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What Is a Master Service Agreement? Why Do I Need It and How to Draft It

Growth is great, but it can also lead to uncertainty.

For the legal counsel and the management of a growing company, the fragmented overview of the contracts that come in and go out of the company leaves questions at the back of their heads.

  • Are we building efficient contract workflows that don’t hamper operations?
  • Are we spending more manhours than we should?
  • Are we protecting ourselves from possible issues that could arise from the business relationships?

The concern is valid. Contracts account for 70-80% of business operations.

Setting out the terms and conditions of your relationship with another company early on can remove this ‘uncertainty’. A master service agreement (MSA) can help you here.

In this article, we’ll break down everything you need to know about MSAs  and guide you into using an automated master service agreement template.

Here we go.

What is an MSA contract and what does it do?

A master service agreement or MSA is a formal contract between two parties to simplify the negotiation process.

A standard MSA spells out the essential terms and definitions that both parties need to comply with, as well as the consequences for any breach that may happen. So basically, it’s a way to make things official while protecting both companies’ interests.

Service agreements can be used for a one-time project, but more often they’re used by companies with ongoing business relationships. Especially when there’s a possibility of future deals with the same party.

Consider MSA agreements as an umbrella for a certain project that will govern individual statements of work (SOW) for future tasks. In such cases, the contract may include options for renewal (or even early termination).

Typically, MSA agreements contain the following:

  • The specific responsibilities and the services to be provided
  • Prices and payment terms for the specified services
  • Resolution of any disagreements that may arise within the contract duration
  • Intellectual property rights
  • Penalties for any breach of the agreement

Why use a master service agreement?

One of the big benefits of using a master service agreement is it can speed up the contractual negotiations.

How?

Let’s say you’ve entered a business venture and expect multiple projects to come out of the business partnership. MSAs set the general provisions that both parties agreed upon. That means if there’s a new project, you only need to put in the specific details of each new task to your statement of work.

However, let’s be honest ― no business relationship is perfect. Unforeseen events can always occur. An MSA can be used to delineate responsibility.

So what are some examples of such events? Below are some cases.

  • There’s property damage from natural disasters like severe weather conditions and acts of terrorism.
  • If there are multiple service providers involved in a project. Miscommunication and confusion happen quite often since lots of people are working on it.
  • Any change in law or regulation affecting the terms and legal requirements of the MSA contract.
  • When the project is falling behind schedule.
  • If the project ends up costing more than expected.
  • One of the parties isn’t holding up its end of the bargain.
  • When an employee is injured or killed on the job, there is often a question of who is liable for the accident.
  • There’s a party who wants to get out of the contract before it’s up.

That’s why you should prepare an MSA before making any business ventures. It’s for your company and employers. So before you draft, ask first…

What should be included in an MSA?

In a nutshell, the MSA should provide a roadmap for the parties’ relationship. It sets out the ground rules so that both sides know what to expect.

As a starting point, here’s something like a master service agreement checklist.

Make sure to include these key clauses:

Definition of the parties’ respective roles and responsibilities

It’s not uncommon for one party to feel like they are being taken advantage of ― like they’re working harder than the other party. So including a statement of roles and responsibilities in an MSA will give the transparency that both parties need for working smoothly.

Description of the services to be provided

Do you ask, “What services can I expect?”. Well, this clause should answer that. Defining the services that will be provided can be a good reference point. No party will overpromise or underdeliver their service. It’s a good way to avoid scope creeping.

Detailed pricing structure

Getting an agreement on the pricing is often one of the most difficult aspects of negotiating a contract. However, it’s important to be clear on the clause that’ll specify the cost of the delivered service. The pricing structure should be detailed in the agreement to avoid misunderstandings and disputes later on.

Termination clause

A termination clause is when you don’t have to pay penalties if your contract is canceled. This usually specifies who can cancel the contract and for what reasons. However, it shouldn’t be confused with a “force majeure” clause that excuses both parties from performing their contractual obligations if an occurrence out of their control stops them.

Confidentiality provision

A confidentiality clause, which is referred to as a nondisclosure, is a common feature of a service agreement. A clause like this is a legally binding agreement between the parties to keep certain information confidential such as trade secrets, proprietary information, or sensitive business information. 

Indemnification clause

This clause protects the business from any damages or losses that may occur as a result of the other party’s negligence or wrongdoing. By including this clause in the agreement, the business can be sure that it will not be held liable for any damages incurred.

Dispute-resolution clause

Conflict is an inevitable part of any business relationship. Even the most well-intentioned partners can have disagreements about the terms of their agreement. If a conflict does arise, a plan is in place for how to handle it, ensuring that they have a process in place for addressing conflict before it has a chance to escalate.

Whenever you write an MSA, be sure to include provisions for all eventualities so there’s no confusion for parties. MSAs that are well-written eliminate the need to renegotiate terms over and over again.

How do I draft MSA?

Here’s where it gets real. When you apply everything we’ve talked about so far. You may choose to build from scratch or model it from a previous MS Word contract template. However, you may want to reconsider for a few reasons.

  • MS Word’s not designed for storing data so it takes a while to find the clause you’ll need to add.
  • If you’re not an experienced contract lawyer (or even if you are), you might miss important clauses or language that could come back to bite you later.
  • It can be time-consuming to start from scratch and make sure that everything is accounted for.

So our suggestion is to use a service agreement template. Yet, we don’t encourage you to use a template that the internet offers you. You need an online template that can be customized to your unique needs and lets you do automated contract drafting.

Opt for a service contract template that’s comprehensive and covers all of the key points that should be included in an MSA. Take the time to read through the template carefully and tailor it to your specific needs.

Here’s an automated service agreement template that ticks everything we mentioned. A free service agreement template from Avokaado.

A simple note: Avokaado’s team of legal engineers is made up of professionals with more than 15 years of experience in employment, corporate, services and cooperation, transitions, and real estate law.

So what’s in Avokaado’s template? Here are some that you’ll find:

  • Object of the Agreement
  • Authorization of the contractor
  • Rights and obligations of the customer
  • Rights and obligations of the contractor
  • Confidentiality clause
  • Intellectual property
  • Payment terms and reimbursement of expenses clause
  • Liability
  • Force Majeure
  • Entry into force and termination
  • Governing law and jurisdiction

How to use the service agreement template?

First, know that Avokaado is an automated document generation software. They let you create a document based on an automated template.

To use the service contract template in Avokaado, simply follow the 5 steps below:

  1. Choose the service agreement template from Avokaado’s store of 100+ ready-made free templates. It’s previewable so you can decide if it’s for you.
  2. Once purchased (even if it’s free), it will appear on your personal template library. Click the service agreement so it opens as a new document.
  3. The document’s pre-generated questionnaire pops up on the screen where you can begin drafting your document by answering the questions.

  1. Should you wish to see how your document changes in real-time, the document´s preview is displayed next to the questionnaire.
  2. Click on “Next” so you can give the document a name.

Streamline your business relationships with an MSA template

If you’re looking for a way to simplify and streamline your business relationship with your service providers, consider using a master service agreement. It can help ensure that everyone is on the same page when it comes to expectations, deliverables, and deadlines.

We’ve provided a free template for you to use as a starting point ―  just download it, fill in the blanks, and send it off to your contractors. Like a modern way to manage all your contract lifecycles? Use a modern CLM that can automate your end-to-end contract workflows.

Our CLM software is free for 7 days so you can try it before you buy.

20.06.2022

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