Spring inspection: does your services agreement meet the reasonable care and skill standard?

As you review your business’s commercial arrangements this spring, it’s worth checking whether your services agreement clearly sets out the standard of performance you expect of your service provider.

The answer to this often lies in the interaction between the contract and an important statutory implied term.

The statutory starting point

Under section 13 of the Supply of Goods and Services Act 1982, if a supplier is acting in the course of a business, the law implies a term requiring the services to be carried out with “reasonable care and skill.” This provision applies automatically unless it’s expressly excluded or varied, and it represents the baseline standard the law expects of any business providing services.

Importantly, the obligation isn’t one of strict liability – the supplier doesn’t guarantee a particular result. Rather, it must perform to the standard reasonably expected of a competent provider of the relevant service. A supplier that falls short will be in breach, even if it acted in good faith, but one that meets the standard will not be liable simply because the outcome was unsatisfactory.

How courts assess the standard

When a dispute arises, the courts apply an objective test: would a reasonably competent provider of the relevant services have acted in the same way in the circumstances?

The court will consider the nature and complexity of the services, applicable industry standards or codes of practice and the circumstances of performance. Expert evidence is often relied upon to establish competent practice within the relevant field, and the standard therefore varies by service type and context.

Consider a business that engages an IT consultant to migrate its data to a new platform. If the migration results in significant data loss, the court would ask whether a reasonably competent IT consultant would have carried out adequate testing and maintained proper backups beforehand. If the evidence shows that such precautions are standard industry practice, the failure to take them is likely to amount to a breach of the section 13 implied term.

Modifying the implied standard by contract

Many commercial services agreements don’t simply rely on the statutory implied term. Parties often include express provisions that define, supplement or seek to displace the standard of performance. Some contracts set out detailed service levels, key performance indicators or specifications that impose more demanding obligations on the supplier. Others may seek to limit the supplier’s obligations – for example, by defining performance standards narrowly or by including broad exclusion or limitation of liability clauses.

Whether an express term displaces the implied term under section 13 depends on the drafting. A well-drafted performance standard will generally take precedence, but where it’s ambiguous or doesn’t cover the full scope of the services, the implied term may continue to operate alongside it to fill the gaps. Parties should also be mindful that any attempt to exclude or restrict the implied term is subject to the reasonableness test under the Unfair Contract Terms Act 1977, meaning a blanket exclusion may not be enforceable.

Practical takeaways

A well-constructed services agreement shouldn’t leave the question of performance standards to chance. Businesses engaging suppliers should consider whether the implied term alone provides sufficient protection or whether bespoke service levels and remedies are needed. Equally, suppliers should ensure that any performance obligations they accept are realistic and clearly defined.

A review of your existing agreements with these points in mind can help identify potential gaps and reduce the risk of disputes further down the line.