The hardest part of starting and maintaining a business relationship often comes down to one aspect — the legalities. Specifically, negotiating contracts, laying down terms, and allowing room for change as your relationship grows and changes. That’s why it’s always a good idea in business to create a framework for your working relationship in a Master Service Agreement (MSA), under which you can negotiate and execute further contracts quickly and more efficiently.
What is a master service agreement (MSA)?
In simple terms, a master service agreement is a preliminary blanket contract signed by parties to manage long-term business relationships. The MSA is a parent agreement that lists the umbrella general terms and conditions, such as limitation of liability, conditions for termination, etc., accepted by the parties getting into an agreement.
It functions as a framework for all future business transactions between the parties, empowering them to execute new contracts easily and without too much back-and-forth communication.
This contract type is popular among sectors providing open-ended services, including technology, manufacturing, government, and more.
What does an MSA mean in business, legal, sales, and beyond?
“An MSA basically functions to create a good business relationship between the two parties, covering not only liabilities and risks but also obligations, rights, and responsibilities.”
—Supin Prem, Sr. Manager, Legal Tech, SpotDraft
Generally speaking, an MSA accomplishes two main purposes in business — legal and practical.
Importance of MSA in the legal function
From a legal stance, a master service agreement helps parties to identify risks and establish liability and indemnification obligations. This way, it becomes easy to address risks associated with projects and determine the extent of liability in the event of non-performance of obligations.
Importance of MSA in overall business
Meanwhile, from a practical viewpoint, an MSA is highly beneficial to parties for long-term business engagements. MSA finalizes general terms and conditions governing the business relationship of the parties, eliminating the need to re-draft and re-negotiate every time a new project is launched. This way, parties can save time, improve efficiency, and cut down operating costs.
Importance of MSA in sales and procurement
Having a master service agreement helps free up the time your sales people (or, on the other side of the deal, those involved in procurement of products and services) spend on going back and forth between the other party and your own legal team. Once a well-negotiated MSA is in place that clearly defines the terms of your business relationship, closing future contracts specific to individual projects becomes much quicker.
How does use of MSAs differ across industries?
The use case for master service agreements is almost the same in terms of clauses, no matter which function or industry it is being utilized for. However, specific language, exceptions, and industry-standard terms would differ depending on the service and type of business relationship.
For example, the amount of damages mentioned in an agreement for finance services would likely be significantly higher than that in an agreement for HR services, while the latter might be more concerned towards defining and protecting sensitive individual and company data.
Checklist for a well-drafted master service agreement (MSA)
When it comes to drafting an MSA, there are a few clauses to be particularly cautious about:
- Intellectual property, as it pertains to who will own the rights to the work.
- Confidentiality, to protect any sensitive information exchanged within the period of the contract.
- Liability, which helps limit the liability for the parties involved.
- Indemnity, where the parties agree on who will bear the costs of potential losses or damages in specific situations.
Also Read: 6 Essential Types of Contract Clauses You Need to Know
As the above clauses will directly help in mitigating risk and establishing the boundaries of the business relationship, it is important to carefully consider and negotiate these terms.
Overall, a checklist for a standard master service agreement includes the following provisions:
The parties determine who will deliver what, when, where, and how.
The location where the work will take place.
This includes pricing, payment schedule, and the preferred payment method and currency format.
#4 Quality control
This details the accepted level of quality of the deliverables.
#5 Intellectual property use
The contract should specify how the parties will utilize the intellectual properties belonging to each other.
It’s important to define what is confidential information according to the agreement and to establish that the parties will not share restricted information with external parties. This also includes access of such information to subcontractors and team members of both parties.
The provider of goods or services promises to offer support for faulty deliverables.
#8 Limitation of liability
This explains the amount of exposure each party faces in case of a lawsuit.
#9 Dispute resolution
Identify the governing law and jurisdiction applicable in the event of a dispute. Also, this specifies alternative dispute resolution methods like arbitration, mediation, and the applicable rules and venue.
Some common risks and indemnification covered include Injury or death of personnel, damages to property, miscommunication or manipulation, failure to complete work within the specified timeline, issues with quality or quantity of deliverables, and problems with the payments.
The conditions for termination are usually standard and hardly negotiated, besides the notice period.
Apart from the above checklist, a successful master service agreement should also cover provisions like insurance coverage, change control, assignment, subcontracting, and more.
Which contracts can be executed under a master service agreement?
Virtually any type of contract can be executed under a master service agreement, including:
- Statement of work (SOW)
- Order forms or purchase orders (PO)
- Change order requests (COR)
- Service-level agreements (SLA)
Also Read: What is a Memorandum of Understanding (MOU) and how to make an MOU template with SpotDraft?
Master service agreement (MSA) vs. statement of work (SOW)
Also known as scope of work, an SOW is sometimes executed alongside the MSA and sometimes after. The main difference between them lies in their function; while the MSA sets the overarching terms and expectations of the relationship between two parties, an SOW goes into detail of specific jobs that the service provider is responsible for.
A statement of work typically includes clauses like exact delivery and payment terms, scope of work, rates and service fees, and project-specific details such as hours and milestones. Meanwhile, the master service agreement focuses more on clauses related to rights, obligations, liabilities, and dispute resolution.
Master service agreement (MSA) vs. service-level agreement (SLA)
Like an SOW, a service-level agreement can also be executed under a master service agreement. The SLA is more technical than an MSA. While an MSA is an agreement that outlines the terms under which all future agreements between two parties will work, an SLA is a specific contract executed between a customer or user and the service provider that outlines the exact nature of service being provided.
SLAs are comprehensive documents that specify the types of service, the rights of the customer and the expectations from their usage of the service, the service standards and performance indicators the provider must adhere to, the redressal mechanisms available to the user, and such project or service-specific terms.
A good example of an SLA is the agreement between a user and their internet service provider.
Two ways to draft master service agreements
Like any other contract, there are two ways to create a master service agreement — manually or through systems that automate the process. We will go through both of these methods below so your team can find the one that works best for you.
Drafting MSAs: the manual way
The manual route to generating and managing MSAs is simple, though often inefficient.
- Traditionally, the process begins with term sheets that outline the key terms and conditions of a prospective business agreement.
- Next, based on the term sheet, the in-house legal team drafts an MSA template and shares it with the concerned departments, usually by email.
- Now, the internal stakeholders review and make changes to the contract before finalizing it. Note that this step often expands into a full-blown waltz between the two, involving several negotiations and document versions.
- Finally, it's time to collect signatures and capture key details to complete the approval cycle. This is a tedious process as it is very challenging to coordinate with multiple stakeholders and track the status of the document.
While this process works perfectly fine during the initial stages of a company, it can soon become overwhelming as the business scales and legal bandwidth is stretched thin. Here are some things to watch out for that may signify a need to update your MSA creation workflow:
MSAs go through multiple cycles of negotiations and are updated periodically during this process. However, some departments might refer to older versions of the document, doubling the work for the legal team.
Non-existent audit trail
Without a proper system in place, it is difficult to identify who made what changes, when, and where.
With multiple participants and business units providing inputs during the drafting process, it is difficult to keep pace with the numerous email threads and changes in the draft.
If the organization uses CRM and other tools, it will find it difficult to integrate the signed MSA with the platform.
Storage and tracking
The related documents like SOWs, amendments, extension or termination letters, etc., are not stored and managed together. Critical information is lost and unavailable when required.
Automating your master service agreements
Given that an MSA can make or break business relationships, this contract should be handled with care and caution. By automating the document lifecycle process, it is possible to guarantee quality control and reduce delays, helping the organization save time, effort, and resources.
For example, with SpotDraft’s contract management system, the process usually looks like this:
- Create a compliant master service agreement that suits the needs of your business.
- The MSA is templatized for you on SpotDraft.
- When you need to draft an MSA, you can simply use this template and fill in some key details in the variable fields, such as the name of the parties, life of the contract, governing law, etc.
- Get the required approvals from your team on the platform itself. Since the template is pre-approved, this shouldn’t take long.
- Send it across to the other party. They may edit or accept the terms directly on the CLM platform. All edits can be tracked and reviewed.
- For contracts that aren’t executed, automatic follow-up emails will be sent.
“Earlier, the purchasing department used to stand outside mine or the CEO's office to get purchase orders approved. This has been completely streamlined with SpotDraft, as they can now generate POs and automatically request approvals from key individuals in the hospital based on the nature of the request. For example, orders over a specific value are sent to the CEO as well as the MD for approval.
SpotDraft has also helped us eliminate misplacement of POs, so we don’t have to spend time hunting them down later. We are also getting our HR documents (agreements with consultants, nurses, other staff) on SpotDraft so that we have one source of truth for everything.”
—Dr. Anjana Sudheesan, Deputy Medical Superintendent, Apollo Adlux
Here's how automating master service agreements can prove advantageous:
Quality control without compromising flexibility
By using a unified platform to manage the process, the legal team can ensure that the other departments can only access the latest versions of the document and that only pre-approved, compliant contracts are created. This still allows for flexibility in the terms of agreement, letting users or business units to provide inputs in the select sections of the document through a questionnaire.
The legal team can further restrict editing to the other sections of the document keeping unauthorized individuals off-limits.
Utilizing a digital platform to manage the document lifecycle promises that all stakeholders are on the same page, thereby helping overcome bottlenecks and execute approvals instantly. Moreover, a contract management system can help automate the approvals process by auto-assigning review requests based on set parameters.
MSAs, like other legal documents, are subject to several rounds of revisions. A contract automation platform allows teams to collaborate on the same document version both internally and externally, thus eliminating the risk of missing inputs and referring to incorrect versions.
The contract management platform will also help pinpoint which user made what change in which part of the document, and when. This helps to bring more accountability and transparency into the contracting process.
Tracking child contracts
There are a number of contracts that may be executed by giving reference to an MSA, which makes it difficult to keep track of all of them inside email threads. A CLM software like SpotDraft allows you to create a centralized repository for all these contracts and link related documents together.
Download a free master service agreement template
Since you’ve made it this far, we have something for you. SpotDraft’s legal team put together a free master service agreement template that you can download and quickly put to use for your contracts.
How to use this MSA draft
- Download the MSA template.
- Fill in relevant fields and adjust the necessary details according to your industry and proposed terms.
- Send it across to stakeholders and let the negotiations begin!
And if you’d like to make contracts much easier for your business, reach out to us for a free demo to see how SpotDraft can help you streamline your end-to-end CLM processes.