What is a Master Service Agreement and what does it do?
A Master Service Agreement is a contract between two parties with an ongoing project or business relationship. It establishes what terms and conditions will govern all the current and future activities and responsibilities between the parties. These agreements offer a flexible system for completing a project over time when there will be decisions being made and changed along the way of the project.
The purpose of an MSA is to establish a foundation for all future actions, including:
- Setting the bounds of the contractual relationship
- Establishing a system for accomplishing the work
- Providing an efficient way to keep the work on track
- Resolving any disputes which may arise during the project
Contracts such as MSAs are useful in industries that involve a significant volume of transactions between the provider of service, as well as a customer, and may include a separate statement of work for each.
Let’s go through a few examples of the types of agreements governed by an MSA:
- The ownership of property in a development
- Royalties associated with new inventions or discoveries
- How new information can be released while maintaining confidentiality agreements
- Indemnification in the event of a third-party suit
- Alternative dispute resolution and allocation of attorney fees
- Work schedules that are dependent upon local job conditions
- Purchase orders and pricing variations based on economic factors like materials cost, and cost of living
An MSA should delineate responsibility if any of the following events should occur throughout the business relationship:
- Employee injury or death
- Property damage
- Missed deadlines
- Failure to pay
- Unsatisfactory performance or service
- Product defects
- Unauthorized charges
- Miscommunication
What is the difference between a Master Service Agreement and a Service Level Agreement?
A Service Level Agreement (SLA) is a contract of agreement between a company and its service provider. It provides an overview of the service that will be provided, and it protects businesses by offering remedies if one party refuses or is unable to meet the stated requirements. It is typically between the service provider and the service user or client.
On the other hand, a Master Service Agreement (MSA) is a contract between two parties that list the terms that will govern all the future transactions or agreements between two parties. To read more about Service Level contracts or Contracts of Service, click here.
Now that we’ve gone through the basics of what an MSA is, let’s discuss the different essential elements of one.
What are the essential elements of a Master Service Agreement?
A good MSA should outline all the possible responsibilities and obligations of both parties in order to serve as a strong foundation for any other future negotiations and agreements.
Here are the essential elements you should always include in an MSA:
Confidentiality - The parties both agree they won't share any secrets of the company with outside parties. This is to maintain privacy between the two parties, thus protecting them both.
Product Delivery - The businesses decide who will deliver what and when. This will include the obligations each party is supposed to execute under the terms of the contract. It covers aspects like each party's activities and the time frame it should be executed.
Dispute Resolution - Should issues come up, the MSA outlines how the parties will resolve their conflict. This helps parties mitigate litigation costs and decide how they will solve disputes during the contractual relationship.
Termination - This clause will detail the procedures through which a party may end the contractual relationship and is particularly important in deciding which party has to pay damages for breaking a contract.
Intellectual Property Rights - The parties decide how to handle ownership and regulation of all patents and other IPs. The client will get all the IP in some instances. In others, the vendor provides perpetual rights while keeping his or her IP and patents.
Limitations of Liability - The MSA lists who is the responsible party in the event of a lawsuit. This may also be called the indemnification of the contract. The indemnity clause should cover things such as risks covered by indemnity, reciprocal terms, and the scope of the claim.
Payment Terms - These terms show what the estimated cost is, as well as the schedule for payment.
Venue - The MSA identifies the place where a legal resolution will occur. This could include arbitration or a specific state or federal court.
Warranty - The parties agree on the scope and the coverage of the warranty.
Work Standards - This section of the MSA defines what each party regards as acceptable work. Not living up to the work standards often causes disputes.
Why use a Master Service Agreement?
An MSA leads to a faster process than standard contract negotiations. By establishing the deal’s terms at the outset, both parties create a business relationship while still continuing to refine their rights, responsibilities, and expectations.
By setting up the foundation of their business relationship with an MSA, companies shift their focus from the basics and drill into their contract’s specifics without derailing the foundational agreement.
Because of this, an MSA allows parties to plan for the future while adapting to changes in the business landscape — all the while being protected. It can do this because it highlights the potential areas of conflict or concern for both parties. It also eliminates the pressure of a deadline and gives parties the appropriate time to respond and adjust.
Finally, an MSA is best for long-term relationships that need space and security to grow and evolve. The flexibility afforded by an MSA can head off disputes and allow both parties to maintain their core relationship even as circumstances change while also saving them time and money.
Simplify and streamline the contract negotiation process today
A well-drafted MSA should not only anticipate risky scenarios and provide a way to resolve them but should also provide clear guidance to the project managers on how to navigate these situations.
Need support putting together a Master Service Agreement? Get expert advice from our team at Lexagle today.
