What Is an MSA? How Master Service Agreements Should Work
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Sometimes, a contract covers a one-time action between parties, but what happens when the relationships or circumstances are ongoing? When signing parties know they will continue to work together in the future, a Master Services Agreement (MSA) can simplify those future agreements and speed up the negotiation process.
With an MSA, additional contracts do not need to be renegotiated, and the basics of the initial agreement can be included in all future contracts. While the tech industry uses MSAs most frequently, these agreements are appropriate for any long-term, ongoing business relationships, including client/vendor interactions, government contracts and union negotiations.
What is an MSA contract and what does it do?
At its most basic, an MSA is a contract between two or more parties that establishes what terms and conditions will govern all current and future activities and responsibilities. MSAs are useful because they allow the parties to plan for the future while also speeding the ratification of future agreements. That’s because MSAs create a contract framework that establishes the foundation for all future actions.
Even better, an MSA allows for modifications as circumstances evolve by addressing only the specific deal at hand but maintaining the basic tenets that will govern all future contracts.
Some of the basic terms of an MSAs include:
- Product Delivery
- Dispute Resolution
- Intellectual Property Rights
- Limitations of Liability
- Payment Terms
- Work Standards
The types of agreements governed by an MSA can include:
- The ownership of property in a development
- Royalties associated with new inventions or discoveries
- How new information can be released while maintaining confidentiality agreements
- Indemnification in the event of a third-party suit
- Alternative dispute resolution and allocation of attorney fees
- Work schedules that are dependent upon local job conditions
- Purchase orders and pricing variations based on economic factors like materials cost, cost-of-living, etc.
Why use a Master Service Agreement?
An MSA simplifies and streamlines the contract negotiation process. By establishing the deal’s terms at the outset, both parties create a business relationship while still continuing to refine their rights, responsibilities and expectations. By setting up the foundation of their business relationship with an MSA, companies shift their focus from the basics and drill into their contract’s specifics without derailing the foundational agreement.
In this way, an MSA allows the parties to plan for the future and adapt to business landscape changes—highlighting the potential areas of conflict or concern. MSAs also eliminate the pressure of a deadline and give parties time to respond and adjust.
Finally, an MSA is best for long-term relationships that need the space and security to grow and evolve. The flexibility afforded by an MSA can head off disputes and allow both parties to maintain their core relationship even as circumstances change while also saving them time and money.
An MSA should delineate responsibility if any of the following events should occur throughout the business relationship, like:
- Employee injury or death
- Property damage
- Missed deadlines
- Failure to pay
- Unsatisfactory performance or service
- Product defects
- Unauthorized charges
What should be included in an MSA?
For a successful MSA, it’s all in the details. Think of your MSA as the bedrock of your ongoing, long-term business relationships. By covering all contingencies and planning for unforeseen issues, your MSA ensures your business contract’s strength and health. As such, your MSA should include the following information:
- All possible issues that could arise throughout the business relationship
- What actions both parties will take together
- Individual responsibilities assigned to each party
When it comes to determining each party’s individual responsibilities, it’s essential to understand where conflict may arise. For the purposes of an MSA, parties should establish who is in charge when an event or responsibility occurs—so that all required elements to fulfill the negotiated agreement are covered.
Areas an MSA should address include:
- Product and Project Management: Who will be responsible for the delivery and installation of a product or service and who is in charge if something goes wrong?
- Employee Management: Each party should list requirements for potential employees and background checks, and other employment screening activities.
- Income and Expense: Determining how a cost is projected and how payments will be procured and processed.
- Insurance Coverage: Who will handle insurance acquisition, and what penalties will apply if the party responsible fails to acquire and maintain the agreed-upon insurance coverage?
- Escrow and Security: Who supplies backup funding and payment for the protection of the project or product?
- Requirements and Liabilities: Where will the work occur? Who will be responsible for complying with local, state and federal regulations and risk mitigation?
- Taxes: Who will track taxes and how tax liabilities will be allocated and reconciled?
- Third-party Coverage and Concerns: How will actions involving a third party be handled, and who will be responsible for addressing these third-party issues or disputes?
- Termination: What happens in the event the business agreement is terminated?
MSA: The foundation for good business relations
MSAs are a legal game-changer for any on-going business relationships. They establish a negotiation template and reference point that eliminates the need to recreate a new contract for every action between parties. MSAs work by deciding on specific governing key terms and conditions, but also by allowing for additional modifications and adjustments. By proactively laying legal groundwork for the future of a relationship, MSAs enable each party involved to move fast and respond to a changing business climate.