Growth is wonderful, but it could also cause anxiety.
For lawyers and the management of a growing company, the scattered outline of the contracts that enter and go out of the business raises questions in their minds.
- Are we building effective contract workflows that don’t hinder operations?
- Are we working more manhours than we should?
- Can we protect ourselves from possible issues that could arise from business relations?
The concern is genuine. Contracts are responsible for 70-80 percent of business activities.
The terms and conditions of your contract with another company early on can eliminate the uncertainty. A master service agreement(MSA) will help you in this regard.
This article will explain the essential information you must learn about MSAs and assist you in making use of an automated master service agreement template.
What exactly is an MSA contract and what does it accomplish?
A master service agreement, also known as an MSA, is a legal agreement between two parties in order to streamline the negotiation process.
A typical MSA provides the necessary terms and conditions both parties must follow and the consequences of any breach that may occur. It’s an opportunity to make the process legal while safeguarding both companies and their interest.
Service agreements may be used to complete a one-time project. However, they’re often employed by businesses with ongoing business relationships, especially when there is a chance of future contracts with the same party.
Consider MSA agreements as a kind of cover for a particular project which will determine individual Statements of Work (SOW) for future tasks. In such instances, the contract could contain the options for renewal (or even an early ending).
Most of the time, MSA agreements contain the following:
- The specific responsibilities and services that will be offered
- The prices and terms of payment for the specified services
- Resolution of any disputes that could arise within the duration of the contract
- Intellectual property rights
- Penalties for any violation of the agreement
Why should you use a master-service agreement?
One of the major benefits of having a master service agreement is that it speeds up contractual negotiations.
Let’s say that you’ve joined an enterprise and are expecting many projects to come out of the partnership. MSAs define the general provisions that both parties agree upon. This means that if there is a new task, you only require to add the specific details of each new project to your statement of work.
Let’s face it- no business relationship is perfect and unforeseen things can always occur. An MSA is a way to delineate responsibility.
What are some examples of these events?
Here are a few examples.
- There’s property damage caused by natural disasters, such as severe weather conditions, as well as terrorist attacks.
- When several service providers are working on a project. Confusion and miscommunication occur quite often since many people are involved in the project.
- Any changes in law or regulations that affect the terms and legal obligations of the MSA contract.
- If the project is falling behind the deadline.
- There’s a party who would like to exit the contract before it is finished.
What should be included in an MSA?
Include these essential clauses:
1. Definition of the respective roles and responsibilities of the parties
It’s not unusual for one person to feel that they’re being exploited or that they’re working more than the other party. Therefore, including a declaration about roles and obligations within an MSA can provide the transparency required by both parties to ensure that they work smoothly.
2. Description of the service to be offered
Defining the type of services to be offered can be a good reference point. The company will never over-promise or under-deliver its services. This is an excellent method to prevent scope creep.
3. A detailed pricing structure
Getting a consensus on the cost is typically one of the most challenging aspects of negotiating a contract. It is important to make sure you understand the clause that will specify the price of the delivered service. The pricing structure must be clearly stated in the agreement to avoid any confusion and disagreements in the future.
4. Termination clause
A termination clause states that you don’t need to pay any penalties when your contract is terminated. It usually outlines who can terminate the contract and for what reason. However, it should not be confused with the “force majeure” clause that allows both parties not to fulfill their contractual obligations when an event beyond their control prevents them from performing.
5. Confidentiality clause
A confidentiality clause, also known as a nondisclosure, is a standard element of a service agreement. A clause of this kind is legally binding between the parties to keep certain types of information private, such as confidential trade secrets, proprietary data, or other sensitive business information.
6. Indemnification clause
This clause shields the company from any loss or damage that might arise due to negligence or infraction. By incorporating this clause in the contract, the company is assured that it will not be held accountable for any losses incurred.
7. Dispute-resolution clause
Conflict is a normal part of any business relationship. Even the best-intentioned business partners might have disagreements regarding the terms of their agreements. If there is a conflict, there is a plan in place to deal with it, and by ensuring they have an effective method of dealing with it before it has a chance to grow.
If you’re writing an MSA, make sure you include provisions for every eventuality to avoid confusion for both parties. MSAs that are well written will eliminate the need to revise terms over and over again.
What are the most common Conflicts and Risks with a Master Service Agreement?
Although an MSA is a method to alleviate legal concerns in negotiations, some issues can arise. Most commonly, MSA disputes involve:
- Injury or death of an employee: The parties in an MSA will likely debate blame for these incidents unless it’s specifically stated within the agreement.
- Property damage: This must be clarified in the MSA.
- Communication issues: The problem occurs when one business asks for updates, but the other company doesn’t reply in the required time frame.
- Failure to meet deadlines: Just like anything else in the business, failing to meet deadlines is a reason for disagreement.
- Failure to pay on time: The only thing worse than missing deadlines is the missing payments. This kind of dispute is the fastest route to creating an argument.
- Issues with service or performance: If a product fails to meet its intended objectives, both parties blame one another for the issue.
- Defects in the product: A product that breaks down after usage will delay the expected revenue.
- Unauthorized charges: Like payment issues, several unexpected charges can cause one side to believe that the other party is sabotaging the terms of the contract.
Where can you use a Master Service Agreement?
These kinds of agreements are prevalent in both commercial and government work. They are also frequently seen on the consumer side of things. A typical example of a master service agreement is what you have with your phone company. You enter into a continuous agreement where service charges are to be paid monthly, and the company outlines the conditions for its maintenance and other tasks.