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. In this way, a master service agreement can improve your company's project management practices and result in a more simplified negotiation process for future contracts.
In fact, using master service agreements means that many of the basic terms of contracts between the parties remain the same; only the specific details may need to be finalized. Nearly any company that depends on ongoing business relationships with other companies can benefit from master service agreements. An MSA can also help protect your company's intellectual property rights.
What Is an MSA?
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.
What Is the Purpose of a Master Service Agreement?
The purpose of a master service agreement (MSA) is to make it easier for two or more parties involved in a business relationship to negotiate future contracts. When the parties know the basic terms that will govern their business relationship, these terms can be outlined in an MSA master service agreement to streamline the negotiation process.
With a master services agreement in place, two or more parties simply need to negotiate the details of individual contracts as the need arises. All such contracts would be governed by the same basic terms agreed to in the master services agreement.
Master services agreements are not just beneficial to parties who need multiple, ongoing contracts; they can also be helpful to parties who anticipate needing a specific contract in the future and want to hammer out the terms and conditions that will govern that contract ahead of time. When it is time to negotiate the specific contract for goods or services, the parties have already agreed to the rules that will govern their eventual contract.
Why a Master Service Agreement Is Necessary for Your Business
A master services agreement may seem like an unnecessary investment, especially if your business operation is presently small. You may have prepared contracts in the past by scouring the internet for drafts, templates, and examples used by others. The problem with this approach is that the sources you use to draft these piecemeal contracts may be of questionable quality and relevancy.
However, once you make a master services agreement, it can be used in all future contracts into which your business enters. You do not need to worry about whether the template or example you are using is tailored to your needs or situation. Instead, your master service agreement would only need to be periodically reviewed, updated, and amended as your needs change or in response to new situations.
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 for the overall division of liability between or among the parties.
- Ownership of Property Being Developed: Including IP rights.
- Payment Terms: 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.
Benefits 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. Some of the benefits of a master services agreement 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.
- Speed: 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 Are the Disadvantages of an MSA?
Master service agreements do have their drawbacks, although these are often outweighed by their benefits. A master service agreement may:
- Require significant forethought, as MSAs seek to cover nearly every conceivable eventuality.
- Need considerable negotiation with other parties.
- Contain terms and provisions that conflict with other subsidiary agreements.
- Be inflexible and not easily adaptable when necessary.
- Make it more difficult to end a business relationship if that MSA contains a statement of work or scope that has only been partially fulfilled.
It is possible to reduce the impact of these disadvantages through careful drafting of an MSA. It is also helpful to have an MSA drawn up specifically for your business by a competent law firm instead of trying to draft your own master service 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.
Why Not Use MSA Templates Found on the Internet?
Examples and templates of master service agreements abound on the internet. However, your MDA and its terms should be specifically tailored to your needs. This includes accounting for the nature of your business, the other party’s business, and the project itself.
Using legal documents found on the internet, including MDA templates, presents certain dangers and disadvantages. With a master service agreement, you will be bound to the terms of that agreement, whether they are beneficial to you or not. Therefore, it is highly advantageous to use an MDA that is crafted with your needs and situation in mind.
Master Service Agreement Checklist
A comprehensive master service agreement will include specific terms and provisions. The key components of master service agreements are:
- Complete identification and description of the parties.
- Any intellectual property issues that the parties should keep in mind.
- Confidentiality provisions.
- Any representations or warranties regarding goods or services that the parties are making to one another.
- Rights of any third parties that may be involved in the business relationship.
- How the terms of the MSA operate in the face of conflicting terms that might be present in other agreements.
One of the most effective ways to ensure your master services agreement is complete is to have it drafted and reviewed by an experienced and qualified attorney.
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.