Master Service Agreement: Purpose and Main Elements
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What is a Master Service Agreement?
A master service agreement, also called framework services agreement, is a contract between two parties: a service provider, such as an IT consulting firm, and a receiver of that service. It outlines the terms of future engagements and work and details the obligations of both parties.
An MSA agreement sets the foundation for a long-term business relationship. It is flexible and ongoing. A master service agreement details basic tenets that govern the relationship between the service provider and the service receiver and allows for negotiation in future decisions.
What is the Purpose of a Master Service Agreement?
Generally, a master service agreement spells out most of the terms and conditions between the two parties. This simplifies the negotiation process during the finalization of future contracts.
The agreement consists of elements such as:
- Conflict resolution processes
- Delivery requirements
- Intellectual property rights
- Payment terms
- Warranties
The essential goal of the service contract is to set a tone for the ongoing project.
A master service agreement is specially signed in business transactions where the statement delivers work services.
Here is an article about contracts and their common elements.
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Three Main Elements in a Master Service Agreement
When detailing a master service agreement, it is vital to consider three main elements.
- Responsibilities and obligations : You should discuss the responsibilities and obligations of each party. Listing these factors will bring about points that both parties could negotiate. Since this is a long-term contract, make sure you negotiate and bag the best deal.
- Decide what potential issues or disputes could arise : Plan any possible pitfalls.
- Keep the agreement flexible : You will have space to work it out in case of any mishap.
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What Should Be Included in a Master Service Agreement?
A master service agreement will include different components depending on the nature of your project, including:
- Background checks : The contract should include any requirements or prerequisites you have for the employees.
- Conflict resolution : The agreement must state how disputes will be resolved.
- Escrow : If you are investing in a company, the contract should mention if the other party will share the profit or not.
- Insurance : Discuss beforehand how will the insurance expenses be handled.
- Security : Detail the security costs. Who will manage and pay for the security, etc.?
- Standards for work : State clear expectations in the master agreement. Explain each party's responsibilities. This will help avoid any conflicts or misunderstandings in the future.
- Termination : This must be included to decide which party will pay for breaching the contract. Termination for convenience is when a party wants to break the agreement without any reason. Termination for cause is when a party is not performing its obligations.
- Term : This will state the period of time for the contract. You can discuss whether you are looking for a long-term statement of work or not. This will also mention renewal terms and processes.
- Intellectual property : Both parties will have to decide on the ownership and regulation of things. It is possible that the vendor gets the intellectual property and gives rights to the client. In some cases, the client keeps all of the intellectual property.
- Confidentiality : Both parties can agree that they will not disclose any information to a third party.
- Delivery and installation: State the shipping date of a product—also, state who will be responsible for receiving and setting up the shipment.
- Liability : The agreement will clearly state who is responsible in case of a lawsuit. In an ideal case, the client should cover the risk.
- Third parties : For any third party involved, include the terms and conditions in the contract separately.
- Project management : It is necessary to decide who will be leading the team and the project. Without an efficient leader, your project could be all over the place. So state clearly who is in charge.
- Venue of law : Identify the location where any legal matters will be resolved.
- Terms of payment : The project's estimated cost should be included in the master service agreement. Remember to give a detailed breakdown of these expenses and the payments. For example, how long will the payments continue, who will pay, and how often do you have to pay?
- Out clauses : These are the causes for termination of the contract. The MSA should list how the parties will handle such an unfortunate event. This is important to ensure the business runs smoothly.
- Warranties : You can also decide on the coverage and range of the warranty.
Some other points that you can consider covering in your master service agreement could include:
- Business ethics
- Social responsibilities
- Property and network access
Types of Master Service Agreements
A master service agreement can cover a variety of topics. Topics that may be covered include:
- The ownership rights of a property
- Royalties or patents associated with innovations
- confidentiality agreements
- Compensation in case of a suit by a third-party
- Conflict resolution
- Work schedules
What is the Difference Between a Master Service Agreement and a Service Level Agreement?
A Master Service Agreement is often confused with a Service Level Agreement. However, these are two distinct types of agreements.
A Master Service Agreement (or MSA) is an agreement between two parties that list the terms and conditions that will govern their future business relationship. It sets out the basic outline as proposed by each party.
This makes it easier to negotiate any clause. This type of services agreement includes payment terms, product warranties, intellectual property ownership, etc. The master service agreement should create a flexible system to be modified in the future.
On the other hand, a Service Level Agreement (or SLA) is between the service user and the service provider only. The SLA does not outline any requirements for the provision of the service. It also does not have any expectations from the user.
An example of an SLA would be the agreement between the internet service providers and the telephone company.
Here is an article about service level agreements.
Master Service Agreement Checklist
If you wish to draft a master service agreement, here is a checklist for you:
- Definitions : The first step is to define the terms clearly. This would make the contract easier to understand.
- Avoid Ambiguity: Do not use a synonym for the defined term to avoid ambiguity.
- Proprietary Rights : This will list the rights provided to the customer.
- Responsibilities : These are the obligations each party has to fulfill. This could include the tasks of each party and the time they should complete them.
- Representations and warranties : This section will list the duration and limitations of the warranty. It can also state that the other party will not be responsible for certain issues.
- Fees : This will outline how much you will have to pay for the services. It will also list details such as when the invoice will be sent and what time frame you have to make the payments. It can also mention the taxes that are not included in the fees.
- Indemnification : If a party suffers any loss from a third party, the other party will compensate for the losses.
- Confidentiality : You will first have to agree on what is confidential. It will also include the clause stating that confidential data cannot be disclosed.
- Terms and termination. This will list out any clauses on termination or suspension.
Get Help with a Master Service Agreement
A master service agreement can simplify things for you. For example, now that you know what is required for the master service agreement, you can devise one with your legal team. Or hire lawyers to draft or review your consulting agreement from a legal marketplace.
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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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What should be included in my master services agreement?
I am a small business owner who is in the process of entering into a Master Service Agreement with an outside party. I am looking for guidance on what should be included in the agreement in order to ensure that my interests are protected and that all parties involved are aware of their rights and responsibilities. I am seeking legal advice on this matter to ensure that the agreement is comprehensive and legally binding.
Kathryn K.
The critical terms for an MSA will vary widely depending on your industry and the nature of the transaction. Generally speaking, MSAs should include terms addressing: term, termination, structure of the transaction (i.e., are multiple SOWs contemplated), intellectual property ownership, limitations on liability, indemnification, warranties, timing and payment terms, and confidentiality. Those are what I would call the material terms that are critical to setting the expectations of the parties, protecting your interests, and most likely to come up in the event of a dispute. There are myriad other issues that are slightly less important but still need to be addressed, including everything from dispute resolution to assignment to independent contractor status. Depending on your industry, you may need highly detailed sections on data protection and service levels, or not need any language on those issues whatsoever. I highly recommend you consult with an attorney who has experience in drafting MSAs and can prepare a template for you to use for this transaction and all similar deals moving forward. Please note this is not legal advice and this message does not create an attorney-client relationship; I do, however, have extensive experience in commercial contracts and would be happy to assist.
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