What is an MSA agreement?
Why do you need an MSA?
What are the elements of a master service agreement?
In this article, we will break down the notion of “MSA Agreement” so you know all there is to know about it!
We will look at what MSA stands for in business, what it is a master service agreement and its definition, why it is used, the key elements of an MSA contract, and how it relates to a statement of work, using MSA contract templates and more!
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What is an MSA
An MSA (an acronym for “Master Service Agreement”) is a contract entered into between a service provider and a client regarding the performance of services or the delivery of a project.
The MSA sets out the terms and conditions essential for the successful delivery of projects, deliverables or the rendering of services on a long-term basis.
Generally, the MSA provides for the core legal provisions governing a services engagement and a statement of work (or SOW), representing a child agreement to the MSA, will scope and define the project specifications, deliverables, assumptions, fees or other specific aspects of the project.
Once an MSA is signed, it will remain in effect for the long-term or in such a way that it may be used in a repeatable fashion without renegotiating the same terms for different projects or service engagements.
One-time projects, simple service engagements or other short-term projects will not require a master service agreement and can adequately be covered by a consulting agreement, professional service agreement or other types of service agreements.
The benefit of an MSA framework is that you don’t need to renegotiate an entire service agreement for every project between the same parties, rather you’ll use the same agreement.
Instead, you’ll agree on the terms of an SOW, subject to the MSA terms, where you’ll focus on the actual project, project deliverables, services, pricing, delivery dates and so on.
The MSA represents the “legal” framework whereas the SOW represents the “business” framework.
We discuss the nature of SOWs later in this article so be sure to keep reading.
MSAs are common types of agreements in open-ended fields such as:
- Government contracts
- Human resources
These types of contracts are called “master” contracts as they are negotiated by the parties once.
At its very basics, an MSA is intended to:
- Set the rules of engagement between the client and the service provider allowing them to collaborate to ensure the project moves forward
- Allow the parties to resolve any open issues during the project
- Set timelines to achieve specific objectives
- Define the deliverables or objectives of the parties
Typically, master services agreements govern three phases of a service project:
- Analysis phase (or blueprinting phase) where the parties evaluate the needs of the client
- Implementation phase where the service provider and the client work in collaboration with one another to complete the project
- Acceptance testing phase (or user acceptance testing) where the parties test the deliverables based on pre-defined testing standards
Although generically a project may have these three phases, the content of the parties’ agreement in each of these phases is different per project.
Every client’s needs are different and no one project may be exactly identical.
MSA Agreement Definition
“MSA” is the acronym for “Master Service Agreement”.
The master service agreement definition can be framed as follows:
A legally binding contract between a client and a service provider where the parties agree on the terms and conditions with regards to the performance of a project, rendering of services or delivery of defined deliverables.
Master service agreements can also be referred to as a framework agreement, master framework agreement or services agreement.
MSA contracts are intended to govern contractual parties’ relationships where they can collaborate to complete a project that may take weeks, months, if not years to complete.
The terms and conditions of an MSA set out the boundaries of the parties’ responsibilities.
The parties have an advantage in signing a master services contract as they can quickly engage one another on a project without having to negotiate a full-length contract.
MSAs allow the parties to negotiate a framework agreement in a mutually satisfactory way where the risk allocation is adequately partitioned between the parties.
Here are some of the key terms found in an MSA:
- Service provider personnel
- Delivery requirements
- Acceptance testing
- Payment terms
- Service level standards
- Restrictive covenants
- Limitation of liability
- Intellectual property
- Dispute resolution
- Termination rights
- Choice of law
Let’s look at each of these aspects for a brief description.
Service provider personnel
Often, you will see a provision in the MSA contract relating to the service provider personnel.
The objective here is for the service provider to commit that it has qualified and experienced resources to do the job.
In some cases, the parties may state that the service provider is qualified and will render the service in a professional and workmanlike manner.
In other cases, the individuals on the project will be interviewed, selected, screened and named in the statement of work.
The parties to an MSA should clearly define the deliverables or the client delivery requirements.
Typically, the project deliverables, specifications and technical requirements are spelled out in a statement of work (child agreement to MSA).
Acceptance testing is a pre-defined set of tests and validations the parties mutually agree to perform once the project is considered as completed or deliverables completed.
The purpose here is for the parties to have a clear objective to achieve and have clarity as to when a project will be considered a success.
It’s important for the parties to define the project’s “success” in clear terms so they can test the project outcome accordingly.
Payment terms are standard provisions in almost all contracts where the parties define the manner the service provider will be paid.
There are many ways a service contract can be priced such as time and material, fixed bid, fixed-price incentive, guaranteed maximum price or other.
Check out our article on contract pricing for more on this topic.
The parties need to be clear about pricing, payment obligations and milestones and any other financial obligation to prevent disputes and potential litigation.
Service level standards
Service level standards or SLAs represent defined metrics setting out the level of service expected by a party to a contract.
Typically, if the service level standards are not met, the contract provides for remedies, credits, discounts or some form of compensation for the missed SLAs.
If the parties to an MSA agree that the service provider must resolve issues flagged by the client within three days, that’s a service level standard or KPI the service provider must comply with.
Nearly all MSAs provide warranties.
Different master service contracts will have warranties scoped differently.
Some will have an “as is” type of warranty or others will thoroughly negotiate the warranties to the contract.
Generally, the client expects to see some form of an express warranty that the deliverables will work or function for a certain period of time after it was delivered.
There are different types of restrictive covenants that may be included in an MSA depending on the nature and sensitivity of the project such as:
- Non-compete agreement
- Non-solicitation agreement
- Limitations on the service provider’s future activities
Every MSA may be negotiated differently and include different provisions.
It’s important for the parties to fully understand the legal terms and ramifications of such provisions.
Limitation of liability
Master service agreements will often contain a contractual provision limiting the service provider’s liability for damages.
The objective is to put a cap or maximum dollar value on the service provider’s total potential liability.
You should check out our article on the limitation of liability clause to learn more about this.
The clients will negotiate hard to have the service provider remain for all the damages they may cause and service providers will attempt to cap it as much as possible to manage risk.
The confidentiality clause is a standard provision in most contracts where the parties commit to keep any information exchanged confidentially.
Some projects may require the exchange of highly sensitive information whereas others may not.
By its very nature, the project or services underlying the master service agreement may generate intellectual property.
As such, the service provider and client must allocate the IP rights among themselves.
There are different IP considerations in an MSA:
- The client’s IP rights (such as work for hire under the U.S. Copyright Act)
- The service provider’s IP rights (also known as background IP, background technology or pre-existing IP)
- The IP to be owned by the client
- The IP to bee owned by the service provider
- Third-party IP (can include commercial licenses and open-source licenses)
Clients will often impose on the service provider to carry adequate levels of insurance to cover the services performed, the project or deliverables.
It is customary to see commercial general liability (CGL) and errors and omissions liability (E&O) policies.
Depending on the project’s specific nature, other types of policies may be required such as network security, cybersecurity, data breach or other specific insurance coverages.
The indemnification clause is a contractual provision found in MSAs where a party seeks that the other party assume the responsibility for any damages, costs, liabilities or claims resulting from the services performed.
The MSA can provide for a unilateral indemnification clause where the client is the only beneficiary of the indemnification obligation or a mutual indemnification.
The indemnification can either be a first-party indemnification or third-party indemnification.
Generally, the indemnification and hold harmless clause is significantly negotiated between the parties.
The MSA can provide for a process, procedure or mechanics for the parties to internally resolve disputes between themselves.
Most MSA agreements will state that, in the case of disagreements or disputes, the project managers from each contracting party should attempt to resolve the issue.
In case they are unable to resolve the conflict between themselves, they’ll need to escalate to higher-level managers such as department managers, division vice-president, executive sponsor or potentially CEO.
A master service contract will typically be negotiated on an “evergreen” basis where the parties fix an initial fixed term and allow for the agreement to renew automatically until a party decides to terminate the agreement.
An MSA can also include a termination for convenience clause where a party may provide a notice to the other party to terminate the agreement “for convenience” or at its discretion.
Generally, the client will have the termination for convenience rights as opposed to the service provider.
Master services contracts can also include termination for cause provision where the parties provide for certain rights and logistics for terminating the contract in the event of a breach of contract.
The parties to an MSA can provide for specific remedies in case of a party’s non-execution of its obligations, the performance that did not conform to the agreed specifications or client requirements or in case of deviations between what was expected and what was delivered.
Remedies can include:
- The reperformance of the service
- Refund of fees paid
- Service fee credits
- Liquidated damages
- Penalty clause
- Injunctive relief
Choice of law
The choice of law is an important clause in an MSA as the parties define the laws applicable to the contract in the event of dispute or litigation.
The choice of law or governing law will specify the laws of the specific jurisdiction that govern the parties’ contractual relationship.
You can also have a choice of venue clause where the parties specify the place where the legal dispute will be submitted such as a specific court in a specific state, city or county.
Service agreements may also cover other contractual rights or obligations such as:
- Corporate social responsibility
- Business ethics
- Code of conduct
- Conflict of interest
- Network access
- Facilities access
Statement of work
What is the statement of work?
What is the difference between a master service agreement vs statement of work?
The answer is quite simple.
A statement of work is a contract (subject to the governing terms and conditions of the MSA agreement) where the parties define:
- The project activities
- Project tasks and duties
- Project resources allocated
- Delivery timelines
- Payments, payment timelines or milestones
- Project assumptions
- Deliverable specifications
- Acceptance testing
- Other project specifications important to the parties
An MSA Agreement on the other hand is a long-form legal agreement where the parties mutually agree on terms and conditions that will apply to all projects defined in an SOW such as:
- Liability cap
- Payment terms
- Governing law
- Other framework clauses
By their very nature, a framework service agreement is intended to avoid common types of disputes between the parties.
It’s possible for a service provider and a client to work on a project without a master framework agreement or detailed SOW.
However, if the parties do not see eye-to-eye, the chances of disputes and litigation drastically go up.
It’s best to set the rules of the game in an MSA and SOW to avoid potential issues.
Here are some potential areas of conflict in service contracts:
- Quality of the deliverables
- Delivery dates
- Poor project management
- Poor communication
- Unjustified fees charged
- Unapproved material
- Unapproved expenses or travel costs
- Disputed payment terms
- Non qualified resources
- Scope creep
- Required services not performed
- Lack of proper allocation of project responsibilities
- Product defects
- Property damage
Master service agreement vs contract
What is the difference between an agreement and a contract?
Even though the terms agreement and contract are used interchangeably in business, they actually have different meanings.
An agreement is an understanding between the parties as to certain rights or obligations.
An agreement is not necessarily put in writing or in a contract.
On the other hand, a contract is a legally binding document translating the agreement of the parties into an enforceable document.
A contract can be considered as the specifics of an agreement bearing terms and conditions that may be legally enforced in court.
Master service agreement template
It’s important to note that every project is different, every client has different needs and requirements, and every service provider has different knowledge and expertise.
As a result, it may be useful to leverage an MSA contract template while in other cases it’s important to ensure the contract is drafted to the unique requirements of the parties.
Taking a sample master agreement template and copy and pasting various clauses into your own contract may get you to sign a deal but it may not protect you during the execution of your obligations.
Also, depending on the parties’ negotiating power, the industry, nature, and value of the contract, some parties may impose their contract templates on the other.
In that scenario, it’s useful to have a master service agreement checklist to ensure you cover all your angles and include the necessary protective provisions suitable for your business.
MSA Agreement FAQ
What is an MSA Agreement
An MSA agreement is a contractual agreement intended to remain open-ended and in effect for the long-term between a client and service provider where they may contemplate having many service projects with one another in the future.
A master service agreement is far more practical than negotiating standalone service contracts as you negotiate the legal terms of your relationship once and leave the business terms to be defined in other mini-contracts such as statements of work or addendums.
The benefits of this type of agreement are:
- The parties can quickly reach an agreement on future projects and transactions
- The parties do not need to negotiate multiple one-time service agreements for every project
- The parties have the comfort to know the same legal terms and protections apply to all their projects
- The parties spend time negotiating an MSA only once and use it in the future
What does MSA stand for in business
MSA is an acronym for Master Service Agreement.
A master service agreement is also known as a master framework agreement or framework contract.
What is the purpose of an MSA
The main reasons why you should consider signing an MSA is to:
- Define the client and service provider’s mutual responsibilities
- Indemnification by a party from future losses
- Allocate risk between the client and service provider
The MSA provides a strong foundation for contracting parties to work with one another in the future without repeatedly negotiating contracts.
What is the difference between MSA and SLA
An MSA is a master service agreement representing an agreement parties sign in open-ended fields such as human resources, information technology, software, marketing and finance.
For instance, in the oil and gas sector, master service agreements are quite common in dealing with exploration, drilling, product and natural resource extraction projects.
A service level agreement or SLA are specific terms and conditions in a contract where the parties mutually agree on the service metrics to be offered.
In an MSA, the parties may agree to turnaround serve levels for issues faced by the client.
The SLAs can impose that the service provider must respond to the support request with an initial response within an hour and resolve the issue within one business day.
Typically, missed SLAs are compensated by providing the client service fee credits or other forms of compensation.
If a service provider misses the SLAs repeatedly or fails to conform to essential SLAs, then the client may exercise its termination rights.