MSA vs SOW: Which One To Use When

A Master Service Agreement (MSA) and a Statement of Work (SOW) are two important contracts your business needs if you work with vendors, contractors, agencies, or freelancers. Analyzing MSA vs SOW will help you understand the differences and similarities between these two documents, and the role each plays in contract management.

Read on to understand the differences and similarities between a Master Service Agreement and a Statement of Work, and which one to use in specific transactions.

An MSA defines the relationship between two parties in a service transaction. By providing the basic terms and conditions regulating the relationship between two parties, MSAs serve as a framework for future contracts between the parties.

When you have a long-term business relationship with another party instead of a one-off transaction, an MSA contract will help you both decide early on in the process the rights and responsibilities of each party in the transaction. 

An MSA defines the nature of the relationship and eliminates the need to negotiate every contractual term in future transactions. It also offers companies the flexibility to quickly adapt to a continuously evolving business landscape. With an MSA, expectations are clear and future transactions can move speedily.

The terms of a Master Service Agreement include:

• Confidentiality: Most service contracts require your company to share sensitive information with the contracting parties. The confidentiality clause protects parties from having information about them shared with unauthorized third parties
• Intellectual property rights: How parties will handle intellectual property rights matters, including who will own the IP rights on the deliverables.
• Dispute resolution: Because conflicts are an integral part of doing business together, an MSA states how they will be resolved.
• Geography: An MSA should specify a particular location where employees will do the work. Where employees work from has implications for both state and federal taxes.
• Payment terms: This refers to how payments will be made and when they will become due.
• Warranty: This means the specific warranties parties will give in the business relationship.
• Product delivery: An MSA states the details of product delivery and when it is due.
• Venue of law: This is the law that applies to the transaction and the court that will have jurisdiction over disputes.
• Limitations of liability: These terms outline who will be responsible for lawsuits and any liability in connection with the project.
• Work standards: These terms address what the parties will consider acceptable work and how they will resolve any issues concerning that work.

A Statement of Work, also called an SOW, specifies the details of a business transaction. An SOW is used to detail the scope of work, deliverables, and deadlines of a project.

You can use an SOW agreement as both a project and a contract management document. Businesses usually use SOWs when working with independent contractors or agencies to specify what they expect in each project. 

Using an SOW clarifies the project goals, parties’ obligations and when they become due, and how the work should be performed. An SOW ensures there is no ambiguity. 

SOW will have the following terms:

• Summary: An overview of the project, goals, and expectations
• Approval: The criteria that will be used to evaluate the project, who will approve the project, and if revisions can be requested
• Work breakdown structure: An outline of each task and phase and how those tasks will be completed
• Deliverable: The final product that will be delivered with specific details relevant to the project
• Schedule: How parties will perform the project—milestones, deadlines, and other important dates
• Cost: The estimated project cost, including how to reimburse the cost of the project
• Work requirements: Any tools, equipment, or skills required to complete the project

One difference between an MSA and an SOW is that they regulate different aspects of a business relationship. An MSA lays the legal framework for a business relationship, especially if it’s a long-term partnership or delivery of an ongoing service. An SOW contract deals with a specific transaction. 

For instance, if your company engages a website design agency to build a website for your business, your MSA contract will define the terms of the partnership, providing for general terms, including confidentiality, warranties, and limitation of liability. It will also cover the handling of recurrent services like web hosting and website maintenance.

Your SOW, on the other hand, will regulate the specific transaction you contracted the agency for—in this example, building a website. Now, if your company wants to build a new business website later, you already have an MSA that has established the framework of your partnership, but you will need to draw up another SOW to govern the new project.

Also, MSAs and SOWs provide different levels of detail as to how a project will be done. An MSA doesn’t provide specific details about how the service will be provided, but an SOW contract will define—often in painstaking detail—how the parties will work together on the project.

Still using the website example, your MSA may merely state that your company is partnering with the web design agency to build and maintain your company’s website. However, your SOW will fully describe the type of website that will be built and when it will be ready. 

So, the SOW may state details like: 

• The number of pages the website will have
• Specific features the website will have, such as a responsive web design or an e-commerce feature
• Written content for the website
• Whether the agency will provide a new logo
• Who will provide the images to be used on the website

In addition, your company will need both types of contracts in transactions with vendors, independent contractors, agencies, or freelancers. However, your company can also use an SOW internally as a project management tool to guide employees. 

SOWs are critical in the performance stage of contract management. You’ll need to reference them several times to ensure that both you and the contracting parties perform your obligations.

Another difference between the two types of contracts is how they relate to themselves. MSAs and SOWs affect themselves differently. An MSA may have several SOWs under it. An SOW, however, usually depends on a single MSA. In other words, an SOW is a child document to an MSA.

If they conflict, the terms of an MSA will generally supersede that of an SOW—unless the parties agree and state otherwise. Also, parties can terminate an SOW without it affecting other SOWs and the MSA the terminated SOW is under.

Finally, your Legal team needs to be involved in creating and negotiating an MSA more than an SOW. Other departments with proper guidance can create and negotiate an SOW with minimal or no input from Legal. 

Both MSAs and SOWs are used in regulating the relationship between parties in a service contract. In a typical service transaction, you’ll need to draw up both an MSA and an SOW. 

Both documents help parties to define the rights and obligations they have to each other. Granted, an MSA and an SOW will cover different aspects of the service transaction. But, to define the expectations of contracting parties and to resolve disputes in a service transaction successfully, you may have to refer to both documents.

Another similarity between an MSA and an SOW is that they are both legally binding contractual documents. Although some people consider an SOW less of a legal working plan and more of a project management tool. Admittedly, an MSA will usually have more legalese than an SOW. However, the latter is still a contractual document, which means an SOW should be signed just like an MSA. 

Signing an SOW makes it easy to hold everyone involved accountable and make everyone committed to the specifics of how the project will be completed.

Both MSAs and SOWs are used in service transaction contracts. The major difference between them is that, while an MSA sets the legal framework for the relationship between contracting parties, an SOW deals with specific projects or transactions. 

Although the tech industry uses MSAs the most, these agreements are suitable for any ongoing, long-term business relationships between parties. An MSA removes the need to renegotiate terms in every new transaction and is the foundational agreement on which you build subsequent transactions. 

An SOW contract complements an MSA and provides the details of each transaction. By relying on the framework already set by the MSA, an SOW can zero in on the specifics of each transaction—like the scope of work, deadlines, and deliverables. An SOW will also serve as a project management tool and help parties stay in sync during contract performance. 

Evaluating MSA vs SOW shows the role these two contractual documents play in business relationships. Ironclad’s contract lifecycle management software helps businesses more efficiently create both MSAs and SOWs. To see how we can help streamline your contract management, request a demo today.