A Master Service Agreement is a preliminary contract signed by parties to manage long-term business relationships. The MSA lists the umbrella general terms and conditions accepted by the parties. It functions as a framework for all future business transactions between the parties, empowering them to negotiate and execute new agreements quickly and easily.
This contract type is popular among sectors providing open-ended services, including technology, manufacturing, government, and more.
Components of a well-drafted MSA
A Master Service Agreement should cover the following provisions:
- Deliverables: The parties determine who will deliver what, when, where, and how.
- Geography: The location where the work will take place.
- Commercials: Define the pricing, payment schedule as well as the preferred payment method and currency format.
- Quality Control: Detail the accepted level of quality of the deliverables.
- Intellectual Property Use: The contract should specify how the different parties will utilize the intellectual properties belonging to each other.
- Confidentiality: The parties will not share restricted information with external parties.
- Warranty: Promise to provide support for faulty deliverables.
- Limitation of Liability: Explains the amount of exposure each party faces in case of a lawsuit.
- Dispute Resolution: Identify the governing law, jurisdiction applicable in the event of a dispute. Also, specifies alternative dispute resolution like arbitration, mediation, and the applicable rules and venue.
Apart from the above master service agreement checklist, the document should also cover other provisions including insurance coverage, termination, indemnification, change control, assignment, subcontracting, and more.
Why are Master Service Agreements Important?
Generally speaking, an MSA accomplishes two main purposes - legal and practical.
From a legal stance, this agreement helps parties to identify risks, establish liability and indemnification obligations. This way it becomes easy to address risks associated with the project and determine the extent of liability in the event of non-performance of obligations.
Below are some common risks and indemnification covered under Master Service Agreements:
- 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
- Problems with the payments
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 and eliminates 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.
How are Master Service Agreements Created in 2021?
Choosing the manual route to generate and manage MSAs is highly inefficient. The practice also slows down the progress of the entire document lifecycle to a snail’s pace.
- 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 a master service agreement 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.
The above process is precarious and has multiple points of failure, such as:
- 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.
- Non-existent Audit Trail: Without a proper system in place, it is difficult to identify who made what changes, when, and where.
- 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.
- Not Interoperable: 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.
Why Automate Master Service Agreements?
As you may have realized, opting for the traditional process to draft MSA contracts is not feasible, especially in a fast-paced digital work environment.
Also, given that Master Service Agreements 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.
Here's how automating the Master Service Agreement can prove advantageous:
- Quality Control: 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. Additionally, a user or business unit can provide inputs in the select sections of the document. The legal team can further restrict editing to the other sections of the document keeping unauthorized individuals off-limits.
- Faster Approvals: Utilizing a digital platform to manage the document lifecycle promises that all stakeholders are on the same page (no pun intended), thereby helping overcome bottlenecks and execute approvals instantly.
- Easier Collaboration: MSAs, like other legal documents, are subject to several rounds of revisions. A contract automation platform will allow teams to collaborate on the same document version both internally and externally. Thus, eliminating the risk of missing inputs and referring to incorrect versions.
- 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.