Speeding up commercial contract negotiations isn’t always straightforward. But the right Master Services Agreement (“MSA”) helps you move the sales and delivery process along and clarify in advance the things that matter to you and your business.
So what is a MSA and how do you know if it is right for you? And what do you need to be aware of to avoid any nasty surprises down the road?
And remember, don’t hesitate to ask our commercial law solicitors for advice on any MSA, whether it’s for a review of someone else’s agreement you’ve been asked to sign, help in creating your own MSA or advice on what should go into the schedules; it’s so much better to get it right first time and there are always ways to achieve what you want!
What is a master services agreement used for?
A master service agreement operates as a contract between a service provider and a customer setting out the terms on which they will work together in the future.
They are typically used in B2B transactions in which services are provided in accordance with the delivery of a “Statement of Work” (SOW).
Businesses use MSAs to expedite the order and delivery process so that all that has to happen each time is for the customer to place his order via the agreed form of SOW.
A MSA will cover the important terms such as delivery requirements, payment terms, intellectual property rights, warranties, dispute resolution and termination (see below for a checklist of terms).
MSAs are also often known as Framework Agreements.
What are the benefits of a MSA?
- A MSA provides a standard set of terms which will govern future transactions.
- It particularly suits a relationship in which the parties expect to do a high volume of business over an extended period of time.
- It avoids the need to conduct a new procurement process each time because the framework for that process is already established.
- For both parties, a MSA helps achieve consistency - and economies of scale - by aligning its terms across all its customers.
What are the disadvantages of a MSA?
- MSAs can take a long time to negotiate! They try to cover every eventuality. Sometimes “Letters of Intent” are signed by the parties in order to allow transactions to take place during the negotiation of the MSA.
- They can add complexity - the MSA can contain provisions which run contrary to future objectives or which are inconsistent or contradictory to the rest of the agreement.
- Your counterparty may be the holding company when your relationship is actually with a subsidiary.
- MSAs used in public procurement processes may well prevent the parties from departing in any substantial way from its terms, which can cause inflexibility in future objectives and priorities.
- MSAs can make termination of the relationship complicated. For example, if the MSA is terminated, what is to be the effect of any work already in place under a SOW?
What is a “Statement of Work”?
A "statement of work” (SOW) functions as an order form under the MSA. It creates a legally binding agreement between the parties to deliver - and pay for - the services set out under the MSA.
What is a “Call-Off Contract”?
A Call-Off Contract is effectively another name for a SOW. You’ll see it most commonly used in public procurement transactions.
Why does a MSA refer to other documents?
A typical MSA will have a number of schedules or appendices at the end, which can contain details of (for example) the services to be provided, the charges, the purchasing process, template SOWs, and the agreed charging formula.
To continue our earlier example, the termination process - of either a SOW or the MSA itself - can sometimes appear as a schedule. It can be complicated to decide what the effect is to be on a current SOW (with an affiliate) if the MSA (with the holding company) is terminated, especially as the reasons for termination can be so varied.
Master service agreement checklist
You should expect to see the following terms:
- Full details of the parties
- SOW/Call-Off Contract process
- Intellectual property issues and indemnity
- Confidentiality and non-solicitation
- Representations and warranties
- Involvement of group companies or affiliates and any additional credit terms (eg. Group guarantee)
- Third party rights
- Liability across main parties and any affiliates
- Defective services
- Dispute resolution
- How to deal with a conflict between terms of MSA and of SOW. Typically the MSA will prevail over the SOW, but you need to think about how that will play out in your particular circumstances
- Sustainability - anti-slavery, anti-bribery
- Data protection
You can see how the important contractual issues are dealt with in the MSA, leaving you to deal with requesting or fulfilling orders via a SOW.
These essential terms set the foundation for your commercial relationship so it is vital to actually have one in place before you start; the truly important areas, like intellectual property, confidentiality, and payment, can cause serious issues for start-ups and SMEs in particular, and cannot be left to chance in the hope that 'everything will be alright'.
It's also worth noting, not everything listed above will apply to you; that’s why you need to negotiate.