A service contract agreement (SCA) sets the rules for how a company (service provider) will deliver services to a client. In the Philippines, SCAs are largely governed by the Civil Code on obligations and contracts, plus special laws depending on the service (e.g., data privacy, IP, labor, consumer, tax, e-commerce). Below is a practical, Philippine-context guide to the clauses you typically need, why they matter, and how they commonly look in real contracts.

1. Parties, Capacity, and Authority

What it does: Clearly identifies who is contracting and confirms they can legally bind themselves.

Philippine context:

Contracts are binding only if parties have legal capacity and consent. Corporations act through authorized representatives.
If signing for a corporation, the signatory should cite authority (board resolution, secretary’s certificate, or SPA).

Include:

Full legal names, citizenship (if individual), addresses, registration details (if entity, include SEC/DTI, TIN).
Statement that the signatories are duly authorized.

2. Recitals / Background

What it does: Explains the business context, which helps interpret ambiguous provisions.

Philippine context:

Courts may look at recitals to infer intent if operative clauses are unclear.

Include:

Brief “WHEREAS” statements tied to the purpose of the engagement.

3. Scope of Services (Statement of Work)

What it does: Defines exactly what the provider will do—and what it will not do.

Philippine context:

Civil Code requires a determinate object for validity.
Clear scope reduces disputes and supports claims for payment or damages.

Include:

Detailed description of services, deliverables, standards, tools, timelines.
Explicit exclusions and client responsibilities.
Reference to annexed SOWs, proposals, or purchase orders.

Best practice: Use measurable outputs and acceptance criteria.

4. Term and Effectivity

What it does: States when the contract starts and ends.

Philippine context:

If no term is stated, termination can become contentious (e.g., implied reasonable duration).

Include:

Effectivity date.
Duration (fixed term or ongoing).
Renewal terms (automatic or by notice).

5. Fees, Billing, and Payment Terms

What it does: Establishes price and how/when payment happens.

Philippine context:

Nonpayment triggers legal remedies under Civil Code; clarity is key for collection.
Tax rules matter: VAT vs non-VAT, withholding tax, BIR invoicing.

Include:

Fee structure (fixed, milestone, time-based, retainer).
Billing schedule and required documents (official receipts/invoices).
Payment period (e.g., 15/30/45 days).
Interest for late payment (stipulated; courts may reduce unconscionable rates).
Withholding tax allocation (client usually withholds expanded withholding tax and issues BIR Form 2307).
Currency and bank details.

6. Cost Reimbursement and Expenses

What it does: Clarifies who pays for travel, materials, third-party tools, etc.

Philippine context:

“No reimbursement unless pre-approved” is common to avoid surprise charges.

Include:

Expense categories eligible for reimbursement.
Approval process and receipts requirement.

7. Service Levels and Acceptance

What it does: Defines quality metrics and when work is considered complete.

Philippine context:

Acceptance clauses prevent clients from delaying payment by refusing to “accept” deliverables indefinitely.

Include:

Service level targets (uptime, response time, turnaround).
Client review window (e.g., deemed accepted if no written rejection within X days).
Correction/rework procedure.

8. Roles and Responsibilities of Each Party

What it does: Allocates tasks that support delivery.

Philippine context:

If the client’s cooperation is required (access, approvals, data), spell it out to avoid blame shifting.

Include:

Client obligations, access requirements, designated contact persons.
Provider obligations, escalation channels.

9. Change Management / Variations

What it does: Sets a process for changes in scope, schedule, or price.

Philippine context:

Without a change clause, “verbal add-ons” become hard to recover.

Include:

Written change request format.
Impact assessment on cost/time.
Approval authority.

10. Confidentiality and Non-Disclosure

What it does: Protects business and personal information shared during the engagement.

Philippine context:

Confidentiality is enforceable under Civil Code and trade secret principles.
Should align with Data Privacy Act (DPA) if personal data is involved.

Include:

Definition of confidential information.
Permitted uses and disclosures.
Exceptions (public domain, prior knowledge, required by law).
Duration (often survives termination).
Remedies for breach (injunction, damages).

11. Data Privacy and Security (If Personal Data Is Processed)

What it does: Ensures compliance with Republic Act No. 10173 (Data Privacy Act) and NPC rules.

Philippine context:

If provider handles personal data for client, the provider is typically a Personal Information Processor (PIP) and client is a Personal Information Controller (PIC).
Contracts must include processing instructions and safeguards.

Include:

Purpose, nature, and duration of processing.
Types of personal data and data subjects.
Security measures (organizational/physical/technical).
Breach notification timelines and cooperation.
Sub-processing rules.
Data return/deletion on termination.
Audit/inspection rights.

12. Intellectual Property (IP) Ownership and Licensing

What it does: States who owns outputs and pre-existing IP.

Philippine context:

IP ownership defaults can be unclear without a clause.
Copyright and related rights are under the IP Code; assignment must be clear and in writing.

Include:

Background IP: what each party already owns stays theirs.
Foreground IP / Deliverables: owned by client, provider, or licensed—spell it out.
Scope of license (exclusive/non-exclusive, territory, duration, sublicensing).
Moral rights waivers (where allowed) and crediting.
Use of provider tools/templates.

Pitfall: If provider wants to reuse general know-how, reserve that right.

13. Warranties and Representations

What it does: Promises about authority, quality, and compliance.

Philippine context:

Warranties define breach standards and remedies.

Include:

Provider warranties: due skill and care, compliance with laws, non-infringement, qualified personnel.
Client warranties: ownership of materials/data supplied, lawful use, authority to contract.

14. Limitation of Liability

What it does: Caps or limits damages exposure.

Philippine context:

Parties can stipulate damage limits unless contrary to law, morals, or public policy.
Gross negligence, fraud, or willful misconduct usually cannot be waived.

Include:

Liability cap (often tied to fees paid).
Exclusion of indirect or consequential damages.
Carve-outs (confidentiality breach, IP infringement, data privacy violations, gross negligence, fraud).

15. Indemnity

What it does: Shifts third-party claim risk (e.g., IP infringement, data claims).

Philippine context:

Indemnity is enforceable and often paired with defense obligations.

Include:

What claims are covered (scope).
Duty to defend vs reimburse.
Notice and cooperation requirements.
Control of settlement.
Mutual or one-way indemnities.

16. Independent Contractor Relationship / No Employment

What it does: Clarifies that provider is not the client’s employee.

Philippine context:

Important to avoid being treated as an employer-employee relationship under labor law.
Especially critical when individuals/staff are deployed to client sites.

Include:

No control over means and methods except results.
Provider handles its own taxes, SSS/PhilHealth/Pag-IBIG contributions for its personnel.
No entitlement to employee benefits from client.

17. Non-Solicitation / Non-Poaching (Optional)

What it does: Prevents the client from hiring provider’s employees (or vice versa).

Philippine context:

Generally enforceable if reasonable in scope/time. Overly broad restraints can be struck down.

Include:

Covered personnel.
Duration (e.g., during term + 6–12 months).
Exception for general public job ads.
Liquidated damages if breached.

18. Non-Compete (Rare in B2B; Use Carefully)

What it does: Restricts provider from serving competitors or client from using competitors.

Philippine context:

Restraint of trade clauses must be reasonable in time, place, and scope; otherwise unenforceable.

Include:

Clear competitor definition.
Narrow, business-justified duration.

19. Subcontracting and Assignment

What it does: Controls whether rights/obligations can be transferred.

Philippine context:

Assignment without consent can be challenged if it changes contract nature.

Include:

Whether subcontracting is allowed.
Client consent requirement.
Provider remains liable for subcontractors.
Assignment rules in corporate restructuring.

20. Compliance With Laws and Permits

What it does: Requires both parties to follow applicable laws.

Philippine context:

Different services trigger different laws (e.g., FDA rules, BSP circulars, construction permits).

Include:

General compliance clause.
Specific regulatory requirements applicable to the service.

21. Force Majeure

What it does: Excuses delay/nonperformance due to uncontrollable events.

Philippine context:

Civil Code recognizes fortuitous events; clause clarifies notice and effects.

Include:

Events covered: natural disasters, war, government actions, pandemics, major outages.
Notice timeline.
Suspension vs termination after prolonged force majeure.
Payment treatment for work already done.

22. Termination

What it does: Defines how either party can end the agreement.

Philippine context:

Without a termination clause, unilateral termination may be treated as breach unless justified.

Include:

Termination for convenience (with notice, e.g., 30 days).
Termination for cause (material breach + cure period).
Immediate termination grounds (insolvency, illegality, repeated breach, data breach).
Effects: final billing, return of property/data, survival clauses.

23. Dispute Resolution

What it does: Sets the path for handling disputes.

Philippine context:

Parties may choose litigation, arbitration, mediation, or multi-tier processes.
Arbitration is governed by ADR Act and relevant rules (e.g., PDRCI).

Include:

Escalation steps (negotiation → mediation → arbitration/court).
Location/seat if arbitration.
Language.
Interim relief rights.

24. Governing Law and Venue

What it does: States what law applies and where disputes are filed.

Philippine context:

For local contracts, governing law is typically Philippine law.
Venue clauses are usually respected if exclusive and clear, unless unreasonable.

Include:

“This Agreement shall be governed by the laws of the Republic of the Philippines.”
Venue: city/region and whether exclusive.

25. Notices

What it does: Specifies how formal communications must be sent.

Philippine context:

Prevents “we didn’t receive notice” arguments.

Include:

Addresses and emails for notice.
Modes: courier, personal delivery, email (with rules on deemed receipt).
Notice effectivity timelines.

26. Entire Agreement / Integration Clause

What it does: Prevents side deals or prior discussions from overriding the contract.

Philippine context:

Useful against claims of verbal promises.

Include:

Agreement + annexes constitute full understanding.

27. Amendments

What it does: Requires changes to be in writing.

Philippine context:

Protects against alleged oral modifications.

Include:

Written, signed amendments only.

28. Severability

What it does: Keeps the rest of the contract alive if one part is invalid.

Philippine context:

Courts may strike invalid restraints but uphold remaining terms.

29. Waiver

What it does: Says failure to enforce once isn’t a permanent waiver.

Include:

Waivers must be written.

30. Counterparts and Electronic Signatures

What it does: Allows signing in copies and via e-sign.

Philippine context:

E-Commerce Act recognizes electronic documents and signatures, if reliable and consented to.

Include:

Contract may be executed in counterparts.
Electronic signatures are valid and binding.

31. Liquidated Damages / Penalties (Optional)

What it does: Pre-agreed damages for specific breaches (delay, non-solicitation breach).

Philippine context:

Courts can reduce liquidated damages if unconscionable, but will usually enforce reasonable ones.

Include:

Triggering events and amount/formula.

32. Insurance (Optional but Common in High-Risk Services)

What it does: Ensures a financial backstop (professional liability, cyber, general liability).

Include:

Required coverage types and minimum limits.
Proof of insurance and renewal.

33. Audit Rights (Optional)

What it does: Lets client verify compliance (often for billing or privacy).

Philippine context:

Common in regulated industries (finance, health).

Include:

Reasonable notice, scope limits, confidentiality of audit findings.

34. Ownership and Return of Client Property / Materials

What it does: Clarifies custody of tools, data, equipment.

Include:

Client property remains client’s.
Return timelines.
Liability for loss/damage (except wear and tear).

35. Publicity and Use of Name/Logo (Optional)

What it does: Controls marketing references.

Include:

Whether provider can list client as a customer.
Approval for press releases.

36. Practical Drafting Tips in the Philippine Setting

Match contract structure with annexes. Many PH SCAs use a short master agreement plus annexed SOWs for each project.
Be careful with “time is of the essence.” If you include it, delays become material, enabling termination or damages.
Don’t ignore taxes. Explicit withholding/VAT allocation avoids BIR disputes between parties.
Define “business days.” Usually “Monday to Friday, excluding Philippine holidays.”
Localize venue and notices. Use Philippine addresses and specify NCR vs province venue clearly.
Avoid overbroad restraints. Non-compete/non-solicit need to be reasonable or risk unenforceability.
Think about government clients. If contracting with government, procurement rules may require special clauses and audit access.
Align with sector rules. Example: fintech needs BSP-aligned data security and subcontracting limits.

37. Common Risk Areas and How Clauses Fix Them

Scope creep: fixed by strong Scope + Change Management.
Payment delays: fixed by Acceptance + Billing + Interest + Withholding clarity.
IP confusion: fixed by clear Background vs Foreground IP.
Data privacy exposure: fixed by DPA-compliant processing and breach terms.
Labor misclassification: fixed by Independent Contractor clause and actual practice.
Unbounded liability: fixed by Limitation of Liability + Indemnities + Insurance.

38. Clause Survival After Termination

Typically, these survive:

Confidentiality
IP ownership/license
Payment obligations accrued
Limitation of liability
Indemnity
Dispute resolution
Data privacy obligations (until data returned/deleted)

Include a survival clause listing these explicitly.

Conclusion

A solid Philippine service contract is not just a template—it’s a risk-allocation map. The must-have clauses are those that (1) precisely define services and payment, (2) protect sensitive data and IP, (3) prevent employment and regulatory problems, and (4) establish realistic remedies and dispute pathways. When drafted plainly, with Philippine legal and business realities in mind, these clauses turn a working relationship into something enforceable, predictable, and fair for both provider and cl