What is a Service Agreement?

A service agreement is a feature found in some warranties and sales contracts. A basic warranty usually provides general assurances of quality or craftsmanship. Service agreements or “service contracts” can go beyond this by stating which exact services the consumer is entitled to in case the product breaks or fails.
Service contracts may be optional, or they are sometimes included as a standard feature of the warranty. They are common for consumer products such as cars, appliances, electronics, and other items that need regular repair or updating. The cost of the service agreements benefits is usually included in the overall sales price, on top of any costs associated with the basic warranty.


What is the Difference Between a Contract, an Agreement, and a Master Service Agreement?

The words "agreement" and "contract" are often used as if they're the same, but they are not. Black's Law Dictionary defines an agreement as "a mutual understanding between…parties about their relative rights and responsibilities." It also states this is an agreement that creates obligations between parties that the law can enforce. An MSA is also defined as a legal document that puts together separate but similar agreements between the two signing parties.

There isn't one clear answer as to which agreement or contract is best for your company. You should keep a few items in mind, however. Agreements aren't seen as formal as contracts and won't be as enforceable as a contract. On the other hand, contracts are legally enforceable and binding, but they must meet certain requirements. You can quickly draw up an agreement, while contracts can take as long as months to finish negotiating. Like any contract, the service agreement should be clear on the fundamental business terms: who is doing what, and when, where and how are they doing it? These terms may be directly addressed in a single-purpose services contract, or may be addressed in a master services agreement with multiple project-specific work orders or statements of work entered into from time to time. Regardless of the contract structure, however, all service agreements should address the ten important issues discussed below. Note that this article is written from the service provider’s point of view – customers reviewing service agreements may be concerned about different issues, and may have different perspectives on the issues discussed below. Some companies like MSAs, since the parties can negotiate any future terms and agreements at a quicker rate on a basis that's per deal. An MSA often outlines what the business relationship is in casual terms and focuses on:

  • Define the scope, specifications and service levels.
  • Have a clear and workable acceptance mechanism.
  • Be clear about payment.
  • Include protection in case the customer does not pay.
  • Keep an eye on the clock.
  • Clarify who can terminate, for what, and what happens on termination
  • Limit representations and warranties.
  • Consider liability issues carefully.
  • Protect the business.
  • Mind the Boilerplate.

Where Can You Use a Master Service Agreement?

These types of agreements are very common in government and commercial work. They're also often seen on the consumer side of things. An example of a master service agreement is what you have with your telephone company. You enter into a continuous agreement where service rates are charged each month, and the company states the conditions for its maintenance tasks.

A master service agreement is when two parties agree to a contract that will settle most details and expectations for both parties. It'll state what each group has to do to honor its end of the bargain. It'll also show which services apply in the master service agreement.

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