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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.
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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.
Meet some of our Master Services Agreement Lawyers
I have been practicing law for 35 years. In addition to my law degree, I hold an MBA. I've created six companies, currently act as outside counsel to another 12, and have been an advisor to more than 100 startups and entrepreneurs.
I am a licensed and active Business Attorney, with over 20 years of diverse legal and business experience. I specialize in contract review, drafting, negotiations, ecommerce business transactions, breach of contract issues, contract dispute and arbitration. I am licensed to practice in New York and Connecticut. I am a FINRA and NCDS Arbitrator. My experience includes serving as General Counsel to small businesses. I negotiate, draft and review a wide array of commercial contracts; provide business strategy and employment advice and assist in the sale of businesses entities. I work extensively with various kinds of contracts. In reviewing agreements, I conduct risk analysis of contract and interpret the terms and conditions so that clients understand exactly what their obligations are under the agreement and are protected as much as the law requires. I am detailed and thorough in my review and drafting of agreements. Additionally, I advise clients on how to limit their liability and lower their contractual risk. I specialize in breach of contract issues and arbitration. I have been a Hearing Officer, presiding over cases and rendering written decisions; a Civil Court Arbitrator presiding over cases in contract law, commercial law, etc., a Judicial Clerk in Civil Court; a Vice President at an Investment Bank and an Attorney at top AML law firms.
Carlos Colón-Machargo is a fully bilingual (English-Spanish) attorney-at-law and Certified Public Accountant (CPA) with over twenty years of experience. His major areas of practice include labor and employment law; business law; corporate, contract and tax law; and estate planning. He is currently admitted to practice law in Georgia, Florida, the District of Columbia and Puerto Rico and currently licensed as a CPA in Florida. He received a Master of Laws from the Georgetown University Law Center in 1997, where he concentrated in Labor and Employment Law (LL. M. in Labor and Employment Law) and a Juris Doctor, cum laude, from the Inter American University.
Graduate of Georgetown Law (J.D. and LL.M in Taxation) Injury Claims Adjuster before law school for top insurer Eight plus years of legal experience Past roles: Associate at premier boutique law firm in the DC metro area Policy Associate at a large academic and research institution Solo Practice Areas of Expertise: Contracts Business Formation Trusts and Estates Demand Letters Entertainment Transactions
As a business law attorney serving Coral Springs, Parkland, and Broward County, FL, Matthew has been recognized as “AV” rated, which is the highest rating an attorney can achieve through Martindale’s Peer Review system. Year after year Matthew is listed in the “Legal Leaders” publication as a top-rated attorney in South Florida in the areas of litigation, commercial litigation, and real estate. Matthew is also a graduate and instructor of the Kaufman Foundation’s FastTrac NewVenture Program, presented by the Broward County Office of Economic and Small Business Development.
John Benemerito is the Founder and Managing Partner of Benemerito Attorneys at Law. Admitted to practice in New York and New Jersey, John represents small business owners and startups in the areas of Business and Securities Law. John received his Bachelors Degree at John Jay College of Criminal Justice where he majored in Criminal Justice. Afterwards, he attended New York Law School where he focused his studies on Corporate and Securities Law. John comes from a family of entrepreneurs. From as far back as he can remember he was always involved in his family’s numerous businesses. At the age of fifteen, John entered into a new business venture with his father and managed to grow and maintain that business through high school, college and law school.John is currently a co founder in over five different businesses. After law school, John decided that he wanted to help people like himself. He opened his own law practice and began working primarily with small business owners until he was introduced into the startup world. Ever since that time, John has worked with hundreds of startups and thousands of entrepreneurs from all different backgrounds in helping them achieve their goals. Having been an entrepreneur his entire life, John understands what it takes to create and maintain a successful business. He enjoys sitting down and working with his clients in figuring out each of their unique challenges.
California-based small business attorney handling matters related to securities, mergers & acquisitions, corporate governance, and other business transactions.