Introduction to the Master Service Agreement
The Master Service Agreement, or “MSA,” is a contract between a service provider and its customer. Master Service Agreements differ greatly depending on the nature of the services, the types of clients, the industry involved, and many other variable factors. Simply put, there is no “one size that fits all” Master Service Agreement. In fact, they are just as diverse as the transactions they cover. Businesses should develop and constantly enhance their masters service agreement templates as part of their risk-management processes.
There are some terms and conditions which are typically found in a majority of MSAs. The general rule is that the Master Service Agreement is intended to create a platform for the continued provision of services by a service provider to a customer over a longer period of time.
While some Master Service Agreements are drafted as all-in-one agreements that cover the entire range of services in a self-contained agreement, the majority of Master Service Agreements explicitly state that they will be used alongside shorter related documents like the Statement of Work. The bulk of the legal terms and conditions are negotiated at the time of the Master Service Agreement, and then particular Statements of Work are made concerning the specific services requested by a client.
This is among the major advantages that this arrangement offers. Master Service Agreement is negotiated only once and is in force for a longer time, while Statements of Work can be created and executed swiftly in accordance with the specific requirements of the client. In this arrangement, substantial time and money can be saved. The Statements of Work will refer back to the Master Service Agreement and contain specific provisions that state that the MSA’s provisions determine the Statement of Work. Numerous companies have different versions of the master agreement, which they use in various situations that they come across.
Common Core Terms found in Master Service Agreements
Although MSAs differ widely, several typical subject matter areas are covered within Master Service agreements. Some of them are heavily negotiated by both customers and service providers, while others have normal contracting differences. The terms can differ based on the industry and type of customer, and often negotiations centre not only on the customary areas but also other “hot button” issues that can result from the particular needs of a specific party or regulatory framework.
The following is a non-exhaustive list of terms commonly used in the Master Service Agreement:
1. Remedies
Warranties give customers specific remedies under the law, including the right to seek damages if an implied warranty is violated. However, Master Service Agreements usually offer specific remedies instead of any other remedies. For instance, an MSA might state that if the services do not comply with the applicable warranty, the service provider has to make changes within a specified period of time by offering additional services at no cost to the client.
Service providers that offer service-related warranties frequently, as part of an exclusive and sole remedy, require customers to agree that if their efforts fail to make the services conform to the applicable services warranty and that they will be able to offer the customer an appropriate refund for the affected services. For a service company, this unique “re-perform or refund” arrangement is an important risk-management strategy in the contract. Customers often resist limiting their remedies under an MSA for specific warranties for many reasons.
2. Indemnification in MSAs
Master Service Agreements typically include indemnification clauses to help allocate risk between the service provider and the customer. In certain circumstances, like personal injury or property damage, indemnification is shared by both parties. Some customer forms look for broad-based indemnification that covers all possible violations that may occur under the Master Service Agreement and obligations under the Statement of Work.
Service providers adamantly resist these kinds of indemnities and attempt to restrict indemnities – if not to personal injury and property damage, then to additional potential risks, such as violations of third party intellectual property rights.
3. Confidentiality
The majority of MSAs have a confidentiality clause that is usually shared between the parties. However, those that don’t have one may include a prior confidentiality agreement’s provisions into the Master Service Agreement if it was negotiated separately and addressed any issues that could arise in the execution of the MSA.
4. Intellectual Property.
Most relationships under a Master Service Agreement will involve the use, disclosure or creation of intellectual property rights (“IP”) from the respective parties. Sharing these rights among parties is a common feature of MSAs. IP may fall into various buckets, and a master service agreement template may tie the actual particulars to specific documents attached to the Master Service agreement.
Additional Terms in Master Service Agreements
In addition to the terms and conditions found in commercial agreements, Master Service Agreements typically cover other areas that affect relationships between the consumer and the service provider. Here are a few examples of other concerns that are frequently addressed in Master Service Agreements:
1. Service Provider Personnel.
Customers tend to be very particular about who provides services under a Master Service Agreement. A lot of Master Service Agreements and Statements of Work contain mechanisms that allow customers to review the service provider personnel and set guidelines for their performance. In larger deals, it is not uncommon for clients to request the right to have members of certain types of personnel be replaced at any time and also to determine the costs associated with boarding their replacements. In addition, many projects completed under a Statement of Work may involve a service provider employing independent contractors ranging from individual consultants to multinational corporations that provide specific services or supply certain required items.
2. Regulatory Requirements in MSAs.
A large number of customers are subject to many Federal, state and local laws and requirements that they must ensure are followed by their personnel – including service providers. It is not unusual for service providers to receive types of MSAs from customers that differ significantly based on regulatory requirements.
3. Payment
A Master Service Agreement typically establishes several conditions and terms regarding disputes over payment. In most cases, these rules defer to more specific rules set out in a statement of Work. The most frequently discussed are the rights of the service provider to terminate services in the case of a breach by a customer, the right of the service provider to charge interest, and the right to reimburse attorney’s charges and collection costs if the customer fails to make the payment on time.
4. Termination Rights
As with all commercial contracts, a Master Service Agreement and a Statement of Work will address termination rights. A Master Service Agreement typically has a predetermined initial period which automatically renews on an “evergreen” basis and is subject to the rights of either party to terminate the MSA by giving the other party within a specified time frame of prior written notice. Most customers often desire the ability to terminate an MSA or any existing SOW for convenience upon notice. This area differs according to the economic relationship envisioned by the agreement.
Conclusion – The importance of a Master Service Agreement
If you’re a client or a service provider, the Master Service Agreement is an essential tool for achieving your business goals. Working with a business lawyer who is familiar with your business and the fundamentals of Master Service Agreements and Statements of Work can help you improve your contracting procedures and create a solid basis to ensure your business’s success. Creating a master service agreement can help a company save many hours and also help complete transactions faster.
