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What Is a Master Services Agreement?
A master services agreement, or MSA, is a contract that two parties enter into during a service transaction. The agreement explains the expectations for both parties. A master services agreement is a broad contract that allows the parties involved to understand:
- Major points of the deal
- How conflicts and other issues should be handled
What Are the Goals of a Master Services Agreement?
The MSA simplifies the negotiation process when drafting new contracts between the parties, allowing everyone to proceed with an overall understanding of how they should work together. It should state what each party must do to honor their side of the agreement. The overall goal of a master services agreement is to make the contract process faster and simplify future contract processes.
What Should a Master Services Agreement Include?
When you are drafting an MSA, you will want to focus on a few main points:
- What will your company do?
- What will the other company do?
- What will both parties do together?
- What are the responsible issues either party might face?
By listing these details, you will help both parties honor their side of the agreement. It is essential to decide potential issues in advance as there are many possible problems that could arise. For example, a third-party vendor could go bankrupt and derail your agreement. That's why it is so important that both companies in the MSA account for any potential pitfalls.
The MSA should include several key components depending on the details of your project, including:
If you have any requirements for employees, the MSA should list this.
- Confidentiality: The parties to the agreement can agree they will not share any company secrets with outside parties. Here is an article about confidentiality agreements between businesses.
- Delivery/installation: State when a product will ship and who will be responsible for setting up the first shipment.
- Dispute resolution: A master services agreement should outline how the parties will resolve a conflict should issues arise.
- Escrow: If either party is placing money in a trust, you should use the MSA to explain the circumstances that will allow the other party to earn that money. Here is an article about escrow.
- Geographic location and government requirement: Parties should agree upon where employees will do the job. Deciding where to work on a project has implications for city, state, and federal taxes.
Agree ahead of time on how you will handle insurance expenses and coverage.
- Intellectual property: The MSA can cover intellectual property rights. The parties can decide how they will handle regulation and ownership of things such as patents and other intellectual property. In some cases, the client will get all intellectual property, while in other cases, the vendor provides perpetual rights but keeps their own intellectual property and patents. Here is an article about intellectual property.
- Liability: This contract should list which party is responsible in the event of a lawsuit should an incident occur. The master services agreement should state the party that will assume the risk.
- Out clauses/causes for termination of the agreement: Businesses do split up, so the MSA should detail how the parties would handle this.
State who is in charge. Your project could easily go wrong if neither side decides who should be managing different aspects of the project.
- Requirements for delivery: Detail who will deliver what and when these deliverables are due.
- Security: Parties should agree on who will handle and pay for security to protect the product or project.
- Standards for work: Define what each party considers acceptable work. When one party does not live up to work standards, it creates a common source of conflict, so clear expectations included in the MSA can help avoid future disputes.
- Tax responsibilities: The business must decide how they will divide tax expenses and responsibilities.
- Terms of payment: The MSA should state the estimated cost of a project along with the payment schedule. Include the projected cost as well as who is paying, when they will pay, how often they will pay, and how long payments will continue.
- Third parties: If your project requires the involvement of more than the two parties that are creating the MSA, you should state in the MSA how the rest of the agreement applies to any third party.
- Venue of law: A master services agreement should identify the location where a legal resolution will occur, for example, arbitration, a specific state, or federal court.
- Warranties: Parties can use the MSA to agree upon scope and coverage of warranty.
Depending on your project, you can also use a master services agreement to cover some other areas, including:
- Business ethics
- Property and network access
- Social responsibilities
Again, the goal of your MSA is to broadly explain as many details as possible. That helps your business to avoid wasting money and time in negotiations.
Advantages of Creating a Master Services Agreement
A master services agreement offers a few key advantages:
- Faster process than standard contract negotiations: When businesses spend time creating a contract, it is often a lengthy and expensive process. Coming to a quicker deal is in both parties' best interests. A master services agreement allows you to agree to the main points, thus speeding up the process of negotiating. It's possible to write a thorough master services agreement in a few weeks or even days, which is significantly faster than most contract negotiations.
- Protection for both parties: Even though you are not going through a typical contract negotiation, the MSA still puts an agreement in place. If a dispute happens, the agreement will decide who is at fault. It's easy to check a master services agreement, which makes the two parties less likely to take a dispute to court, again saving money and time.
- Blueprint for future agreement: If you like the master services agreement you create, it is very easy to use as a template for negotiations in the future. Of course, each deal necessitates its own specifics, but you will have a blueprint that allows both parties to focus on important details of the discussion.
Image via Unsplash by cytonn_photography
Common Master Services Agreement Disputes
You MSA will lessen legal concerns during your negotiations, but issues can still occur between the parties. The most common disputes that happen when companies use MSAs include:
- Failure to communicate: If one business requests updates but the other company does not respond in a timely manner, it can lead to disputes.
- Injury or death of an employee: Unless this is clearly addressed in your MSA, parties are likely to debate who holds the blame for these kinds of incidents.
- Missed deadlines: If one party misses deadlines, it will lead to disagreements between the parties.
- Missed payments: This is one of the fastest ways to create conflict between parties.
- Performance/service issues: If a product or service does not meet expected goals, conflict will likely arise.
- Property damage: You will want to clearly address what happens in the case of property damages, as this is a common source of dispute between partner companies.
The more you plan for these potential conflicts in your master services agreement, the less likely conflicts will come up down the line.
That's why it's so important to work with an experienced lawyer when creating a master services agreement. A contract lawyer can help ensure your document covers all the necessary clauses and details.
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