Starting and maintaining long-term business relationships is a complex endeavor, thanks to the ever-evolving nature of business environments and legal landscapes. There’s always a potential for misaligned expectations, unforeseen circumstances, contract renegotiations, and even disputes.

This is why organizations need a robust framework that protects their interests and accommodates changing circumstances across long-term engagements. A Master Service Agreement (MSA) serves this specific purpose, allowing business partners to streamline future negotiations, reduce repetitive legal reviews, and ensure smoother operations across the board.

In this guide, we'll explore the fundamentals of MSAs, including a checklist for a robust MSA and a free Master Service Agreement (MSA) template you can utilize for your organization's unique needs.

What is a Master Service Agreement (MSA)?

A Master Service Agreement (MSA) is a contract that sets the foundation for a business relationship between two or more parties. It acts as a blueprint outlining the general terms and conditions that govern all current and future transactions or projects.

Think of it as a rulebook that establishes the playing field for collaboration. It typically covers aspects like limitation of liability, conditions for termination, payment terms, and more.

MSAs are particularly useful in situations where parties anticipate a long-term or ongoing service relationship. They function as a framework for all 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 is the difference between MSA and SLA?

While MSA and SLA (Service Level Agreement) are contractual agreements used in service-based industries, they have some key differences in purpose and scope.

#1 Purpose

• MSA (Master Service Agreement): The primary purpose of an MSA is to establish the overarching legal and commercial framework for a long-term service relationship. It sets out the general terms and conditions that govern the entire engagement, such as payment terms, dispute resolution mechanisms, intellectual property rights, and termination clauses. Think of it as the "rule book" for the entire partnership.

• SLA (Service Level Agreement): On the other hand, the SLA focuses on the specific performance expectations for the services being provided. It defines measurable metrics (e.g., uptime, response time, error rates) that the service provider must meet to ensure customer satisfaction. It also outlines consequences if those standards are not met, such as service credits or penalties.

#2 Scope

• MSA: The MSA covers the broader relationship between the service provider and the client. It typically addresses high-level aspects of the engagement and may encompass multiple projects or services over time.

• SLA: The SLA is more granular and specific. It zooms in on the detailed performance targets for a particular service or set of services. You can have multiple SLAs attached to a single MSA, each covering a different aspect of the overall service offering.

Imagine a company outsources its IT support to a managed service provider. The MSA would establish the overarching terms of the relationship, including:

• Payment terms: How much the company will pay for the services, and when.
• Termination clause: The conditions under which either party can end the contract.
• Confidentiality: How sensitive information will be protected.

Meanwhile, the SLA would drill down into specific performance expectations, such as:

• Uptime: The percentage of time the IT systems must be operational.
• Response time: How quickly the service provider must respond to support requests.
• Resolution time: The maximum time allowed to resolve IT issues.

What does an MSA mean in business, legal, and sales?

“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

MSAs play a crucial role in streamlining long-term collaborations between organizations. This empowers professionals in legal, business, and sales departments to work collaboratively, reduce contractual friction, and foster a more productive working environment.

Let’s briefly discuss how the MSA benefits members of business, legal, and sales teams.

Importance of MSA in legal function

From a legal stance, an MSA helps parties 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.

“It sucks to be a cost center. Because cost centers are places the business looks to cut when times get tough, or the numbers need ‘improving’.”

~Sterling Miller, CEO and Senior Counsel for Hilgers Graben PLLC
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Importance of MSA in sales and procurement

Having an MSA helps free up the time your salespeople (or, on the other side of the deal, those involved in the 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 the use of MSAs differ across industries?

The use case for MSAs 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 covered 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 with defining and protecting sensitive individual and company data.

MSA Checklist: What does an MSA typically include?

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As already established, the specific content and level of detail in an MSA may vary depending on the nature of the services, the industry, and the specific needs of the contracting parties.

However, a robust MSA typically contains a group of provisions critical to mitigating risk and establishing the boundaries of long-term business relationships.

#1 Scope of work

A detailed description of the services to be provided, including any deliverables, timelines, and performance standards. This ensures clarity and avoids disputes over what was promised.

#2 Payment terms

A clear outline of the pricing structure, invoicing process, payment schedule, and any late payment penalties. This protects both parties financially and sets expectations for cash flow.

#3 Term and termination

Defines the duration of the agreement, conditions for termination (with or without cause), and the process for ending the relationship. This provides an exit strategy if things don't work out.

Also read: Managing Contract Terminations: The Ultimate Guide

“A question to ask yourself when negotiating a contract is whether you can terminate one part of the contract (e.g., a Statement of Work), and keep the main contract in place (a Master Services Agreement)?  Like the start date of the contract, being crystal clear on when the contract ends can save you a lot of heartaches.  Spend the necessary amount of time thinking about all of the reasons you’d want to the agreement to terminate and make sure those are included.”

~Sterling Miller, CEO & Senior Counsel, Hilgers Graben PLLC
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#4 Confidentiality

Protects sensitive business information shared between the parties, including customer data, trade secrets, and financial information. This safeguards valuable assets and fosters trust.

#5 Intellectual Property(IP) ownership

Clarifies which party owns any intellectual property created during the course of the agreement, such as software, designs, or inventions. This prevents disputes and ensures fair use of intellectual property.

#6 Warranties and representations

Assurances made by each party regarding their ability to perform their obligations under the agreement, such as having the necessary licenses or qualifications. This provides a basis for recourse if either party misrepresents their capabilities.

#7 Indemnification

Outlines each party's responsibility for defending and indemnifying the other against third-party claims arising from their performance under the agreement. This allocates risk and protects against unexpected liabilities.

#8 Limitation of liability

Caps the amount of damages a party can be held liable for in case of a breach of the agreement. This manages risk exposure and prevents catastrophic financial losses.

#9 Dispute resolution

Specifies the procedures for resolving disagreements, such as mediation or arbitration. This provides a mechanism for resolving conflicts without resorting to costly litigation.

Also read: Finding Common Ground: How to Resolve Contract Disputes

#10 Force majeure

Excuses performance obligations in the event of unforeseen circumstances beyond the parties' control, such as natural disasters or pandemics. This provides flexibility and protects against unfair penalties in exceptional situations.

Also Read: 6 Essential Types of Contract Clauses You Need to Know 

Which contracts can be executed under an MSA?

A Master Service Agreement (MSA) acts as an overarching agreement that establishes the general terms and conditions for future transactions between parties. Under this umbrella, various types of contracts can be executed to address the specifics of each individual project or transaction. 

Some common examples include:

#1 Statement of Work (SOW)

This document outlines the specific tasks, deliverables, timelines, and performance standards for a particular project. It references the MSA for the general terms and conditions.

Also read: Master Services Agreement vs Statement of Work Contract: What’s the Difference?

#2 Service Level Agreement (SLA)

This defines the level of service expected from a service provider, including metrics like uptime, response time, and issue resolution. It ensures that contracting parties establish clear expectations regarding service quality.

#3 Non-Disclosure Agreement (NDA)

While confidentiality is often covered in the MSA, a separate NDA may be executed to address specific confidential information that arises during a particular project.

#4 Change order

This document is used to modify the scope of work or other terms of a project, ensuring that both parties agree to any changes and their associated costs or timelines.

#5 Purchase Order (PO)

This document authorizes a specific purchase of goods or services under the terms of the MSA. It typically includes details like quantity, price, delivery date, and payment terms.

#6 License agreement

If the MSA involves the use of intellectual property, a separate license agreement may be executed to grant specific rights to use the intellectual property under the terms of the MSA.

#7 Professional Services Agreement (PSA)

This type of agreement outlines the terms for engaging professional services, such as consulting or training. It references the MSA for the general terms and conditions.

These are only a few examples of contracts that can be executed under an MSA. The specific types of contracts used will depend on the nature of the services being provided and the specific needs of the parties involved.

Two ways to draft MSA

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.

1. Traditionally, the process begins with term sheets that outline the key terms and conditions of a prospective business agreement.
2. 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.
3. 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.
4. 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:

#1 Mixing versions

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.

#2 Non-existent audit trail

Without a proper system in place, it is difficult to identify who made what changes, when, and where.

#3 Noise

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.

#4 Not interoperable

If the organization uses CRM and other tools, it will find it difficult to integrate the signed MSA with the platform.

#5 Storage and tracking

Related documents, such as SOWs, amendments, extension or termination letters, etc., are not stored and managed together. Critical information is lost and unavailable when required.

Also read: Creating an MSA Playbook: Step-by-Step Guide

Automating your MSA

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.”
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~Dr. Anjana Sudheesan, Deputy Medical Superintendent, Apollo Adlux

Benefits of automating the MSA drafting process

Here's how automating master service agreements can prove advantageous:

#1 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 the agreement, enabling users or business units to provide inputs in the select sections of the document through a questionnaire.

#2 Faster approvals

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.

#3 Easier collaboration

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.

“Leveraging a CLM has been key because it has reduced a lot of friction from handoffs between legal and business. Rather than going back and forth over email, Slack, Word, Zoom, DocuSign, and a whole tech stack, the CLM acts as a single source of truth.”

~Jonathan Franz, Head of Legal, Crunchbase
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#4 Audit trails

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.

#5 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

1. Download the MSA template.
2. Fill in relevant fields and adjust the necessary details according to your industry and proposed terms.
3. 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.