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What Is Master Service Agreement and Why Do You Need One?

by Sourav Raj - 21 Jul 2022, Thursday 365 Views Like (0)
What Is Master Service Agreement and Why Do You Need One?

A Master Service Agreement (MSA) is a service agreement between two parties involved in an ongoing business relationship that provides the flexibility to complete the project over time and make sure that the right decisions are made during the course of the project. It is commonly used when one company is required to work on the same project (or multiple projects) with another business.

In this article, we have gathered all the information needed to create an ideal MSA document that you can use to build your business alliances.

Establishing a long-term relationship

A successful business is built on solid relationships. Counting on long-term committed partners can help companies expand and grow. Yet, the business regulations require that we remain honest, and to build trust, even the most loyal partnership needs agreements signed between them.

Currently, the management of contracts' lifecycles is a major factor in most relationships. 

Although contracts only cover single-time events between the two parties, what is the best way to structure a relationship without having to have lengthy negotiations on each issue in the future?

What is a Master Service Agreement? How does it work?

The Master Service Agreement or MSA contract is a formal agreement between a service provider and their client. Master Service Agreements can differ according to the type of customer, the nature of services offered, the industry in which they are based, and many other factors.

In essence, an MSA arrangement is simply a formal agreement signed by two or more people that defines the terms and conditions that determine the future actions and responsibilities. With the help of an MSA, businesses can be assured of rapid ratification for future agreements. 

MSAs provide a solid contracting framework which serves as a basis for future business activities.


Types of agreements MSAs can govern

An MSA master agreement for service usually defines the nature of services and the types of services they will provide. If the parties who sign the contract have different contractual obligations, the MSA contract explains each of them and outlines what the agreement will cover.

There are many types of contracts that the Master Service Agreement covers can govern. Here are a few of them:

  • Ownership of property
  • Royalties relating to inventions or discoveries
  • Release of new information while respecting confidentiality agreements
  • Indemnification in case of the filing of a third-party suit
  • Attorney fees allocation Alternative dispute resolutions, attorney fees
  • Schedules for work that are contingent on the local conditions for work
  • Orders for purchase and price changes that are based upon economic variables (cost of living, etc.)

It is recommended to ensure that everything possible to be done is stated in the agreement and also negotiate for all of the services offered by your company and not only those that appear to be required at the time of signing.

What is MSA vital? What is its purpose?

Businesses utilize MSAs to fulfill two primary reasons:

  • Indemnification
  • To allocate risks

Indemnification refers to the fact that a company or party is willing to protect another against losses that are already occurring or any losses that might arise in the future. The party that is indemnifying the other is the one that will pay for any damage it or another party may have caused or may end up causing at some time in the future. They engage their lawyers and handle legal costs related to litigation.

Risk allocation is a method that employs complicated strategies to recognize risks that could devise a plan and have a strategy for reducing these risks. When signing the MSA, each party should be aware of the MSAs relationship with other kinds of contracts, including those that cover insurance.


The advantages of an MSA agreement

An MSA streamlines the negotiation process and makes it more straightforward and simple. If the parties agree on the terms of the agreement from the beginning, these two parties will create a business relationship without redefining their rights, responsibilities, and expectations.

If their business relationship is built on the foundation of an MSA. In that case, 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.

What's an MSA in the business world? 

It helps identify areas of conflict and concerns. This is how MSA allows parties to make plans for the future and adjust to changes in the business environment. MSAs can also relieve the stress of a deadline and allow parties the opportunity to respond to changes and adapt.


What is covered under an MSA?

MSA aims to make contract processes more efficient and make future agreements easier. These are the basic definitions of what MSA should cover:

  • Confidentiality: Similar to signing the NDA contract, ensure that all information you share is secure.
  • The delivery conditions: You need to be able to agree on the time and by what means the service will be provided.
  • Dispute resolution: How can you resolve the issue if there's a conflict.
  • Geographical places: Where are the companies located, and where the services will be delivered.
  • The rights to Intellectual Property: Who owns the services' outcomes.
  • Limitations on responsibility: Where do responsibilities come to an end.
  • Terms of payment: What amount, when, and through what methods will the payment begin.
  • The venue of the law: In the event of a dispute which court is responsible for resolving the issue.
  • Warranties: Parties agree on the coverage and scope of the warranty.
  • Standards of work: What each party considers to be acceptable work.

A properly-drafted MSA can serve as a reference to managers on both sides of the agreement, who work in a complex undertaking involving multiple stages that are performed by different levels of labour and management.

Most common MSA issues and risks

Although an MSA assists in reducing legal concerns in negotiations, there are still issues that arise. These are the most frequently-reported MSA disagreements:

  • Injury to an employee or death
  • Property damaged
  • Inability to communicate
  • Inability to comply with deadlines
  • Failure to pay the amount agreed upon
  • Issues with service or performance
  • Product defects
  • Unauthorized charges

When both parties have signed the MSA, you have an effective contract. A properly-drafted MSA can identify disagreements and provide a means to resolve them, helping both parties save a substantial quantity of both time and cash. These points offer a solid foundation for master service agreement examples and provide strong clauses to incorporate into future contracts.

Frequently Asked Question (FAQs)

1. What exactly is a Master Service Agreement used for?

An MSA contract defines the rules for the activities and responsibilities of the two parties. It's needed to protect against indemnity and distribute the risks arising from a business relationship.

2. What is the difference between MSA and SOW?

MSA defines the relationship between two parties, whereas SOW is a detailed description of the terms and conditions of the project's delivery. SOW does not constitute a separate document but is usually incorporated into the MSA.

3. Who needs a Master Service Agreement?

Anyone who plans to offer either short-term or long-term services to customers needs to be able to execute an MSA. It provides a solid base for any business relationship and helps sign future contracts quicker and simpler.

4. Which comes first, SOW or MSA?

Statement of Work is the basis for a Master Service Agreement, as it provides the specifics of the services that will be offered. However, it would be best if you only began drafting the SOW after you have decided on the basic guidelines for your partnership, which falls within the MSA.

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