Small businesses and independent contractors use master services agreements (MSAs) to formalize contracts with businesses or parties they may have a business relationship with or work with on ongoing projects.
The MSA provides a flexible system to streamline third-party contract management by serving as a base contract while allowing enough room for individual contract negotiation.
Essentially an MSA agreement considers the long-term relationship with certain company third parties by formalizing the responsibilities and obligations of the parties involved and outlining the terms and conditions governing that relationship.
Below are 8 important things to look for in a master services agreement.
1. Responsibilities of Each Party
The responsibilities section of an MSA agreement describes the contractual obligations of the parties involved. In addition, it covers specific activities and milestones expected to achieve once the agreement is executed.
The responsibilities of each party are an important part to outline as this is what will be considered a breach if not followed. This is a key area to review, as it is created to be generic, but it can be adjusted on a case-by-case basis as needed.
Here is an article about master service agreements.
It expressly lists details like when the invoice can be expected and how long the other party has to pay. If there are extra fees for late payment, this is where that would be outlined.
Taxes outside the agreed-upon fees are also included as the customers are expected to pay applicable taxes.
Here is an article that shows you how to write an MSA.
3. Proprietary Rights
This proprietary rights section of the MSA will spell out the right afforded to the customer under this agreement. Commonly, the party offering their services retains ownership of the rights, titles, changes, and derivative works, including intellectual property rights.
Also, if known, any clauses or addendum about customer data usage and sharing are included. Finally, if there are limitations to being HIPAA compliant, they will also be mentioned in this section.
Here is an article that explains the differences between an MSA and SLA.
4. Confidentiality Agreements
As with many agreements, a master services agreement will include a confidentiality agreement. Anything that would be considered proprietary to the company, or any information the company would not want to divulge to the public, would be included in this section.
Usually, there is a protection clause as well, which essentially states that the customer in the MSA will not disclose confidential information unless the case is a compelled disclosure one.
If the case is a compelled disclosure case, the customer would be forced to disclose to the court any confidential information as requested. Only in these cases is the customer allowed to divulge confidential information, and they are expected to notify the agreeing party.
Here is an article about the benefits of an MSA.
5. Representations, Warranties, and Disclaimers
This representation, warranties, and disclaimers section is used to delineate any facts or assurances implicated in the service that is subject to the MSA.
A good example of an independent contractor MSA is when a company provides equipment and services that include a warranty period.
The warranty would outline what repair costs would be, if any, to repair the equipment under the agreement. Still, it would also include what wouldn’t be considered under warranty. For example, purposeful equipment damage cases are prime examples of charges that would not be honored under a warranty agreement.
Another key component of this section is disclaimers. A disclaimer states both parties' obligations but also indicates that one party will not hold another accountable in cases of inaccuracies out of the company’s control.
Here is an article with tips on how to negotiate an MSA.
6. Insurance Requirements
When considering an MSA, you will need to consider how to handle insurance coverage and any expenses associated with that coverage.
Since insurance protects the parties in the agreement, it is something that needs to be handled in the contract to avoid any confusion going forward. This is another area where non-compliance with the agreement could lead to litigation.
Here is an article that outlines the main components needed for an MSA.
A master services agreement generally has a section for a limitation of liability or indemnification. If it is included, it would include information on what would happen if any party is subject to losses through third-party claims. In most cases like this, they would seek compensation for coverage of losses.
Important elements of an indemnity clause include:
- Risks covered
- Reciprocal terms
- Scope of the claim
- Maximum liability cap
- Time limits to raise a claim
8. Dispute Resolute Process
The dispute resolution process is one of the most important things to review before signing. Any agreement involving more than one person is subject to potential strains. What happens if the agreement gets volatile? This clause covers.
Specific steps that should be taken to either dissolve, mitigate, or revise the agreement need to be pretty well spelled out in this section, or you may be looking at a long road to restoration.
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