An Introduction to Master Service Agreements (MSAs)

The contract negotiation process can be extremely time-consuming for both vendors and clients. When these two parties need to work together for a long period, they may be daunted by the number of contracts they will have to negotiate.

But there is good news for the contract weary in the form of a master service agreement (MSA). These contracts can help save time and money on all sides while making the working relationship more efficient, productive, and enjoyable.

This is what you need to know about master service agreements, including what they are, how they work, what they require, and how you can create one of your own today. 

What is an MSA?

A master service agreement is a legal contract that establishes fundamental agreements between two parties. MSAs allow vendors and clients to agree on basic terms at the outset of a business relationship before any business commences. This can drastically reduce the complexity of the negotiation process and speed it up for future projects and contracts.

This streamlined process for subsequent contracts saves time and money for everyone involved, making MSAs a popular form of contract for all types of businesses. 

Why is an MSA important?

In addition to the convenience and streamlining offered by MSAs, these documents also provide a substantial level of risk protection for both parties. By transparently arranging and agreeing to an MSA at the onset of a business relationship, both parties are setting clear expectations and terms that can be referenced quickly in the event of disagreement or dispute.

Often, the longer a business partnership lasts and the more diverse the types of work the two businesses conduct together, the more beneficial an MSA becomes. Because an MSA settles the basic agreements between the two parties, it drastically speeds up any subsequent negotiations.

If two parties that signed an MSA want to amend or expand their business partnership, to start another project for example, then they can use their existing MSA as the foundation of their new agreement. Instead of having to resettle all points of their original agreement from scratch, they can focus on issues more directly related to the project at hand, allowing them to reach a settlement faster and proceed with their current business.

In other situations, the MSA may be the only contract that governs a whole series of smaller projects, allowing both parties to totally avoid contract negotiations once the MSA is signed.

Ultimately, an MSA is a crucial document for any continuous business partnership agreement. It saves time and creates a legal standard of mutual expectation.

What is included in an MSA

While each MSA will vary slightly depending on the needs of the agreement, most MSA contracts have the same core sections and clauses. These basic elements provide a framework for all future contracts.

An MSA generally contains the following elements:

Scope of work 

The section of an MSA where the actual work to be performed is described. The scope of work ensures that both parties understand what will be delivered, as well as protects the vendor from being expected to do work that was not agreed to. 

Confidentiality 

Also known as a non-disclosure agreement or clause, this section of an MSA protects intellectual property and other proprietary information from being disclosed. Confidentiality agreements are generally used to protect the client, but they can also be used to keep a vendor’s proprietary practices confidential.

Geography

For projects that require work to be done at a physical location, the MSA’s geography section will define where the work will be performed. Work that is done entirely remotely may not require a geography clause.

Product delivery requirements 

The timeline on which projects will be completed and delivered to the client. The MSA can define a single deadline or a series of milestones. The product delivery requirements will also spell out what happens if deadlines are not met.

Work standards 

This clause describes the criteria for the quality of the work performed. The more thorough and precise this clause is, the less likely it is there will be a misunderstanding between the client and vendor about what constitutes acceptable quality.

Work standards an MSA may specify include:

  • Product and project management: Who will be responsible for the management and delivery of the project(s) outlined in the MSA.
  • Employee management: Which parties are responsible for hiring and managing the employees involved in executing the project(s) outlined in the MSA.
  • Service level agreements (SLAs): Service level agreements are agreed-upon, measurable performance standards that both parties must meet when performing their respective work.

Intellectual property rights

This specifies who retains the rights to the finished product. It also generally covers any derivative products generated during or after the project. Ownership often goes to the client, however retention of rights can sometimes be included as part of the vendor’s compensation.

Payment terms

The total amount to be paid and the cadence of payment is defined in this section. Payment terms will also outline any penalties for late payments or conditions on which the client has a right to withhold payment.

Taxes and fees 

This section details who pays any applicable taxes related to the projects governed by the MSA. It can also specify who pays non-tax fees, penalties, or other one-time payments.

Limitations of liability 

A limitation of liability clause protects each party from direct legal responsibility in case something goes wrong with the project. 

Legal venue

Distinct from the geography clause, the venue clause designates which location’s laws will govern any legal dispute. The venue is generally designated as the jurisdiction of the client.

Warranties

The warranty is an assurance from the vendor that all deliverables will be free from defects. 

Indemnification

If the deliverable causes the client to have a loss, or a project causes the vendor to have a loss, the MSA’s indemnification clause outlines what compensation, if any, is owed.

Insurance requirements

Description of the type of insurance policy the vendor must have. An MSA will usually require general liability insurance and may include other types of policies related to the type of work being performed.

Termination clause

These are the conditions under which the MSA can be terminated by either party. 

When should I create an MSA?

Whenever two or more parties in a business relationship know they will continue to work together beyond the scope of a single project or contract, drafting an MSA is a prudent idea for all involved.

Draft, negotiate and sign MSAs with Docusign 

Creating an MSA can be a major undertaking. Docusign can help make the drafting, negotiation, and signing process easier with templates and electronic signature technology

To get started drafting your own MSA, sign up for a Docusign free trial.

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