Litigation Management

Every business relationship runs on trust, but it is not the only thing that can protect the profits of the business. There should be a written agreement for guarding every partnership that the business enters. Whether it is outsourcing of the support function, hiring a consultant or engaging a logistics provider, there should be a written agreement that defines the level of service that must be provided. This is known as a Service Agreement, and it defines the ground rules that will keep the projects on track and prevent disputes from arising. In this guide, we will learn about service agreements and why they matter to a business. What Is A Service Agreement? A service agreement is a formal contract that formalises the relationship between a service provider and the client. It records the work that must be done, the quality standards to be met and the rights and duties of the client and the vendor. In other words, it ensures that everyone is aware of what is expected from them and how the success will be measured. When the terms of the agreement are documented upfront, it can help in avoiding misunderstandings between the teams and make them focus on the outcomes. By outlining the scope of work, payments to be made, duration of the contract and dispute resolution mechanism, the service agreement reduces uncertainty and makes the parties accountable for the work. In India the service agreements draw their enforceability from the Indian Contract Act 1872, which provides that such agreements are legally binding when they are made with clear terms and genuine consent from the parties involved. A valid service agreement must include all the essential elements of a contract. These are: Service agreements can cover a one-time project or an ongoing arrangement for providing recurring services, such as maintenance, consulting or technical support. With the ever-increasing reliance of the enterprises on third-party vendors, digital partners and consultants, having well-drafted and legally valid service agreements has become absolutely necessary for improving their efficiency and compliance. When is a service agreement needed? A service agreement must be created whenever one party provides service to another in exchange for a fee or any other consideration. It brings clarity to what the deliverables are, delivery timelines, and the performance standards to be maintained. Without having a service agreement, these things can be interpreted by different people in various ways, resulting in unnecessary misunderstandings being created. Enterprises create service agreements when they outsource work to third-party vendors, marketing agencies, consultants, facility managers, and maintenance partners. Another major area where service agreements are executed is technology. Large enterprises commonly use them while hiring cloud service vendors and firms that help in technology integrations. Service agreements are also signed within an organisation. For example, the internal teams may offer service-level contracts regarding the usage of shared service units. These internal agreements help all the departments to define measurable outcomes and manage accountability. Without having a service agreement, even the smallest disputes can quickly snowball into larger and costlier conflicts. Having a written contract ensures that search possibility is eliminated and everyone is aware of their roles and limits and the delivery expected from them. Types of Service Agreement There is no uniform service agreement that covers all types of engagements. The format of the service agreement and the level of detail it covers will depend on the type of work being outsourced, the duration of the engagement and the complexity of the deliverables. While each service agreement is customised, here are the main types that businesses commonly use. These are used as standard service agreements in outsourcing, where the tasks, timelines, and payment milestones are clearly defined. These are ideal for short-term projects and one-time assignments. These are executed when long-term business relationships are being developed. These are the umbrella contracts that provide the overall legal and commercial frameworks that will govern these ongoing assignments. As the work progresses, more projects and work orders are added to the MSAs to save time and maintain consistency. These are commonly used for hiring professional and advisory services. like management consulting, HR, and technology advisory work. , where maintaining confidentiality and safeguarding the intellectual property rights of the client are critical. These are executed while hiring ongoing technical or operational support, such as IT infrastructure maintenance and equipment servicing. They are most commonly found in management consulting, HR, and technology advisory work, where maintaining confidentiality and safeguarding the client’s intellectual property rights are critical. IT companies that provide SaaS tools and software development services to clients execute these service agreements. These include clauses on the uptime guarantee, data security, access rights, and privacy safeguards that will be maintained in accordance with the privacy laws of the country. Essential Clauses Every Service Agreement Should Include A well drafted service agreement strikes a balance between clarity and protection for both the client and the service provider. Every clause in a service agreement helps in setting clear expectations and reducing risks. Hence, they must be drafted very carefully to avoid ambiguity and minimise the risks. The following are some clauses that must be a part of every service agreement: 1. Scope of Work This clause defines what services will be provided along with their expected timelines, quality standards to be maintained, and the exact deliverables. Any work that is done outside this scope of work must be approved in writing by the client to avoid exceeding the brief. 2. Payment Terms All the information related to the project payment must be mentioned in this clause. Details of how the payment will be made, milestones, late payment penalties, etc. are some of the points to be included. 3. Confidentiality and Intellectual Property Rights This section outlines the third-party vendor’s obligation to protect the client’s sensitive business information. It is a binding clause that the vendor must always adhere to. 4. Liability and Indemnity This limits the amount of financial exposure of the parties in the event of a loss.