A master service agreement is an agreement in which two parties agree to general terms and conditions that will apply to all future agreements between the two parties.
What is a master service agreement?
A master service agreement is an agreement in which two parties agree to general terms and conditions that will apply to all future agreements between the two parties. This will make it much faster and easier to negotiate future agreements because the original terms of the agreement do not have to be renegotiated over and over again.
Master service agreements, or MSAs, typically define the general terms in a business relationship. These include: terms of payment, warranties, intellectual property ownership, dispute resolution, geographic location and choice of law. The projects themselves are then negotiated in a statement of work that builds on the terms established in the master service agreement.
Reasons for a master service agreement
A master service agreement eliminates the need to negotiate a completely new agreement for every new project. Contractual negotiations are an expensive process and an MSA establishes a framework that applies to all agreements afterward.
Also, drafting one master service agreement provides a business with a blueprint to use for other vendors. This way, a company is much more flexible in acquiring new vendors and forging new business relations.
What a master service agreement should contain
A master service agreement should detail all the responsible issues facing both parties. What do the two parties plan to do together? What service does either side provide?
These details should include:
- How the work is delivered
- Who is allowed to work on the project
- Who is responsible for project management
- The costs involved
- Terms of payment
- Details on insurance
- Security for the project/product
- Location - important with regard to legal and tax issues
- Which party assumes responsibility in the event of an incident
- Taxes and tax responsibilities
- Details on the possible involvement of a third party (subcontractor)
- Details on possible reasons for termination
Most common disputes and risks with a master service agreement
- In the event of employee injury or death there are often disputes about who is responsible unless properly detailed in the MSA
- Property damage - should be adressed clearly in the MSA
- Failure to communicate - when one party requests an update and the other does not reply
- Failure to meet deadlines, as these deadlines are often critical to the receiving party’s business
- Failure to pay as agreed
- Performance issues or defects - when a finished product or service fails to meet expectations it often results in both parties denying responsibility for the failure
- Unauthorized charges - charging for services not detailed in the master service agreement