A Master Service Agreement or MSA is a contract entered into between a service provider and a customer where the parties agree on the general terms under which they will interact with each other. The MSA is a framework for the work orders, statements of work and other more detailed documents that the parties will enter into over time, but does not and is not meant to cover the details of the project(s).
Advantages of an MSA
The main advantage of the MSA is that once agreed upon, the general terms governing the relationship do not need to be renegotiated for each new project. This saves time and resources for both parties and allows them to focus their attention on the actual details of each project.
For those entities with affiliates, the MSA can also present the advantage of allowing such affiliates to procure services from the service provider under the MSA by simply entering into a statement of work or work order, if so agreed in the MSA. Allowing affiliates to use the MSA is generally to everyone’s advantage. The customer and its affiliates can obtain services under uniform terms without going through lengthy negotiations, and the service provider increases its chances of getting the business of the affiliates in addition to that of the original customer.
Terms Generally Covered In an MSA
- Term and Termination: Initial term, renewal and termination rights of each party
- Payment Terms: Invoicing frequency, payment deadlines and consequences of non-payment
- Intellectual Property Rights: Who owns which part of the delivered services?
- Representations and Warranties: Service provider should provide warranties at least for the quality of the services
- Indemnification: Service provider should at least provide indemnification against negligence, third party claims and infringement
- Limitation of Liability: Breach of representation and warranties and infringement should excluded from any limitation of liability. Ensure that each party’s (not just one party’s) liability is reasonably limited
- Insurance Requirements
- Applicable Law and Dispute Resolution
The MSA can also incorporate exhibits such as a service level agreement (SLA)
The Relationship Between an MSA and a Statement of Work:statement of work or work order (SOW) is where each project’s details (description, delivery dates, price etc.) are negotiated and documented. There can be, and usually are, numerous SOWs under a single MSA. Each SOW is generally subject to the terms of the MSA, but there can be conflicts between the terms of the MSA and those of a SOW. A well drafted MSA will include a provision covering such potential conflicts by clarifying which document will prevail over the other (i.e order of precedence).
The order of precedence clause could give precedence to either the MSA or the SOW. For that reason, it is essential that each time the parties enter into a SOW (i) they are familiar with the order of precedence agreed to in the MSA and (ii) that each SOW is reviewed by a legal professional before signature in order to make sure that the parties are aware of any conflicts between the MSA and SOW, have deliberately agreed to them and have clearly stated that their agreement diverges from the terms of the MSA. Worth noting is that any terms agreed in a SOW apply only to that SOW and not to any others entered into under the MSA.