Master Services Agreement: Definition, What's Included

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A master services agreement outlines the legally binding terms that parties must follow for ongoing and future tasks, obligations, and responsibilities. The agreement helps the parties understand the major points of the deal and other solutions to conflicts and issues. Let us delve deeper and understand the important aspects of a master services agreement below.

What is a Master Services Agreement?

A master services agreement, or MSA, is a contract that two parties enter into during a service transaction. The agreement explains the expectations for both parties. A master services agreement is a broad contract that allows the parties involved to understand:

• Major points of the deal
• Expectations
• How conflicts and other issues should be handled.

What are the Goals of a Master Services Agreement?

The MSA simplifies the negotiation process when drafting new contracts between the parties, allowing everyone to proceed with an overall understanding of how they should work together. It should state what each party must do to honor their side of the agreement. The overall goal of a master services agreement is to make the contract process faster and simplify future contract processes.

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Key Components of a Master Services Agreement

When you are drafting an MSA, you will want to focus on a few main points:

• What will your company do?
• What will the other company do?
• What will both parties do together?
• What are the responsible issues either party might face?

By listing these details, you will help both parties honor their side of the agreement. It is essential to decide potential issues in advance as there are many possible problems that could arise. For example, a third-party vendor could go bankrupt and derail your agreement. That's why it is so important that both companies in the MSA account for any potential pitfalls.

The MSA should include several key components depending on the details of your project, including:

• Background Checks: If you have any requirements for employees, the MSA should list this.
• Confidentiality: The parties to the agreement can agree they will not share any company secrets with outside parties. Here is an article about confidentiality agreements between businesses.
• Delivery/Installation: State when a product will ship and who will be responsible for setting up the first shipment.
• Dispute Resolution: A master services agreement should outline how the parties will resolve a conflict should issues arise.
• Escrow: If either party is placing money in a trust, you should use the MSA to explain the circumstances that will allow the other party to earn that money. Here is an article about escrow.
• Geographic Location and Government Requirement: Parties should agree upon where employees will do the job. Deciding where to work on a project has implications for city, state, and federal taxes.
• Insurance: Agree ahead of time on how you will handle insurance expenses and coverage.
• Intellectual Property: The MSA can cover intellectual property rights. The parties can decide how they will handle regulation and ownership of things such as patents and other intellectual property. In some cases, the client will get all intellectual property, while in other cases, the vendor provides perpetual rights but keeps their own intellectual property and patents. Here is an article about intellectual property.
• Liability: This contract should list which party is responsible in the event of a lawsuit should an incident occur. The master services agreement should state the party that will assume the risk.
• Out Clauses/Causes for Termination of the Agreement: Businesses do split up, so the MSA should detail how the parties would handle this.
• Project Management: State who is in charge. Your project could easily go wrong if neither side decides who should be managing different aspects of the project.
• Requirements for Delivery: Detail who will deliver what and when these deliverables are due.
• Security: Parties should agree on who will handle and pay for security to protect the product or project.
• Standards for Work: Define what each party considers acceptable work. When one party does not live up to work standards, it creates a common source of conflict, so clear expectations included in the MSA can help avoid future disputes.
• Tax Responsibilities: The business must decide how they will divide tax expenses and responsibilities.
• Terms of Payment: The MSA should state the estimated cost of a project along with the payment schedule. Include the projected cost as well as who is paying, when they will pay, how often they will pay, and how long payments will continue.
• Third Parties: If your project requires the involvement of more than the two parties that are creating the MSA, you should state in the MSA how the rest of the agreement applies to any third party.
• Venue of Law: A master services agreement should identify the location where a legal resolution will occur, for example, arbitration, a specific state, or federal court.
• Warranties: Parties can use the MSA to agree upon scope and coverage of warranty.

Depending on your project, you can also use a master services agreement to cover some other areas, including:

• Business ethics
• Property and network access
• Social responsibilities

Again, the goal of your MSA is to broadly explain as many details as possible. That helps your business to avoid wasting money and time in negotiations.

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Advantages of Creating a Master Services Agreement

A master services agreement offers a few key advantages:

• Faster Process Than Standard Contract Negotiations: When businesses spend time creating a contract, it is often a lengthy and expensive process. Coming to a quicker deal is in both parties' best interests. A master services agreement allows you to agree to the main points, thus speeding up the process of negotiating. It's possible to write a thorough master services agreement in a few weeks or even days, which is significantly faster than most contract negotiations.
• Protection for Both Parties: Even though you are not going through a typical contract negotiation, the MSA still puts an agreement in place. If a dispute happens, the agreement will decide who is at fault. It's easy to check a master services agreement, which makes the two parties less likely to take a dispute to court, again saving money and time.
• Blueprint for Future Agreement: If you like the master services agreement you create, it is very easy to use as a template for negotiations in the future. Of course, each deal necessitates its own specifics, but you will have a blueprint that allows both parties to focus on important details of the discussion.

Common Disputes Associated with Master Services Agreements

You MSA will lessen legal concerns during your negotiations, but issues can still occur between the parties. The most common disputes that happen when companies use MSAs include:

• Failure to Communicate: If one business requests updates but the other company does not respond in a timely manner, it can lead to disputes.
• Injury or Death of an Employee: Unless this is clearly addressed in your MSA, parties are likely to debate who holds the blame for these kinds of incidents.
• Missed Deadlines: If one party misses deadlines, it will lead to disagreements between the parties.
• Missed Payments: This is one of the fastest ways to create conflict between parties.
• Performance/Service Issues: If a product or service does not meet expected goals, conflict will likely arise.
• Property Damage: You will want to clearly address what happens in the case of property damages, as this is a common source of dispute between partner companies.

The more you plan for these potential conflicts in your master services agreement, the less likely conflicts will come up down the line.

That's why it's so important to work with an experienced lawyer when creating a master services agreement. A contract lawyer can help ensure your document covers all the necessary clauses and details.

Factors to Consider When Hiring a Lawyer for Master Services Agreements

There are several things to consider when approaching a lawyer for a master services agreement. Here is a detailed discussion of the same for future consideration:

• Multi-Party Involvement: Work with a lawyer experienced in handling complex multi-party agreements to ensure that all interests and responsibilities are addressed. The same happens if the MSA involves multiple parties.
• Global Reach: Engage a lawyer with expertise in international law, cross-border contracts, and knowledge of relevant treaties and regulations. It is applicable to MSAs with an international scope.
• Emerging Technologies: Collaborate with a lawyer well-versed in the legal nuances of these technologies if the services include emerging technologies like blockchain, artificial intelligence, as well as quantum computing.
• Custom Service Levels: Discuss customization of service levels to align with the project's specific needs, ensuring that performance expectations are tailored to the services being provided.
• Environmental Sustainability: If sustainability is a key concern, work with a lawyer who can incorporate environmental sustainability clauses, such as commitments to reduce carbon emissions or adopt eco-friendly practices.
• Supply Chain Integration: In cases involving supply chain services, collaborate with a lawyer who understands supply chain dynamics and can create provisions for seamless integration with suppliers and vendors.
• Mergers and Acquisitions: If there is potential for mergers, acquisitions, or divestitures during the MSA's term, consider including clauses addressing the impact of such events on the agreement.
• Cross-Industry Collaboration: For collaborative agreements across different industries, engage a lawyer capable of bridging industry-specific requirements and regulations.
• Intellectual Property Pools: Explore the establishment of intellectual property (IP) pools and seek legal counsel proficient in IP pooling arrangements in technology-intensive projects.
• Space Exploration and Aerospace: Consult with a lawyer experienced in space law and regulations, including international space treaties for MSAs in the aerospace or space exploration sectors.
• Cultural and Artistic Collaborations: In creative and artistic ventures, collaborate with a lawyer who understands cultural sensitivities, copyright issues, and artistic freedoms.
• Blockchain Smart Contracts: Work with a lawyer knowledgeable in blockchain technology and smart contract coding if blockchain-based smart contracts are part of the agreement.
• Healthcare and Medical Compliance: Engage a lawyer with expertise in healthcare compliance, patient data protection, and regulatory frameworks in healthcare-related MSAs.
• Cross-Border Trade: Seek legal counsel proficient in customs regulations, trade treaties, and international shipping laws for cross-border trade and logistics agreements.
• Humanitarian Initiatives: Work with a lawyer experienced in international humanitarian law and emergency response protocols in humanitarian or disaster relief efforts agreements.
• Agricultural and Food Supply: Collaborate with a lawyer familiar with food safety regulations, quality standards, and supply chain logistics for agricultural or food supply agreements.
• Non-Profit and NGO Partnerships: Engage a lawyer who understands the legal aspects of non-profit operations, charitable contributions, and grant compliance when partnering with non-profit organizations or NGOs.
• Entertainment and Sports Contracts: Seek a lawyer with experience in athlete contracts, event licensing, and entertainment law in the entertainment and sports industries.
• Government Collaborations: Choose a lawyer well-versed in government contracting procedures, procurement laws, and public-private partnerships when collaborating with government entities.
• Renewable Energy Projects: Work with a lawyer who can address regulatory approvals, environmental impact assessments, and renewable energy credits in renewable energy initiatives.

Final Thoughts on Master Services Agreements

A master services agreement is important because it lays the groundwork for successful business relationships between parties. It also helps establish the terms and conditions that govern future agreements among the same parties. So, the agreement streamlines the entire contracting process, which promotes consistency across all projects. However, parties must be careful when drafting the master services agreement to ensure no discrepancy. That is why it is recommended to approach a lawyer to draft or review the written document.

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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.