An Introduction to Master Service Agreements (MSAs)
The contract negotiation process can be extremely time consuming for both vendors and clients. So when these two parties need to work together for a long period of time, they may be daunted by the number of contracts they will have to negotiate.
But there is good news for the contract weary: master services agreements. These contracts can help save time and money on all sides, while making the working relationship more efficient, productive, and enjoyable. Read on to learn how.
What is an MSA?
A master service agreement (MSA) is a contract that establishes the fundamental agreements between two parties. MSAs allow vendors and clients to agree on basic terms at the outset of a business relationship, which can drastically speed up the negotiation process for future projects and contracts. This streamlined process for subsequent contracts saves time and money for everyone involved. This makes MSAs a popular form of contract for all types of businesses.
With the more contentious sections settled, any later modifications to the agreement can focus on issues directly related to specific projects. 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.
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.
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.
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.
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.
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.
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.
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.
The warranty is an assurance from the vendor that all deliverables will be free from defects.
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.
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.
These are the conditions under which the MSA can be terminated by either party.
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