A guide to master service agreements

A master service agreement (MSA) is a useful tool that helps business relationships run smoothly. When you form a partnership with another company, client, or supplier, contract negotiation can be strenuous and time-consuming, but an MSA is an overarching contract that binds your collaborative work together for optimal efficiency.

Among other features, an MSA outlines your roles and legal responsibilities, sets expectations in your professional relationship, and establishes solutions to potential problems.

In this post, we’ll explain what an MSA is and why it is used. We’ll also let you know its basic framework to help you write your own agreement, should your business need it.

What is a master service agreement?

Also known as a ‘Framework Agreement’, an MSA is a legally binding business contract between two parties. When you form a long-term partnership, it is the fundamental document that defines each person’s legal rights and obligations in relation to the work that you carry out together.

MSAs can be used in any continued business-to-business (B2B) relationship. For example, if you work on a product collaboration with another brand, or employ a courier to deliver items to your customers, these are typically ongoing engagements that would benefit from an MSA.

A typical agreement structure includes:

• Who the partnership is between
• The scope of services that will be carried out and how long for
• Service fees and payment structures
• Warranties
• Indemnification (loss or damage compensation)
• Confidentiality
• Intellectual property rights (who owns the finished product?)
• Termination clause

Establishing these key details upfront helps speed up future negotiations and eliminates the need for an entirely new agreement each time you want to start working on something new with the same partner. Instead, all you need to do is create a new Statement of Work (SOW), which is then supported by the master service agreement.

Simplicity and streamlining prospects make MSAs a favourable option for businesses of all types and sizes.

Statement of Work (SOW) explained

A Statement of Work (also known as a ‘Call-off Contract’) specifies the project-level information. This includes details such as deliverables, timescales, location, and work requirements. In other words, it determines the finer details of the individual tasks being carried out by the contractor, supplier, or brand.  

The purpose of a coherent SOW is to provide all parties with a mutual understanding of the project and its end goal. It indicates what you’ll be working on, what your aims are, and how they’ll be tracked and achieved.

The main SOW components include:

• Project overview: What is the project about? Who is directing the project, who is the main point of contact, and who is the client or contractor?
• Project purpose: Why has it been created and what are its objectives?
• Scope of work: List the individual tasks to be done. What equipment is required to complete them, how long will it take, and what are the deadlines and deliverables?
• Location: The address of where the work will be carried out and a description of the premises.
• Timelines: What is the target date for each deliverable?
• Conflict resolution: Disagreements are likely. Consider any possible disputes that might arise and how they should be resolved.
• Payment: A summary of the payment terms and schedule.  

Depending on your circumstances and business needs, you might also add:

• Milestones: For longer projects, outline each key milestone that you plan to achieve. This will help break the project up and make it easier to track progress.
• Special requirements: Any specific equipment or certification required to complete the project.
• Acceptance criteria: The minimum requirements of suppliers’ goods or services to be deemed acceptable.

It’s important to be as detailed as possible when drafting an SOW. Like an MSA, making these preparations early will prove to be far more efficient and cost-effective in the long run.

Can you have an SOW without an MSA?

You don’t always need both documents when you work with someone. For instance, let’s say you take on a freelance designer to create a logo for your brand. This is a one-off project, after which your partnership will end. In such cases, you may find that a simple SOW is sufficient for a single task. 

However, if you’re taking on a PR agency or a new packaging supplier, for example, these are long-term business relationships that would benefit from a master service agreement. 

Essentially, MSAs are commonly used for ongoing engagements and supported by individual SOWs per project, while a stand-alone statement of work may suffice for a single transaction. 

The purpose of master service agreements

Its main function is to establish a mutual and legal scope of a business relationship. This provides a clear understanding of what is expected of each person, their liabilities if things go wrong, and how potential problems will be settled.

Another purpose is to streamline future negotiations. Let’s say you partner up with a marketing agency to promote a new product. If you want to work with them on another campaign later down the line, having an MSA means that you don’t have to go back to square one as the primary agreement already exists.

All you need to do is update your statement of work with the new project details, saving both parties a considerable amount of time and money.

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Finally, a master service agreement is also used to protect each party from unforeseen circumstances. No matter how much you plan ahead, unexpected obstacles can occur. For example, if you experience property damage from natural causes, if there’s miscommunication, or if the project costs are higher than expected, you can use this contract to define liability and compensation. 

The benefits and potential risks of MSAs

Some of the main benefits of two businesses using this agreement are:

• It’s transparent: When entering a business venture, an MSA provides clear and thorough terms of the relationship. This gives each party transparency on their goals and obligations during the contract length.
• It protects your business: There are always potential risks and challenges when working with another business. Should anything like that come up, you can quickly and easily refer to your MSA for guidance on how to resolve them.
• It’s efficient: MSAs make business collaborations incredibly efficient. With an overarching contract that defines the terms of your working relationship with another business, there’s no need to create a new agreement every time you work together. During the MSA term, you simply need to update your SOW if you want to start a new project, which is then supported by the MSA.
• It saves money: Due to their efficiency, MSAs can also be save considerable costs. They eliminate the need to negotiate the terms of each specific project from scratch, which reduces your legal expenses.
• It’s easy to reference: The longer you work with another business, the more familiar you will become with your contractual terms. If you experience any problems, an MSA provides a quick and easy point of reference to help deal with them efficiently.
• It helps maintain consistency: When you start new projects with an existing business partner, an MSA can help maintain consistency in its management as well as your professional relationship.

Potential risks

There are some potential downsides to think about before drafting a master service agreement. For example:

• They take time: While they are incredibly useful when they’re ready, MSAs can take a long time to complete. To draft up a comprehensive MSA, you need to make extensive negotiations to draw up terms that suit both parties equally.
• They can get complicated: It’s hard to be prepared for every possible eventuality and agree on every aspect of the contract. As you work your way through creating your MSA, the process can become complicated and lead to contradictions or inconsistencies in your agreement.
• They can be inflexible: Depending on the termination terms of your contract, you could encounter inflexibility later down the line if you wish to exit your partnership. Also, if your MSA lets you terminate the contract, you could still be legally bound by your SOW.

How to write a master service agreement

If you’d benefit from an MSA, you can write the contract with your business partner based on your mutual needs. Your contract should cover the following areas:

1. Parties involved: Who is the contract between? This section should detail your company name and the service provider, including the registered addresses. The date of the contract must also be specified here.
2. Scope of services: Explain what type of work the service provider is going to carry out, its purpose, and duration. This section should also reference that a full description is detailed and signed in the statement of work.
3. Contract price: What is the total cost of the services? You can either specify the contract price for a specific duration or explain that all fees shall be paid for the deliverables as specified by the SOW.
4. Deposit: If applicable, detail a preliminary payment that your company is due if the client cancels or is unable to complete the services in the agreed timeframe. Explain if the deposit is refundable or not.
5. Dates of performance: Are there specific dates that the project will run between? If so, specify them here. Otherwise, a common structure for this section is simply to outline that services will start once the agreement is signed, and end once satisfactory services have been provided.
6. Change in services: Define the protocol for making changes to the SOW, such as a written request to the other party. If additional statements are agreed upon, define the payment structure of the services provided in the initial statement of work.
7. Termination obligations: What are the rules if either party wishes to exit the contract before the end date? How much notice is required to terminate or amend a statement of work? What are the payment terms in the event that the contract ceases before the services in question are completed?
8. Payment structure: Explain how payment will be settled for the services in question. It can be a specific hourly rate, for example, or the contract price and deposit to be paid by a fixed date. You may also want to negotiate if and how the client’s travel expenses are to be covered.
9. Representations and warranties: This is a pledge that the terms of service are true and that they will be executed lawfully. The service provider vows that they have the necessary skills and expertise to meet the contract requirements and official regulations for the duration of the agreement.
10. Intellectual property rights: Who has the legal rights to the finished project? If you work with a partner on a new design or product, for instance, it’s critical to determine who will legally own that invention. This is a vital measure that can help protect your business, its assets, and their value.
11. Notices and amendments: Explain the manner in which any notices, changes, or waivers to the agreement should be delivered. Is it verbal or written? Should it be emailed or posted?
12. Arbitration: This is your dispute settlement. You may want to specify how many arbitrators will be selected in the event of a conflict, and the location of the resolution.
13. Indemnification: If there are any losses or damages while the contract is active, an indemnification clause holds the responsible party accountable and legally requires them to cover the cost.
14. Force Majeure: This is a legal term that removes liability for unforeseen and uncontrollable circumstances that lead to agreed work not being completed. This could be natural disasters, extreme weather, or changes in laws and regulations. Essentially, this clause defines that neither party is held accountable in such instances.
15. Confidentiality and disclosure: If there is any confidential information that either party wants to keep private, this clause protects that information. This might be your marketing plans or financial data, for example.

Legal agreements can get very complicated, especially if there are lengthy negotiations involved. In this case, a commercial law solicitor can help you. If you opt for professional guidance, keep in mind the costs that could mount up if you make continuous changes to your master service agreement.

Wrapping up

The start-up stage of any business is the riskiest. MSAs can be crucial for SMEs as they help mitigate risk, manage obligations, and protect all parties.

Before you create a draft MSA, think about the areas that are most important to you and your partner, and outline equal terms that suit both sides. Remember that some of the MSA components might not apply to you, and it’s important to make those initial negotiations as detailed as possible, to form a concrete agreement that will simplify your future processes.

We hope you found this guide to master service agreements useful. If you have any questions or comments, please let us know if the comments below, or get in touch with our team.