Master service agreement (MSAs) are sometimes confused with service level agreements (SLAs). However, they are different – in their intended purpose, the parts they cover and most importantly, what they accomplish.
The master service agreement is the foundation for all future agreements between parties. It outlines the maximum terms possible. However, the service level agreement details the obligations and responsibilities of each.
The SLA is a well-known service industry term, but the MSA is not, and it’s because of its legal jargon. A master service agreement is essential for all business relationships, regardless of the legal jargon. Whether you’re a startup business or an independent contractor, you will reach a point in your life where you’ll need an MSA.
If you don’t know where to begin or what to include, creating a master services agreement can seem daunting. This blog will explain and introduce the MSA, including its basic concepts and the various components.
What is a master-service agreement?
The master service agreement is a formal agreement between buyers and suppliers. It contains the essential terms of service, such as deliverables and warranties, indemnification, payment terms and termination clauses.
It includes all terms and definitions required by both parties that need to be followed. This speeds up the process and eliminates the need to enter into future agreements. Both parties sign the master service agreement, agree to follow the law, and honour the terms of the contract.
What are the benefits of a master service agreement, and why do you need one?
Did you know that the majority of businesses overpay their suppliers by at least 10%? This is what can happen if there isn’t an MSA. Additionally, most commonly used project-specific agreements do not cover all liability aspects, leaving room for interpretation during disputes.
If you create too many contracts, it will lead to a situation in which you will need to spend precious time looking through all the contract bundles trying to find a specific clause to resolve a dispute. Too many contracts could mean that too much money would be wasted on attorneys’ fees.
Businesses that provide multiple services will also need to have contracts created frequently. It is important to standardize terms and subject matter usage. These businesses must also safeguard their revenue streams, trade secrets, and business relationships from consequential damages and gross negligence.
By eliminating the need to constantly negotiate rates and terms, a well-drafted MSA can save both time and money. MSAs are designed to last and cover everything, from purchase orders and work orders to pricing, responsibility allocation, and severability.
A solid master service agreement will establish boundaries and provide provisions for resolving any issues that may arise over the course of the relationship.
The essential components of an MSA
Priorities must be met before SaaS software purchases can be made. The most important focus is an MSA. The master service agreement includes various components that help maintain a strong contractual relationship. It contains several clauses that protect the interests of both parties and offer dispute resolution for any issues during the contractual period.
Here are some things to remember when creating a master-service agreement. Below are the components that are usually included (or should be) in a master-service agreement.
1. Definitions
It is important to clearly define the terminologies before you enter into any agreement. It is a good idea to do this before you add a disclaimer. Defining various terms at the beginning makes it easier to interpret a contract. This definition section eliminates any possibility of ambiguity when the defined terms are used throughout the contract.
Capitalizing the first letter when defining terms in a master service agreement is standard practice. It is important to capitalize the first letter of any term that is used in the contract’s body. Each definition must have one defined term, and synonyms are not allowed.
Some examples of defined terms include: Affiliate, Authorized user, Order, Service and Documentation, Customer Data, and Order.
2. Responsibilities
The contractual obligations that each party must fulfil under the terms and conditions of the contract are called the responsibilities. It includes aspects such as the activities of each party and the time it should be completed.
This section will outline the terms of the agreement, and any updates or upgrades promised during the contract period. It also includes additional terms such as protection of customer data and compliance with the law.
3. Use and access restrictions
This section describes the access and usage restrictions that customers or contractors must adhere to. These restrictions may be either physical or logical. These clauses usually place the responsibility on the customer to ensure authorized access to the services. These clauses also include conditions governing the use of third-party products and content.
Customers may be given the responsibility of obtaining consent and permissions when they are required to access customer data. They can also be held responsible for the compliance of their authorized users with this agreement. You can place usage restrictions on any number of users, as well as restrict their rights or reselling.
4. Fees
This section explains the fees and the charges for services provided. This section will not only set the expectations about fees but also details when the invoice will arrive at the customer and the time they must pay it. As per state legislation, finance charges are additional charges on balance.
This section will also include any taxes not included in the pre-determined fees. Customers are usually responsible for all taxes, including sales and excise taxes.
5. Proprietary rights
This section describes the rights granted to customers by the agreement. The company providing the service usually owns all rights, titles and modifications.
This section also contains clauses regarding customer data storage and usage. You will also find information about de-identified data usage, as well as limitations for HIPAA compliance.
6. Confidentiality
All agreements have confidentiality clauses. Confidential information must be clearly defined in order to avoid any confusion, and contracts must clearly define what constitutes confidentiality. Next comes the protection clause. This is where you agree to not disclose confidential information unless it’s required by law.
A compelled disclosure is when the recipient is required to reveal confidential information in response to a court order, statutory obligation, or other legal requirements. The court order’s recipient is permitted to disclose confidential information provided that they notify the other party.
7. Representations, warranties and disclaimers
Representations or warranties are clauses which state a fact or give assurances to customers regarding the service provided. In a field service environment, a supplier might offer customers a one-year or two-year warranty. If there is an issue with the equipment during this time, the supplier will be responsible for fixing it at no cost.
Disclaimers, on the other hand, set out the obligations of each side and emphasize the fact that neither party can be held responsible for any inadvertent errors. This section lists limitations to the warranty. In the event of equipment damage, the warranty is not applicable.
8. Indemnification
Many contracts and agreements contain provisions for indemnification and limitation of liability. Suppose one party suffers from incidental losses due to a third-party claim. In that case, they may be entitled to compensation from the other party. A clause of indemnity should contain the following essential elements:
- Indemnity covers risks
- Reciprocal terms
- Scope of the claim
- Maximum liability limit
9. Termination and terms
This section addresses important issues such as the terms and effective dates of the agreement, suspension scenarios, termination clauses, and possible suspension scenarios. It also explains the various circumstances that could lead to the termination or suspension of an agreement.
The terms may state that one party can terminate the agreement by giving 30 days’ written notice. This section will not only contain the termination terms but also the consequences of terminations, such as the amount or services owed, access rights, loss of use and other details.
10. General provisions
The general provisions section covers aspects such as insurance coverage, force majeure waiver, statutory compliance notices, governing laws, and more. Force majeure refers to circumstances beyond one’s control (the action of a superior power) that prevent either party from fulfilling their obligations under the agreement. In the event of natural disasters, for example, neither party will be held responsible for failing to perform their obligations.
The agreement governing law clause will refer to a court with competent jurisdiction that would supervise any conflicts arising from it.
Insurance requirements are usually a matter of mutual consent. Both parties should have insurance to cover personal injury and property damage.
