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Commercial & Corporate Law

MSA: Everything You Need to Know

updated:
1.31.22
MSA agreement

You might enter into a Master Services Agreement (the “MSA” meaning in business transactions) with another party with whom you have continuing or repeated transactions in international trade. The MSA sets out basic terms that cover all individual transactions, with less need for renegotiation.

What Is a Master Service Agreement?

A Master Service Agreement is a framework agreement that nails down certain basic contractual terms. These terms apply to all future transactions of the same nature. The parties also anticipate the creation of later agreements that will govern the specifics of the individual transactions the agreements refer to. The existence of an MSA simplifies the content of later agreements that cover individual transactions by eliminating redundancy.

Some terms might need to be included in the MSA, or expanded into separate agreements, depending on the nature of the anticipated transactions. You might, for example, need a separate service level agreement (SLA), which is a service agreement used for technical specifications. The goal is to create an interlocking network of agreements.

Why Should You Use an MSA?

A Master Service Agreement works a lot like a Memorandum of Understanding (MOU), except that it is fully binding and it is typically more specific than an MOU is. It works like an umbrella agreement, by imposing terms that do not vary from transaction to transaction. Ultimately, a Master Service Agreement allows parties to take their focus off of basic issues and concentrate on transaction-specific issues.

Two important issues often arise in MSA agreements – indemnification and general risk allocation. Indemnification occurs when one party takes financial and legal responsibility for a liability asserted against another party. Suppose, for example, that Party A supplies Party B with software that infringes Company C’s rights. If Company C sues Party B and Party A pays the claim against Party B, Party A has indemnified Party B against IP infringement.

An MSA might also allocate other types of risks among the parties. Different parties might be required to ensure the other party (or parties) against different risks, for example.

Advantages of a Master Service Agreement

Drafting and executing an MSA is not a matter of vanity or style. A well-drafted MSA offers numerous practical advantages to parties who enter into a long-term service arrangement. These advantages include:

  • Efficiency: Time is money, and an MSA avoids the delays that would otherwise occur when you draft separate agreements to cover individual service transactions.
  • Avoidance of contractual disputes: An MSA helps the parties avoid contractual disputes by clarifying issues such as risk distribution among the parties, and by providing terms that prevail over conflicting terms in transaction-specific agreements or side agreements.
  • An MSA speeds up the negotiating process, especially for agreements that govern individual transactions.
  • Precedent: A good MSA can operate as a template for future arrangements between the same parties.
  • Ease of renewal, renegotiation, and amendment: This feature saves a lot in legal bills over the long run (and might just keep you out of court).

MSAs are standard practice in many industries, for the reasons stated above as well as other reasons.

What Should Be in a Master Service Agreement?

What should a master service agreement cover? A lot depends on the specific parties and the nature of the anticipated transactions. Nevertheless, certain issues tend to come up again and again. Common MSA terms include:

  • Delivery terms. The agreement should specify the consequences of failure to meet the delivery specifications and deadlines.
  • Dispute resolution methods (arbitration, litigation, etc.).
  • Jurisdiction and venue of dispute resolution proceedings. Where will proceedings be held?
  • Governing law (if this is an option). In many cases, however, you have no choice of which law applies.
  • Indemnification (in case a third party sues one of the parties).
  • Intellectual property protection. An IP clause is likely to require expansion into a separate agreement.
  • Job location(s). Job locations will affect taxes, governing law, and other issues.
  • Limitation of liability. Limitations of liability should fit within a framework of the overall division of liability between or among the parties.
  • Ownership of property being developed, including IP rights.
  • Payment terms and the consequences of late or missed payments.
  • Technical specifications. This is another item that might require expansion into a side agreement.
  • Warranties. The MSA should include the exact terms of any warranties.
  • Insurance. The MSA should state which party is responsible for insuring against which risks.
  • Confidentiality, especially for trade secrets. This section should include provisions for vetting employees who handle confidential information.

An MSA should also include terms that allow it to administer and interpret side agreements and transaction-specific agreements under the MSA. The MSA should, for example, state that its terms govern whenever there is a conflict between the terms of the MSA and the terms of a subordinate agreement. The MSA should also include terms that take into account its jurisdiction over other agreements such as:

  • Purchase orders;
  • Purchase agreements;
  • Statements of Work;
  • Product specifications;
  • Indemnification agreements;
  • Arbitration agreements;
  • Employee non-competition agreements;
  • Product specifications.

Some of the foregoing agreements will probably be incorporated into your MSA as individual clauses. Which terms merit separate agreements, and which terms need to be expanded into side agreements all depends on the specific nature of your business arrangement.

What is an MSA agreement

The Most Common MSA Disputes

The existence of an MSA tends to lessen the likelihood of conflict between the parties. Nevertheless, conflict sometimes occurs anyway. Most conflicts revolve around one or more of the following issues:

  • Defective products: You might not realize that a product is defective until after you have used it for a while.
  • Failure to meet deadlines: Late performance will almost always generate a dispute.
  • Miscommunication: This usually causes a problem when one party fails to update another party about the ongoing state of affairs.
  • Missed payments: Failure to pay on time is the only issue more likely to lead to a dispute than missed deadlines.
  • Personal Injury: Personal injury or wrongful death involving personnel can lead to an expensive and convoluted dispute.
  • Poor service: When a customer complains, each party is likely to blame the other.
  • Property damage: This is a risk that the MSA can mitigate, but many MSAs ignore it anyway.
  • Unauthorized charges: Unauthorized charges are the quickest way to destroy the trust that is essential to a prosperous business relationship.

The more risks the MSA covers in advance, the lower the likelihood of conflict down the road.

We’re Waiting to Hear From You

If your company needs to execute an MSA, you should not finalize it until you have submitted it to an experienced MSA lawyer for a careful review. Alternatively, we can draft the entire agreement for you from scratch. Contact Sequoia Legal by telephone at (303) 476-2851 or contact us online for a free consultation.

Hunter Boone

Hunter has been a part of the Sequoia Legal team since 2017.  Hunter specializes in general corporate matters, healthcare compliance, international trade laws, and anti-kickback regulations.

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