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In this SOP video for Managed Service Providers, Karl emphasizes the necessity of signing contracts. He clarifies that a service agreement defines the overall relationship with clients, including billing frequency, rates, and contractual terms. While the statement of work is important and should be attached to the service agreement, the latter serves as the foundational framework. This framework is essential not only for operational clarity but also for legal and insurance purposes involving both the service provider and the client. The video underscores that having a contract is crucial for effective business management and compliance.