When you work with a client or another business, it is important to have an agreement in place to detail who is responsible for what. Unfortunately, it can be costly and timely to negotiate a detailed contract, and this can be a real problem for quick jobs or those with repeat clients. A master service agreement specifies the basic details of an agreement so terms for specific projects can be worked out in the future, minimizing the time the parties spend in negotiations.
TL;DR (Too Long; Didn't Read)
A master service agreement is an agreement two or more parties enter into before a service transaction that details the basic aspects of the work to be completed.
What Is a Master Service Agreement?
At its core, a master service agreement (MSA), also called a service level agreement or master service contract, is a simplified agreement between two or more parties that settles the basic terms of their work together.
These agreements are more general than project-specific contracts and cover basic terms that can govern most details and expectations for most parties in future transactions. This allows the parties to negotiate future agreements quickly, as they only have to deal with the specific terms of that agreement. MSAs are often added into project-specific contracts in order to avoid having to detail every aspect of the agreement in future agreements.
The Purpose of MSAs
Like most agreements, the MSA contract specifies what each party needs to do in order to honor its end of an agreement. However, MSAs are designed to make contract negotiations simpler. If these basic terms can be agreed on in advance, then the parties can focus on the details that actually matter sooner (such as time frame and price) and begin to complete the work outlined in the agreement.
The MSA can also be useful for long-term agreements between two parties so they don't have to go over these details every time a new work order is created. Thus, they can move forward with the job faster. In the end, speeding up negotiations in this way, especially over the course of a long period, can save both parties a lot of time and money.
What Goes in a MSA?
An MSA document will vary based on the entities using the agreement. However, most agreements will cover:
- Delivery requirements related to who will deliver which goods or services and when
- Who is liable for incidents
- Dispute resolution policies if conflicts arise
- Who is responsible for project management
- Geographic locations (even if the work is remote, it is important to agree upon a location for tax and litigation purposes)
- Payment terms, including the estimated total cost and schedule for payment
- When and how the agreement can be dissolved
- Work standards defining what each party will agree upon as acceptable work
Additionally, many agreements will also include details about:
- Intellectual property rights
- Security of the location
- Insurance details
- Business ethics
- Tax responsibilities
- Employee background checks
- Network or property access
- How third parties may be covered by the MSA
- Warranties covering the work
It is advisable to list potential issues that could go wrong in order to have a detailed account of what to do should these possibilities arise. That could include something as specific as what happens when a third-party distributor goes bankrupt. Some potential issues you may wish to address in an MSA include what happens in the event of:
- Employee injury or death
- Property damage
- When one party fails to communicate in a timely manner
- When one party misses deadlines
- Missed payment terms
- Product defects
- Unauthorized charges
Do You Need a MSA?
You should always have some form of contract or written agreement when working with other businesses or clients. At its most basic, a written agreement between the parties protects each party in the event that the other makes a mistake. The agreement details the legal remedies to be taken when a dispute arises and helps clarify each party's faults in given situations. This ensures the client gets what he paid for and that the contractor gets paid what she is due.
Most small businesses use contractual templates for all clients rather than negotiating agreements from scratch every time they begin work. An MSA can serve as a good template for services, especially on small jobs that need to be completed quickly. This will protect both parties by detailing the work, including deliveries, payment and timeframes and in turn reducing the chance of litigation between the parties.
Because MSAs are so open ended, they work well for a variety of businesses ranging from marketing firms to construction companies. If you think an MSA might be right for your company, it is advisable to speak with an attorney before creating and implementing one for the first time.
The Benefits of an MSA
Completing a detailed, customized contract can be a long and expensive process that requires lawyers and some level of negotiations. For some companies doing a similar job for each client, an MSA can help simplify and streamline the process by detailing the basic liabilities and risks agreed upon in contracts with all clients. Once the company and its client agree on these terms, the rest can be negotiated quickly. This should save all parties involved time and money.
An MSA can be negotiated over the course of days or weeks, which is a substantially shorter period than a standard contract created from scratch. MSAs should cover all of the basic details that would be agreed upon in a standard contract negotiation, including who is at fault when a dispute arises (the most important aspect of a contract), leaving all parties protected.
The MSA also serves as a good contractual blueprint. Each deal made will have its own specifics, but the MSA can serve as a basic template for all negotiations both with future clients who only require a quick job or with existing clients who have already agreed to an existing MSA. Once you have the other details knocked out, you can focus on the most important parts of the contract – the cost, the work and the time.
Work Orders and MSAs
When you have an MSA in place, you might need to add work orders as you go in order to fill in specific details about particular jobs or projects that are already covered by the overall MSA. These work orders will cover things like payment amounts, work hours, etc. It is important to recognize that when a work order clashes with the MSA, the MSA will overrule the specifics of the work order.
If you need to rework an MSA, you will need to complete a work addendum that will be agreed upon by both parties. When this happens, it can be particularly beneficial to have a lawyer look over the new agreement, especially if this is your first time modifying your MSA.
MSAs Vs. Contracts
It is important to realize that while laypersons tend to use the terms "contract" and "agreement" interchangeably, they are not the same under the law. Legally speaking, a contract is stronger than a written agreement, as an agreement is seen as less formal. This is precisely why contracts take so much longer to negotiate and why it can be beneficial to have an MSA to detail the less-crucial parts of an agreement and a contract to specify the details of particular jobs or projects.