Service contract components
5.1 General
This clause provides an overview of the key components that may be found in a service contract, details
each component, their function and purpose.
Annex B sets out drafting examples of service components described in this clause and are provided for
illustration purposes only.
In order to enable the contracting parties to approach discussions from a business-orientated standpoint,
the contractual components to be considered have been grouped under the following themes:
— Who is entering into the service contract? (subclause 5.2)
— What are the services – how are they specified, ordered and what are the service performance
targets? (subclause 5.3)
— How are charges calculated and paid? (subclause 5.4)
— What legal system governs the service contract? (subclause 5.5)
— How will the contracting parties deal with disputes? (subclause 5.6)
— What is the exposure? (subclause 5.7)
— What rights are there in and to the service outputs? (subclause 5.8)
— When does the agreement commence, how is it terminated and what are the consequences of
termination? (subclause 5.9)
— What considerations relate to information/data? (subclause 5.10)
— Making changes to the agreement and the contracting parties’ relationship (subclause 5.11)
— What other terms need to be considered? (subclause 5.12)
5.2 Who is entering into the service contract?
In general, the obligations, rights and remedies under a service contract will apply to, and be enforceable
by, only the contracting parties to such agreement. Therefore, it is important to clearly identify which
legal entities are entering into the service contract.
Where the contracting parties are not identified or are not correctly or sufficiently identified, then there
is a risk that the service contract is either not enforceable or that it is enforceable but against an
unintended party. This could happen, for example, where one of the contracting parties is referred to as
XYZ and is a member of a group of companies with similar names, meaning it is not clear if the contracting
party refers to XYZ [Subsidiary] Limited or its parent company XYZ Limited.
Service contracts should clearly identify the contracting parties to such service contract. To do this it is
useful to include any registration details such as a company registration number or registered office
where these are listed in an official database e.g. Companies House for English registered companies, the
German Commercial Register for German registered companies or the Registre de Commerce et des
Sociétés for French companies.
If there are more than two parties entering into the service contract (for example, more than one entity
on the service buyer or service provider side) then each additional party should be specified and thought
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should be given as to which terms will apply to which parties. This document and the drafting examples
in Annex B assume there are two parties to the service contract, the service buyer and service provider.
The service contracts signed on behalf of an organization should be signed by authorized representative
of the contracting parties and identified in the service contract.
5.3 What are the services – how are they specified, ordered and what are the service
performance targets?
5.3.1 Service description
A fundamental component of the service contract is the service scope and description which defines the
services which are being sourced by the service buyer from the service provider. In service contracts
developed by the contracting parties in a collaborative manner with the intent of building a positive
relationship, the service buyer specifies what it wants and shifts the responsibility of determining how
the work gets delivered to the service provider. Whilst this is a general principle, it should be
remembered that in the context of some services being contracted, the contracting parties need to
consider if there is a need for a detailed description of how the services are provided or whether the focus
should be on the composition of services being provided. In either context it is very important for
contracting parties to spend time to get this component correct as this would determine the services that
eventually get delivered by the service provider, not just what gets delivered but also its efficiency,
effectiveness and future transformation.
For each service being delivered the contracting parties should consider which party does the
requirement fall on, what are they required to do, where should it be done, by when and (where relevant)
in what manner (the who, what, where, when and how) and then detail this in the service contract.
Annex C provides considerations to be kept in mind while designing the service scope and description.
5.3.2 Transition and preparation/transformation to or during the provision of services
For some service contracts there may be a need for an initial transfer of people, assets and/or processes
from either the service buyer or the incumbent service provider being replaced. Once such transition
activities have been completed, the incoming service provider would then be able to commence with the
supply of services to the service buyer.
Transformative activities entail making changes to the provision of such services so what the service
buyer then receives will be different to what was being supplied previously.
Where such activities are required within the scope of the service contract, the contracting parties may
consider:
— What the scope of such services are (see subclause 5.1).
— What the output or deliverables of the services are.
— When such activities should be completed by i.e. a milestone date.
— What the consequences of failing to reach such a milestone would be (termination, liquidated
damages, etc.).
5.3.3 Mechanism for ordering services
This service component addresses the theme of how the service contract allows the service buyer to
order services.
Along with a description of the services being provided, the contracting parties should consider whether
the service contract needs to set out a process for how the services will be ordered throughout its
duration. For some service contracts it may be appropriate for all services to be provided from the date
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the service contract becomes effective, while for others the supply of services may only be needed on a
project-by-project basis in which case the service contract should specify the mechanism for ordering
such services.
Another consideration which should be addressed in the service contract if applicable is whether group
companies of the contracting parties entering into the service contract may order and supply services
under the terms of the service contract using the same mechanism.
5.3.4 Service performance targets
5.3.4.1 General
FprEN 17371-3 provides guidance and a model for defining a service measurement structure to facilitate
service monitoring, measurement analysis and evaluation.
Service performance management is an important component in service contracts to ensure the robust
and efficient management of performance of services agreed between the contracting parties. In keeping
with the spirit of building a relational contract, this component is aimed at a collaborative exercise
between the contracting parties to achieve the desired performance levels. The allocation of
responsibility outlined in subclause 5.3.1 forms the basis for this component by outlining the
performance levels expected of the service provider on the assumption that the service buyer discharges
its obligations.
Service performance management should be viewed as a means to provide insight into service delivery
and to drive continuous improvement. Too much emphasis on a large set of metrics could drive focus
towards the minutiae, losing sight of the bigger picture.
Cost and effort are also expended in tracking, measuring, collating and reporting performance metrics so
this effort should be focused on key metrics.
The service management framework in the service contract should be based on the following principles:
• Provide a comprehensive framework to measure end-to-end process performance;
• Align service metrics with the desired business outcomes;
• Establish transparent and clear allocation of responsibility and accountability for service delivery
between the service buyer and service provider;
• Establish governance protocols (including financial mechanisms) embedded in the service
management framework to ensure continuous performance review, ongoing course correction and
service improvement;
• Provide stability in service performance;
• Provide visibility and transparency of service performance to all stakeholders; and
• Drive behaviour to actively move service performance targets to higher global performance levels
over the life of the service contract.
5.3.4.2 Service performance metrics
5.3.4.2.1 Definition
Service performance metrics are indicators of the performance of services being delivered as part of the
service contract, including both those delivered by the service provider and the end-to-end service
covering activities retained by the service buyer.
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The process of designing these metrics is covered in FprEN 17371-3. Once identified, the service
performance management mechanism to be included in the service contract should consider the
following:
— What is the service or event being measured?
— Over what period of time are the measurements to be assessed (daily, weekly, monthly, annually)?
— What is the standard of performance to be achieved e.g. 98 % of service availability?
— Will there be a burn-in period where the parties collect data and agree on a realistic baseline for
measurement? (see 5.3.4.3)
— Are there any exclusions from such measurements e.g. downtime of a platform while routine
maintenance takes place?
— Which party will measure and report against the service performance targets and how often?
— How can the contracting parties modify, add or remove any service performance targets over time?
— What is the impact of failing to meet a service performance target?
— If financial penalties (also termed service credits) apply, will they be deducted immediately or upon
request?
— Is there a cap on the amount of service credits?
— Are service credits the sole and exclusive remedy for a service performance target failure or are they
in addition to other rights (including termination)?
5.3.4.3 Data collection and baseline process
It is very important for the service contract to include baseline measurements for all metrics including
volume metrics. The importance of the baseline lies in being the starting point for all future
measurements over the term of the service contract. The baselines should be agreed by the contracting
parties using the agreed measurement definition and methodology. It is advisable for both contracting
parties to consider the need for undertaking a baseline exercise. While it may be expedient in the short
term, it can have significant adverse effect over the term of the service contract. Hence it is a decision that
should not be taken lightly.
Further, it is also important to agree and document in the service contract the baselining methodology.
For example, to arrive at a baseline for a metric measured monthly, would six months data suffice or 12
months, how would data outliers be handled etc.? Baselining is not just a one-off activity to be performed
at the start of the service contract but would need to be undertaken during the term of the service
contract should a new metric be introduced.
In some instances, historical data may not be available, either at the commencement of the service
contract or during its term. To address this situation, service contracts use a concept known as a “Burn-
In period” to enable the contracting parties to track and measure the metric for an agreed length of time.
At the end of this period, the contracting parties agree to a baseline derived from the measurements
during this period.
Some service contracts suspend the service penalty in respect of service performance metrics within the
duration of the burn-in period.
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5.3.4.4 Governance of service performance management
5.3.4.4.1 General
Governance of service performance management relates to the way the contracting parties would
manage on-going service performance through the service performance management framework. It
comprises:
— Performance measurement and reporting;
— Service monitoring and review;
— Non-performance at agreed service performance targets;
— Changes to service metrics.
5.3.4.4.2 Performance measurement reporting
The service contract should specify the performance measurement and reporting obligations of the
service provider.
5.3.4.4.3 Service monitoring and review
Service performance should be monitored and reviewed by the contracting parties as per the protocols
established under the governance structure of the service contract.
5.3.4.4.4 Non-performance at agreed service performance target
5.3.4.4.4.1 General
Over the term of the service contract it is likely that the service provider may miss delivering at the agreed
objectives as measured by service metrics. The service performance management framework should
clarify actions and implications of the service provider’s failure to meet agreed service standards.
Service contracts follow a two-step process to address this situation:
a) Root cause analysis and remediation plan
b) Financial service credits
5.3.4.4.4.2 Root cause analysis and remediation plan
When a service metric is missed, the first action is for the service provider to perform a root cause
analysis to identify the source of the failure and obtain the service buyer’s approval. Along with
identif
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