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Service Level Agreement

Difference Between Service Agreement and Contract

An agreement is an understanding or agreement achieved between two or more parties. A contract is legally binding and enforceable in court. Read ahead to know more about what service agreement and a contract.

When two parties agree to do business together, they often use legal documents to formalize the terms of their arrangement. Two such documents are the service agreement and contract. While the terms are sometimes used interchangeably, they are actually two distinct legal documents with different purposes and implications.

In this article, we will explore the differences between a service agreement and a contract to help you understand which document to use in different situations.

Definition of Service Agreement

A service agreement is a legal document that outlines the terms and conditions of a service provided by one party to another. This document is used when one party agrees to perform a specific service for the other party, and both parties want to formalize the terms of the arrangement.

A service agreement will typically include the scope of the services to be provided, the timeline for completion, the fees and payment terms, and any warranties or guarantees provided by the service provider. This type of agreement is often used by service providers such as consultants, freelancers, and contractors.

Definition of Contract

A contract is a legal document that formalizes an agreement between two or more parties. A contract can cover a wide range of transactions, including the sale of goods, the provision of services, or the transfer of property.

Unlike a service agreement, a contract is not limited to the provision of services. Contracts can include a wide range of terms and conditions, such as warranties, representations, and indemnities, as well as clauses on dispute resolution and termination.

Contracts are typically more complex than service agreements, as they cover a wider range of transactions and often involve more parties. As such, contracts are often subject to greater legal scrutiny and may require more negotiation and preparation.

Difference Between Service Agreement and Contract: Introduction

So, what is the difference between a service agreement and a contract, exactly? Although all contracts are considered agreements, not all agreements are, in fact, contractual obligations. The differences between a contract and a service agreement are subtle. A contract, as opposed to an agreement, is structured in a more formalised manner. 

Understanding the Difference: Service Agreement Vs Contract 

In this section, we will understand the underlying difference between service agreement and contracts. 

Agreement – Meaning

It is possible to include in an agreement any understanding reached between many parties regarding what they are each agreeing to perform for the other. 

These informal agreements, which are sometimes referred to as ‘gentlemen’s agreements,’ rely on the cooperation of all parties to ensure that the agreement is followed rather than being enforced by a third party or the threat of legal ramifications.

Contract – Meaning

On the other hand, a contract is legally binding and courts can enforce the conditions if they are not met. An agreement is significantly less formal and rigid. If there is a disagreement between contract parties, either party may take the matter to court. 


Most contracts do not end up in court. In fact, unless there is a specific reason why the contract must be written, most contracts can be made verbally. If something goes wrong, a formal contract protects everyone involved.

One party can launch a lawsuit against another party if they believe the other party has breached the contract or failed to fulfil their obligations under the agreement. 

As part of the litigation process, the court will assess if there was a breach of contract and, if so, whether any other factors rendered the violation null and void. The most important thing to remember is that only legally binding contracts can be contested in court.

Requirements of a Service Agreement

Furthermore, the process of creating a contract and the process of creating a service level agreement are vastly different. A services agreement does not necessitate creating a new procedure from scratch. 

Services agreements, traditionally referred to as “gentlemen’s agreements,” can be structured to include any clause. In order to come to an agreement, the parties must first recognise and agree on their respective rights and duties. 

Relationships between the parties can be clarified and improved by signing a services agreement. These agreements should spell out exactly what those rights and responsibilities are. As a result, putting together a services agreement is rather simple.

Essentials in a Contract 

In order to reach an agreement, all parties must be aware of and agree on their respective rights and responsibilities. Most of the time, an agreement does not have one or more of the elements that make a contract legally binding.

A contract comprises particular standards that must be met in order for the deal to be considered legally binding. The following factors must be present for a legally valid contract to be established:

  • Offer and Acceptance: The contract must include an offer made by one party and the other party’s acceptance of that precise offer. All parties must agree upon any changes to the contract, and no one can be forced to agree to the conditions. The terms imply that all parties intend the agreement to be legally binding. A contract cannot be formed if one of the parties is not serious
  • Mutual Consent: The offer and acceptance must be accepted by both parties without the use of force or coercion on their behalf. Everyone must agree on the specific terms before they can proceed
  • Consideration: For the transaction to be lawful, something of value must be transferred between the two parties. Consideration is sometimes expressed in the form of money, but it can also be expressed in the form of goods or services. Both parties must exchange something, such as money, for a service. When just one person gives consideration, the agreement is considered a gift rather than a contract
  • Competence: Neither party can be a minor or someone who is unable to comprehend the terms of the agreement they are signing. All parties must be able to comprehend the terms and conditions of the contract. Unless one of the parties can demonstrate their incompetence, the contract is ruled null and void
  • Legal Purpose: A legally enforceable contract must not involve any criminal conduct on the part of either party, and it must be attainable by both parties. It is the right of each party to amend the terms of the agreement if the agreement is based on something that appears to be impossible.

A contract that meets these requirements is deemed enforceable by law. If the contract terms are not followed, one party may file a lawsuit against the other party in a court of justice. This section contains several illustrations of the difference between a service agreement and a contract. 

If two friends agree to meet for dinner, the other buddy will have no recourse for recouping their lost time. Still, one of the friends fails to show up because the meeting was merely an agreement to do something rather than a contract. In another instance, a parent agrees to settle a debt that their child has incurred. A formal contract is formed when both the child and the parent draft and sign the agreement, which is legally enforceable.

Not all contracts must be in writing. In many cases, an oral agreement generates a legitimate contract if it fits the elements above.


What are the 4 types of contracts?

The four types of contracts are: Bilateral Contracts: These are the most common type of contracts where both parties make promises to each other. Unilateral Contracts: These are contracts where only one party makes a promise, and the other party accepts it by performing a specific action. Express Contracts: These are contracts where the terms and conditions are explicitly stated in writing or verbally. Implied Contracts: These are contracts where the terms and conditions are not explicitly stated but are implied by the actions of the parties involved

What is the difference between a contract and a master service agreement?

A contract is a legally binding agreement between two or more parties that creates an obligation to do or not do something. A major agreement and contract difference is that a contract follows a more formal outline and is enforceable by law. In contrast, a master service agreement (MSA) is a legal document that consolidates separate but related agreements between the same signing parties. In other words, an MSA is an intricate contract which defines the nature of the complex business relationship. An MSA eliminates the need to negotiate each and every contractual term in future transactions.


In summary, a service agreement is a legal document that outlines the terms and conditions of a specific service, while a contract is a more complex legal document that can cover a wider range of transactions. While the terms are sometimes used interchangeably, it is important to understand the differences between the two to ensure that the appropriate document is used in different situations.

As a result, service agreements and contracts are critical to preserving the free flow of trade and commerce. Parties roles and responsibilities are outlined in service agreements. Services agreements are frequently less formal and might include a wide range of terms and conditions. On the other hand, contracts are frequently more precise and necessitate specialised formalities. When properly drafted, contracts are enforceable by a court and an effective means of assuring the execution of an agreement. As a result, there are important distinctions between what is a services agreement and a contract.

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