A master service agreement is an agreement of transaction between a service provider and a customer to ensure that both parties take accountability for their actions. MSAs are generally found in contractual agreements for the provision of services, like an agreement to facilitate IT consulting services. MSA agreement ensures that if one party makes mistakes, they are bound to handle all the financial losses incurred by their misstep. The master service agreement also defines the facts as presented in the contract.
Did You Know? Market service agreement states that if any of the parties makes a mistake then the other signing party will cover all the financial losses incurred from the mistake.
What is a Master Service Agreement?
An MSA agreement is a contract that displays the obligations and responsibilities of two parties towards one another, including a customer and a service provider. The MSA agreement in its full form is a Master Service Agreement. This agreement also serves as a document to guide the creation of additional documents like SOW or Work Order Statement of Work.
Benefits of a Master Service Agreement
Companies use MSAs to simplify and assist with contract negotiations. With the help of MSA, a company and the customer can work through the broad and significant concerns that can undermine or disrupt any contract upfront. The benefits of MSAs are many. A few are listed below.
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Saves Time
Master service agreement provides an outline or framework to negotiate agreements quickly. Thus, deals that are similar to each other won't need negotiation using the same terms repeatedly. The MSA can serve as a blueprint for these deals.
Risk Allocation
Whenever a business agrees to an MSA, it impacts existing contracts, especially insurance agreements. An MSA will protect the parties by pointing out the risks each business entity is taking.
Checklist of Master Service Agreement
Before drafting an MSA, the following points should be kept in mind:
- MSA can help your company avoid contractual disputes.
- It can speed up the tedious negotiation process.
- It can help reduce the risk associated with litigation.
- An MSA protects both parties.
- A well-drafted MSA can serve as a master service agreement sample for future negotiations.
- An MSA determines the party at fault in a dispute.
- It is a useful blueprint.
- The functions and duties of the first-party company
- The duties and functions of the second-party company
- The terms of the contract have to be futuristic with an overview of issues faced by both parties.
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Things to Consider When Drafting An Master Service Agreement
Project managers rely on MSAs to provide guidance in performing the contracted work. Therefore, MSAs need to be carefully drafted with a specific focus on functional areas.
Scope of Work
This allows both the service provider and the customer to understand the kind of work or service expected to be performed or delivered.
Price and Payment Terms
It allows both the participating parties to draw an agreement on the method of payment, price and payment schedule.
Change Orders
It is a description of the process to be followed by each party to bring changes to the agreement for schedule changes or additional work.
Dispute Resolution
It describes what both parties should do if a dispute arises during the engagement. It facilitates the parties to mitigate litigation expenses and come up with specific procedures that can solve disputes. These disputes can be resolved by appointing an advisor or a mediator, or by arbitration.
Termination
It details the process to follow while ending the contractual relationship. This clause helps identify the party that has to bear the cost of breaking the contract. The most common termination types are- Termination for convenience where a party exits a contractual relationship without any specific reason and Termination for Cause where a party is unable to deliver the promised obligations or duties to the other party.
Term
It outlines the duration of the contract including renewal procedures and conditions.
Legal Venue
It details the location of court jurisdiction or arbitration.
Indemnification/ Hold Harmless Provisions
It can relieve a party of being liable for specific damages. It details the actions a seller agrees to take the blame for if a third party sues the buyer.
Insurance Coverage
It states the amount of insurance coverage that must be maintained by both parties.
Security Requirements
It states the level of security required to be maintained by the parties.
Confidentiality terms
This ensures that the parties agree not to share any information with third parties.
Risk allocation
It outlines the risk involved for both parties since the new contract will impact the existing contracts.
Intellectual property rights
It allocates the regulation and ownership of intellectual property involving copyrights and patents. After the contract has been signed by both parties, the MSA will be effective.
Contents of an MSA
The following are the contents of a Master Service Agreement:
- Name and details of the parties.
- The scope of Work (Delivery of goods/service),
- Terms of maintaining confidentiality.
- Dispute resolution mechanism.
- Location of work.
- Indemnity.
- How to handle ownership of materials and intellectual property rights sharing.
- Consideration.
- Representations and warranties.
- Standard of work guaranteed.
- Signatures of the parties.
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Documents Required to Register a Master Service Agreement
Here is a list of documents required to draft your MSA contract:
- A government-issued ID with a photo.
- Incorporation certificate.
- The financial statements of both companies for the past financial year.
- Address proof.
Conclusion
The MSA covers the overall relationship between the customer and the service provider, including all possible aspects of the contract that may arise. It is beneficial to have such agreements prepared before signing a long-term business contract.
A well-drafted MSA can predict future disputes and provide an effective way to resolve them, saving both parties a considerable amount of money and time. Hopefully, this article gave you an insight into master service agreements and their advantages.
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