What Is a Master Service Agreement? How MSAs Should Work

Sometimes, a contract covers a one-time action between parties, but what happens when the relationships or circumstances are ongoing? When signing parties know they will continue to work together in the future, a Master Service Agreement (MSA) can simplify those future agreements and speed up the negotiation process.

With an MSA, additional contracts do not need to be renegotiated, and the basics of the initial agreement can be included in all future contracts. While the tech industry uses MSAs most frequently, these agreements are appropriate for any long-term, ongoing business relationships, including client/vendor interactions, government contracts, and union negotiations.

What is an MSA and what does it do?

At its most basic, an MSA is a contract between two or more parties that establishes what terms and conditions will govern all current and future activities and responsibilities. MSAs are useful because they allow the parties to plan for the future while also speeding the ratification of future agreements. That’s because MSAs create a contract framework that establishes the foundation for all future actions.

Even better, an MSA allows for modifications as circumstances evolve by addressing only the specific deal at hand but maintaining the basic tenets that will govern all future contracts.

Some of the basic terms of an MSAs include:

• Confidentiality
• Product Delivery
• Dispute Resolution
• Geography
• Intellectual Property Rights
• Limitations of Liability
• Payment Terms
• Venue
• Warranty
• Work Standards

The types of agreements governed by an MSA can include:

• 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, cost-of-living, etc.

Bonus: Contract maturity quiz

Why use a Master Service Agreement?

An MSA simplifies and streamlines the contract negotiation process. 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.

In this way, an MSA allows the parties to plan for the future and adapt to business landscape changes—highlighting the potential areas of conflict or concern. MSAs also eliminate the pressure of a deadline and give parties time to respond and adjust.

Finally, an MSA is best for long-term relationships that need the 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.

An MSA should delineate responsibility if any of the following events should occur throughout the business relationship, like:

• Employee injury or death
• Property damage
• Missed deadlines
• Failure to pay
• Unsatisfactory performance or service
• Product defects
• Unauthorized charges
• Miscommunication

What should be included in an MSA?

For a successful MSA, it’s all in the details. Think of your MSA as the bedrock of your ongoing, long-term business relationships. By covering all contingencies and planning for unforeseen issues, your MSA ensures your business contract’s strength and health. As such, your MSA should include the following information:

• All possible issues that could arise throughout the business relationship
• What actions both parties will take together
• Individual responsibilities assigned to each party

When it comes to determining each party’s individual responsibilities, it’s essential to understand where conflict may arise. For the purposes of an MSA, parties should establish who is in charge when an event or responsibility occurs—so that all required elements to fulfill the negotiated agreement are covered.

Areas an MSA should address include:

• Product and Project Management : Who will be responsible for the delivery and installation of a product or service and who is in charge if something goes wrong?
• Employee Management : Each party should list requirements for potential employees and background checks, and other employment screening activities.
• Income and Expense : Determining how a cost is projected and how payments will be procured and processed.
• Insurance Coverage : Who will handle insurance acquisition, and what penalties will apply if the party responsible fails to acquire and maintain the agreed-upon insurance coverage?
• Escrow and Security : Who supplies backup funding and payment for the protection of the project or product?
• Requirements and Liabilities : Where will the work occur? Who will be responsible for complying with local, state and federal regulations and risk mitigation?
• Taxes : Who will track taxes and how tax liabilities will be allocated and reconciled?
• Third-party Coverage and Concerns : How will actions involving a third party be handled, and who will be responsible for addressing these third-party issues or disputes?
• Termination : What happens in the event the business agreement is terminated?

Master Services Agreement checklist

Essential clauses

• Definitions. Clearly define key terms used throughout the agreement to avoid ambiguity.
• Services. Define the scope of services provided, including details like deliverables, timeframe, and location.
• Payment terms. Specify pricing, payment schedule, invoicing procedures, and preferred payment methods.
• Term and termination. Outline the contract duration, renewal options, and termination clauses for various scenarios.
• Confidentiality. Protect sensitive information exchanged between parties with clear obligations and durations.
• Intellectual property rights. Address ownership, use, and licensing of intellectual property created during the service provision.
• Warranties and disclaimers. Define the level of quality expected and any limitations of liability for both parties.
• Indemnification. Specify circumstances and obligations for compensating each other for potential losses.
• Dispute resolution. Outline the process for resolving disagreements, including options like mediation or arbitration.
• Force Majeure. Address how unforeseen circumstances impacting service delivery will be handled.
• Governing law and jurisdiction. Specify the legal framework and courts applicable to any disputes arising from the agreement.

Additional considerations

• Independent contractor status. Clarify the nature of the relationship between the parties (e.g., independent contractor vs. employee).
• Notices. Define how official communication between parties will be conducted.
• Amendments and waivers. Establish procedures for modifying the agreement and addressing potential breaches.
• Entire agreement. Ensure the document supersedes any prior or contemporaneous communications.
• Severability. Specify that invalid provisions won’t affect the enforceability of remaining clauses.

Remember, this checklist provides a general framework, and specific inclusions may vary depending on the nature of your services and business relationship.

MSA: The foundation for good business relations

MSAs are a legal game-changer for any on-going business relationships. They establish a negotiation template and reference point that eliminates the need to recreate a new contract for every action between parties. MSAs work by deciding on specific governing key terms and conditions, but also by allowing for additional modifications and adjustments. By proactively laying legal groundwork for the future of a relationship, MSAs enable each party involved to move fast and respond to a changing business climate.

Ironclad is not a law firm, and this post does not constitute or contain legal advice. To evaluate the accuracy, sufficiency, or reliability of the ideas and guidance reflected here, or the applicability of these materials to your business, you should consult with a licensed attorney. Use of and access to any of the resources contained within Ironclad’s site do not create an attorney-client relationship between the user and Ironclad.

• What is an MSA and what does it do?
• Bonus: Contract maturity quiz
• Why use a Master Service Agreement?
• What should be included in an MSA?
• Master Services Agreement checklist
• MSA: The foundation for good business relations

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