The terms "contract" and "agreement" are frequently used interchangeably, but both are very different terms with different requirements for implementation. Black's Law Dictionary defines agreement as "a mutual understanding between parties about their relative rights and responsibilities." Even though an agreement is not as formal as a contract, it nevertheless creates obligations for the two parties.
Agreements take less time to write and implement as compared to general contracts. In certain situations where time is essential, parties are more likely to choose agreement over general contracts. Based on their need, agreements can be of different types. Two important kinds of agreements are Master Service Agreement and Service Level Agreement.
A Master Service Agreement is the basic agreement between two parties containing a complete list of all the conditions that apply to the present and future agreements and transactions. But, a Service Level Agreement is a specific agreement signed between the service provider and a customer or service user.
Master Service Agreements
The Master Services Agreement, through its contract, permits both parties to understand and clarify the key aspects and expectations set by the other party in the negotiation process. The agreement is filled with information and defines the terms inside the document, including payment conditions, intellectual property rights and ownership, dispute resolution and remedies, and warranties. It may also contain details on business ethics, facility, and the use of infrastructure, as well as other clauses that are essential to the successful working of future and present agreements.
Master Service Agreements are the groundwork and guidelines for any long-term contractual relationship. It's flexible and continuous because it permits future discussions and transactions. It is typically utilized in open-ended fields and offers assistance to organizations like the marketing sector, the finance sector, and human resources. In the oil and gas industry, for example, the master service agreement clarifies the contractual obligations between businesses involved in services such as drilling, production, and exploration.
Advantages of Master Service Agreements
1. More rapid than conventional contracts
Making agreements between two parties can be a long and time-consuming process. A Master Service Agreement lays down the fundamental terms and conditions between the parties and gives both parties the details and clarity they need to complete their part of the agreement. This is significantly quicker than the process of drafting an ordinary contract.
2. Dispute resolution is provided
Even if you do not choose a standard contract, it is essential to have a Master Service Agreement that clarifies the faulting party in the event of a dispute. This procedure can be time-consuming and costly because it reveals who the faulting party is and the damages and remedies claimed by the other party instead of opting for litigation, which is an expensive and lengthy option.
3. Acts as a blueprint
The Master Service Agreement can be utilized as a blueprint for future contracts. A Master Service Agreement acts as an outline that includes the most important details that parties will need to concentrate on when they negotiate future transactions and deals.
The main components of Master Service Agreements
A master service agreement includes three major elements:
1. Obligations and responsibilities
A master service agreement outlines the general obligations and responsibilities each party must fulfill in order to complete their side of the agreement. These points are the primary base of any future negotiation and transaction.
2. Potential disputes
A master service agreement provides for any dispute arising due to a breach of contractual obligations and provides remedies and clarifications regarding the non-performance. It also prohibits litigation or other legal intervention.
3. Flexible nature
Master service agreements are usually used to establish long-term contractual relationships, particularly between companies. Therefore, they are required to be flexible and open to allow for future negotiations and specific contracts based on the foundation provided by the master service agreement.
Service Level Agreements
The service level agreement refers to an agreement between the service provider and its customer or user that gives information regarding the services offered to the client and what they can expect from the service provider. The service level agreement is typically utilized when a business enrolls new clients for specific services. For instance, the terms and conditions provided by Internet service providers and the client or user are a form of a service level agreement. Service Level agreements contain information about a particular service, from defining the service to identifying the formal conditions to end the service.
Benefits of Service Level Agreements
1. Protection of the contracting parties
Service Level Agreements give details and define a precise standard, thereby ensuring that both the client and service providers are informed of the responsibilities and obligations they must follow to complete their side of the agreement. Making clear and precise guidelines regarding the agreement ensures that the customer and the service provider have accurate expectations from one another.
2. Providing recourse
The Service Level Agreement sets down specific obligations and responsibilities for both contracting parties. It also defines the rights available in the event of any fault or breach of responsibilities. The service level agreement gives transparency between the parties as it clarifies their expectations and responsibilities and spells out the consequences for non-adherence to those expectations and responsibilities.
3. Provides accountability
A Service Level Agreement provides accountability to the service user and the service provider since the agreement specifies the obligations of both parties and consequences for non-adhering to the obligations. This ensures accountability for the service committed to during the writing of the Agreement.
Types of Service Level agreements
There are three basic kinds of service level agreements.
1. Customer Service Level Agreement
This kind of agreement is also known as an external service agreement and is generally between a company or service provider and the client or service user. It clarifies the service that will be offered to the service user along with the terms and standards for the services. It also outlines the obligations of both parties and the consequences and ways to revoke the agreement in the event that there is a breach of these terms and conditions outlined in the agreement.
2. Internal Service Level Agreement
This kind of service level agreement usually involves departments within an organization, for instance, between a business's sales and marketing departments. An internal service level agreement between these two departments will ensure the achievement of their monthly targets by establishing specific duties to ensure maximum sales through marketing.
3. Multi-Level Service Level Agreement
This kind of service level agreement is usually used when there are several customers or service providers. For instance, including the customer service team in the sales department to increase the retention of customers can be accomplished through multi-level agreements, as there are several service suppliers.
General inclusions in Service Level agreements
1. Summary of the Agreement
The service level contract includes an overview of the services to be offered, the person who will receive the service, and the method to evaluate the effectiveness of the service provided.
2. Description of requirements to achieve goals
Service Legal Agreement also contains a description of the steps that must be taken by each party in order to reach the desired goals. This section gives precise details regarding what the individual obligations and expectations of contracting parties are to fulfill their duties.
3. Termination clause
The Service Legal Agreement contains conditions under which one party can terminate the agreement for a finer one. The termination clause permits the parties to terminate an agreement without any penalty or non-adherence to the terms and conditions of the agreement.