Parties to the Agreement

The parties must be defined in the agreement as the principal and the agent. The party hiring the service agency is the principal. The agreement also designates the service agency or its representatives as agents for the principal. Depending on the contract that was negotiated, the agreement may cover all employees of the agency or be limited to one or more account managers.

Limitation of Authority

The service agreement gives the agency the authority to take actions necessary to carry out the desired business relationship. If you want to restrict the scope of this authority, you must include explicit limitations in the contract. The agency's actions must be reasonable for the type of business relationship it has with the principal. For example, an investment broker has the authority to sell stocks on the principal's behalf, but not to close his business checking account. Allowing access to an account or credit card may be considered an implicit grant of authority.

Fiduciary Relationship

A service agency agreement creates a fiduciary relationship between the parties. A fiduciary is legally required to act on behalf of another party. The agent effectively takes the place of the principal in the transaction. This saves time by allowing the agent to negotiate deals without waiting for the principal's approval.

Fee Schedule

Make sure the service agreement includes a detailed breakdown of the agency"s fees. Service agencies may charge a flat amount or use a performance-based schedule to determine their fees. If the fees are tied to the agency's performance, the agreement should list the method of verifying performance and calculating the fee. Long-term agreements should also include a schedule of expected fee increases in the future.