A standard MSA spells out the essential terms and definitions that both parties need to comply with, as well as the consequences for any breach that may happen. So basically, it’s a way to make things official while protecting both companies’ interests.

Service agreements can be used for a one-time project, but more often they’re used by companies with ongoing business relationships. Especially when there’s a possibility of future deals with the same party.

Consider MSA agreements as an umbrella for a certain project that will govern individual statements of work (SOW) for future tasks. In such cases, the contract may include options for renewal (or even early termination).

Typically, MSA agreements contain the following:

• The specific responsibilities and the services to be provided
• Prices and payment terms for the specified services
• Resolution of any disagreements that may arise within the contract duration
• Intellectual property rights
• Penalties for any breach of the agreement

Why use a master service agreement?

One of the big benefits of using a master service agreement is it can speed up the contractual negotiations.

How?

Let’s say you’ve entered a business venture and expect multiple projects to come out of the business partnership. MSAs set the general provisions that both parties agreed upon. That means if there’s a new project, you only need to put in the specific details of each new task to your statement of work.

However, let’s be honest ― no business relationship is perfect. Unforeseen events can always occur. An MSA can be used to delineate responsibility.

So what are some examples of such events? Below are some cases.

• There’s property damage from natural disasters like severe weather conditions and acts of terrorism.
• If there are multiple service providers involved in a project. Miscommunication and confusion happen quite often since lots of people are working on it.
• Any change in law or regulation affecting the terms and legal requirements of the MSA contract.
• When the project is falling behind schedule.
• If the project ends up costing more than expected.
• One of the parties isn’t holding up its end of the bargain.
• When an employee is injured or killed on the job, there is often a question of who is liable for the accident.
• There’s a party who wants to get out of the contract before it’s up.

That’s why you should prepare an MSA before making any business ventures. It’s for your company and employers. So before you draft, ask first…

What should be included in an MSA?

In a nutshell, the MSA should provide a roadmap for the parties’ relationship. It sets out the ground rules so that both sides know what to expect.

As a starting point, here’s something like a master service agreement checklist.

Make sure to include these key clauses:

Definition of the parties’ respective roles and responsibilities

It’s not uncommon for one party to feel like they are being taken advantage of ― like they’re working harder than the other party. So including a statement of roles and responsibilities in an MSA will give the transparency that both parties need for working smoothly.

Description of the services to be provided

Do you ask, “What services can I expect?”. Well, this clause should answer that. Defining the services that will be provided can be a good reference point. No party will overpromise or underdeliver their service. It’s a good way to avoid scope creeping.

Detailed pricing structure

Getting an agreement on the pricing is often one of the most difficult aspects of negotiating a contract. However, it’s important to be clear on the clause that’ll specify the cost of the delivered service. The pricing structure should be detailed in the agreement to avoid misunderstandings and disputes later on.

Termination clause

A termination clause is when you don’t have to pay penalties if your contract is canceled. This usually specifies who can cancel the contract and for what reasons. However, it shouldn’t be confused with a “force majeure” clause that excuses both parties from performing their contractual obligations if an occurrence out of their control stops them.

Confidentiality provision

A confidentiality clause, which is referred to as a nondisclosure, is a common feature of a service agreement. A clause like this is a legally binding agreement between the parties to keep certain information confidential such as trade secrets, proprietary information, or sensitive business information.

Indemnification clause

This clause protects the business from any damages or losses that may occur as a result of the other party’s negligence or wrongdoing. By including this clause in the agreement, the business can be sure that it will not be held liable for any damages incurred.

Dispute-resolution clause

Conflict is an inevitable part of any business relationship. Even the most well-intentioned partners can have disagreements about the terms of their agreement. If a conflict does arise, a plan is in place for how to handle it, ensuring that they have a process in place for addressing conflict before it has a chance to escalate.

Whenever you write an MSA, be sure to include provisions for all eventualities so there’s no confusion for parties. MSAs that are well-written eliminate the need to renegotiate terms over and over again.

How do I draft an MSA?

Here’s where it gets real. When you apply everything we’ve talked about so far. You may choose to build from scratch or model it from a previous MS Word contract template. However, you may want to reconsider for a few reasons.

• MS Word’s not designed for storing data so it takes a while to find the clause you’ll need to add.
• If you’re not an experienced contract lawyer (or even if you are), you might miss important clauses or language that could come back to bite you later.
• It can be time-consuming to start from scratch and make sure that everything is accounted for.

In Closing 

A well-written MSA could take as little as a few days to as much as several weeks to design.

I typically look at examples of several MSAs and reign in the best clauses to create one adhesive draft.

How do you create an MSA? Let us know in the comments section.