This article is written by Tiyasha Neogi. This article has been edited by Sonali (Associate, Lawsikho). 

This article has been published by Sneha Mahawar.

Introduction

The words “contract” and “agreement” are often used interchangeably. However, they are two distinct terms with different conditions for implementation. Black’s Law Dictionary defines an agreement as “a mutual understanding between parties about their relative rights and responsibilities.” An agreement, although not as formal as a contract, creates obligations and responsibilities for the two parties. Agreements take significantly less time to draft and enforce, in comparison to general contracts. Therefore, in certain cases, where time is of the essence, parties tend to prefer agreements over general contracts. Agreements, depending on their requirement, can be of various types. Two important types of agreements are Master Service Agreement and Service Level Agreement.

A Master Service Agreement is the base contract between two parties that provide a detailed list of all the terms that govern present as well as all future transactions and agreements. However, a Service Level Agreement is a specific agreement that is contracted between a service provider and a client or service user.

Master Service Agreements

A Master Services Agreement through its contract allows both parties to clearly understand and state the major points and expectations laid down by either party during the agreement process. The agreement contains information and specifies the generic terms present in the contract, such as the payment conditions, intellectual property rights and ownership, dispute resolution and remedies, and warranties. It can also contain information on business ethics, facility and use of infrastructure, and other terms that may be crucial for the successful working of present and future agreements.

Master Service Agreements set the foundation and outline for any long-term contractual relationship. It is both flexible and ongoing as it allows for future negotiations and transactions. It is generally used in fields that are open-ended and provide support to an organisation such as the marketing sector, finance sector or human resources. In the oil and gas industry, for example, a master service agreement would clarify the contractual obligations between companies engaged in services such as drilling, exploration, and production.

The main goal while drafting a master service agreement is to simplify the negotiation process and provide clarity and understanding between the parties. The agreement lays out the terms and conditions and what conditions each party must fulfill and comply with in order to complete their side of the agreement. One of the main aims of using a master services agreement is to make the process of contracting and negotiations faster as well as simplify any future transactions and contracts.

Advantages of Master Service Agreements

Faster than standard contracts

Creating contracts between two parties can be a lengthy and time-consuming process. Coming to a proper agreement between two parties quickly benefits both parties, especially in business deals. A Master Service Agreement lays down the main terms and conditions of the agreement between the parties and provides both parties with the information and clarity they need to fulfill their part of the contract. This process is significantly faster than drawing up a standard contract.

Provides for dispute resolution

Even if not opting for a standard contract, a Master Service Agreement still puts an agreement in place which clarifies the faulting party in case of any dispute. This process is both time and money-consuming as it clarifies who the faulting party is as well as the remedies and damages to be claimed by the other party rather than opting for litigation which is both an expensive and lengthy option.

Acts as a blueprint

A Master Service Agreement can be used as a blueprint for establishing future contracts. The Master Service Agreement acts as a template that provides the essential details that both parties can focus on while negotiating future deals and transactions.

Main elements of Master Service Agreements

A master service agreement has three main elements to consider:

Responsibilities and obligations

A master service agreement lists the general responsibilities and obligations both parties must comply with in order to fulfill their side of the agreement. These points are the basic foundations of any future negotiation and transaction.

Potential disputes

A master service agreement provides for any potential dispute arising from any non-performance of contracted obligations and provides for remedies and clarification regarding non-performance and prevents any litigation or legal intervention.

Flexible nature

A master service agreement is normally used for long-term contractual relationships, especially between businesses. Therefore, they are required to be open-ended and flexible to allow for future negotiations and specific contracts based on the foundation provided by the master service agreement.

Service Level Agreements

A service level agreement is a specific contract between the service provider and the service user or customer that provides information about the service that is being provided to the client and what they should expect from the service provider. A service level agreement is generally used when a company signs up new clients for a particular service. For example, the terms and conditions provided by internet service providers and the customer or service user is a type of service level agreement. Service Level agreements provide information about a particular service from defining the particular service to identifying formal conditions in case of termination of service.

Advantages of Service Level Agreements

Protects contracting parties

Service Level Agreements provide information and set a concise standard, thus ensuring that both the customer and the service provider are aware of the responsibilities and conditions they need to comply with for fulfilling their side of the agreement. Setting clear and concise guidelines about the agreement ensures that the service user and service provider have accurate expectations from each other.

Providing recourse

The Service Level Agreement sets down clear obligations and responsibilities for both contracting parties. It also lays down the recourse available in case of any fault or non-fulfillment of responsibility. Without having a service level agreement, it remains vague and unclear for both parties with respect to the consequences of non-fulfillment of the agreement as well as the recourses available against the defaulting party. The service level agreement provides transparency to the agreement between the parties as it clarifies the expectations and responsibilities of both parties and also lays out the consequences of non-adherence to those expectations and responsibilities.

Provides accountability

The Service Level Agreement provides accountability to the service user as well as the service provider as the agreement lays down the responsibilities of the parties as well as the consequences of non-adherence to those responsibilities, thus providing accountability for the service committed to at the time of drawing up of the agreement.

Types of Service Level Agreements

There are essentially three main types of service level agreements

Customer Service Level Agreement

This type of service level agreement is also called an external service agreement and is generally between a business or service provider and the customer or service user. It provides clarity about the service to be received by the service user as well as conditions and standards for the services. It also provides information about the responsibilities of both the parties as well as lays down any consequences and methods of revoking the agreement in case of non-fulfillment and non-adherence to the terms and conditions set in the contract.

Internal Service Level Agreement

This type of service level agreement is generally between internal departments of an organisation, for example, between the marketing and sales departments of a company. An internal service level agreement between these two departments would be to ensure their monthly goals are met by agreeing upon certain responsibilities to ensure maximum sales through marketing.

Multi-Level Service Level Agreement

This type of service level agreement is generally used when there are multiple service users or multiple service providers. For example, incorporating the customer service team in the sales department in order to encourage customer retention can be done using multi-level service level agreements as there is now more than one service provider.

General inclusions in Service Level Agreements

Agreement Summary

A service level agreement contains a summary of the service to be provided, the receiver of the service and how to measure the success of the service provided.

Party goals

A service level agreement contains attainable future goals that can be attained for the service user and clarifies any future expectations from either party.

Description of requirements for goal achievement

Service Legal Agreement also contains a description of the steps required by each party to achieve the goals. This section provides clear information about what the individual responsibilities and expectations of the contracting parties are in order to fulfill their obligations.

Reporting procedure

Service Legal Agreement also includes the step for reporting any problem faced after entering into an agreement as well as mentions the person to whom the problem is to be reported as well as provides guidelines for the reporting process.

Consequences

In case of non-fulfillment or non-adherence to the terms and conditions of the agreement, the service legal agreement provides for the consequences of the same. It lays what sort of consequences or compensation is to be given by the defaulting party. This avoids the lengthy and expensive process of litigation as it already clarifies the damages and consequences in case of default of the agreement.

Termination clause

The Service Legal Agreement contains conditions under which either party could terminate the agreement for a better one. The termination clause allows for the parties to end the agreement without any consequences or non-adherence to the terms and conditions of the agreement.

A Service Legal Agreement is essential in protecting the interests of both of the contracting parties and ensuring that they maintain a good working relationship with each other. Being transparent about the standards of the service to be expected as well as any expectations and future goals and defining the consequences of failing to meet those expectations ensures a positive contractual relationship between the parties involved in the agreement.

Difference between Master Service Agreement and Service Level Agreement

A master service agreement and a service level agreement are often confused with each other, but they are two very different types of agreements.

A master service agreement is an agreement between two parties that provide clear and concise information about the terms and conditions that would influence the contractual relationship between the two parties and provide the foundation for setting up future negotiations and contracts which follow the basic outline of the master service agreement set by both the parties. This makes it possible to negotiate future clauses. Master Service Agreements include specific information about generic terms such as intellectual property ownership, business ethics, payment conditions, etc. This type of service agreement is generally flexible in order to accommodate any future negotiations and contracts based on the master service agreement. For example, companies can streamline and simplify general contracts for ongoing projects such as software developing by incorporating a master service agreement.

However, a Service Level Agreement is generally a type of agreement drawn up between service user and service provider. It is more detailed in comparison to a master service agreement, as it only deals with one specific service being provided by the service provider to the consumer. While a master service agreement provides a base agreement which acts as a blueprint for future negotiations and contracts, a service level agreement is a comprehensive agreement that defines the type of service to be provided to the customer as well as lays down the prerequisite conditions for termination of the agreement.

Conclusion

In conditions where it becomes important to enter into working relationships, or business deals immediately, general contracts can pose a hindrance as they take a lot of time to draft and require constant revisions. On the other hand, agreements take significantly lesser time to draft and can impose obligations and responsibilities on both parties. Therefore, a Master Service Agreement provides a base agreement that can be modified and revised as per future requirements while still imposing terms and conditions on both parties. It prevents parties from relying on the time-consuming process of litigation by clarifying the responsibility of the defaulting party.

A Service Level Agreement is a type of agreement that only deals with a particular service between the service provider and the user. It is more specific than the master service agreement but focuses only on the particular service. It is most commonly for agreements between telephone service providers and consumers, internet service providers, etc.

References


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