A Master Service Agreement (MSA) is an agreement between two parties involved in an ongoing project or business relationship. It provides the flexibility to complete the project over time and makes sure that the right decisions will be taken during the project. It is among the most common contracts where one business must collaborate on a project (or many projects) with a different company.
In this article, we have gathered all the information you require to make an ideal MSA document, and you can use it to strengthen your business alliances.
Establishing a long-term relationship
A successful business is built on solid relationships. Counting on long-term, committed partners, someone we can trust, can help companies expand and grow. Yet, the business regulations require that we remain honest and build trust; even the most loyal partnerships need agreements signed between them.
MSA is the basis for contract management between two parties. Every lasting business relationship is managed by the terms of a Master Service Agreement. If the parties signing it know their partnership is likely to endure and last for a long time, an MSA can outline the basic clauses and help make negotiations on future agreements easier. Simply put, the MSA agreement is one of the fundamental documents that outline the ongoing relationship and ties the agreement between two firms to provide services.
What is a Master Service Agreement? How does an MSA Work?
The Master Service Agreement or MSA contract is a formal agreement between the service provider and its client. Master Service Agreements may differ according to the type of customer, the type of services offered, the industry involved, and many other factors.
An MSA contract is basically a formal agreement with two or more partners. It specifies the terms and conditions which will apply to all future and current tasks and obligations. By utilizing an MSA, the business can be assured that they have the time to ratify future agreements. MSAs provide a high-quality contract structure that serves as the basis for any future business venture.
Types of agreements MSAs can govern
The master service agreement generally describes the nature of the services to be provided and their types. If the parties signing the agreement possess multiple obligations under a contract, the MSA contract defines each and outlines the scope of the agreement.
Various agreements can be governed by the Master Service Agreement. Following are some of them:
- Ownership of property
- Royalties related to inventions or discoveries
- Releasing new information while respecting confidentiality agreements
- Indemnification in the case of a third-party suit
- Attorney fees allocation, alternative dispute resolutions
- Work schedules that are based on the local work conditions
- Pricing variations and purchase orders based on economic variables (cost of living, etc.)
Why is MSA vital? What purpose does it serve?
Businesses utilize MSAs for two primary reasons:
- To offer indemnification
- To allocate risks
Indemnification is the process by which one business or party will protect another party against certain already suffered losses or losses that may occur in the future. The indemnifying party is the one that agrees to pay for any damages that it or another party has caused or may cause at some point in the future.
Risk allocation is the practice of employing complicated strategies to recognize risks and devise a plan to reduce the risk. When signing the MSA, the parties must have a clear understanding of the MSAs relationship with other types of contracts.
MSA agreement establishes a strong negotiation framework as well as a reference point. It means there is no longer a requirement to create an entirely new contract for every activity between the parties. The principal objectives of the MSAs function are pretty simple:
- Outline governing terms and conditions
- Make adjustments if needed.
The benefits of an MSA agreement
An MSA simplifies contract negotiations and makes them simple and easy. If parties establish the terms of the contract, in the beginning, both parties will create a business relationship without redefining their rights, responsibilities, and expectations. If their relationship is built on the foundation of an MSA, the parties can move their attention away from the basics and delve into the specifics of their contract without getting distracted by the foundational agreement.
MSA allows parties to plan for the future and adjust to the changing business environment. MSAs remove the stress of a deadline and provide parties the time to adapt to changes.
Master Service Agreement is best for relationships with a long-term commitment that needs to develop and grow with sufficient space. MSA offers flexibility, allowing both parties to maintain their relationship as the environment changes while also saving their money and time.
What businesses require an MSA?
An MSA can be described as a master contract to provide services to a client. Here is a list of possible scenarios in which an MSA contract is in order:
Utility companies – always sign MSA agreements with their customers. In exchange for a continuous supply of water and electricity, clients pay the bills on an annual basis. The provider is accountable for the quality of the supplied product, including the water’s cleanliness and the electricity’s reliability. The supplier must keep the wiring and piping in a condition that adheres to the standards set by the government.
IT companies – can sign an MSA to provide development services. It defines the structure of the project scope for all projects in the future. The development team will then assign the needed developers for a project according to a predetermined cost. Deliverables, additional support for the project, and the cost of additional work can be included in the service contract.
Small businesses – often use contract templates when they swiftly change from one contract to the next. This could be because of the sudden partnership opportunity or because the potential client wants a service that’s not standard immediately. With an MSA, you don’t have to face any issues that come from poorly constructed contracts.
Manufacturing companies – can benefit from an MSA for ensuring that the supply lines don’t run for anything by determining the minimum amount their customers acquire regularly. In addition, clients of the manufacturer are protected with an MSA since the manufacturer has guaranteed that it will produce the required quantity of goods that are only available to this particular client and at a specific cost. The responsibility for delivery and storage of products is also outlined in the MSA.
What is covered under the MSA?
Here are the fundamentals of what MSA should cover:
- Confidentiality: Like signing the NDA contract, ensure that all information is secured.
- Dispute resolution: If there’s a dispute, how can you resolve the issue.
- Geographical locations: The location of the business and from where the services will be offered.
- Rights to intellectual property: Who owns the outcomes of the services rendered.
- Warranties: The parties agree regarding the scope and the duration of the warranty.
- Work Standards: What is considered by each party as acceptable work.
Creating a customized MSA: What should be included?
When drafting an MSA agreement, four elements should be taken into consideration:
- Any responsible issue either party might have to deal with
- What will both companies do together
- What the other company must do
- What is the responsibility of your company
The two parties involved in the agreement should always prepare for possible dangers. Here’s what could be discussed and incorporated into the MSA contract:
- Installation and delivery.
- Background checks.
- Management of projects.
- Expected charges.
- Payment terms.
- Government regulations.
- Taxes and tax obligations.
- Third-party coverage and other concerns.
- Out clauses and reasons to terminate an agreement.