What is a Master Service Agreement (MSA)?
Before getting into the details, let us understand what is behind the Master Service Agreement. MSAs are mostly there in agreements for the provision of services, like there may be an agreement to provide information technology (IT) consulting services.
An MSA agreement is considered as a contractual agreement between two or more parties wherein both parties agree to abide by certain terms & conditions that will decide future transactions. The MSA is like an anchor document. It will guide the creation of additional documents, like Work Order Statement of Work (SOW).
These later documents commonly describe in more detail the specific services to be done, common terms, legal fees, specific contractual terms and so on.
What To Consider While Drafting MSAs
MSAs provide a clear vision in performing the work in the contract. So, care should be taken while drafting MSAs It is a contract that impacts the functional aspects:
1. About the Scope of work: This makes it possible for both the parties to understand what type of work is expected to be performed.
2. Terms of Price and Payment: It allows both parties to reach an agreement on price, method of payment, and payment schedule.
3. The provision for change: The description of all the procedures that each party must follow to make changes to the agreement. All the changes are done as per written adjustments either for additional work or for schedule changes.
4. The Resolution of Dispute: This is about how the two parties should conduct themselves in case some problem arises during the engagement. This helps reduce litigation costs and also throws light on how they will solve disputes during the contractual relationship. For instance, disputes can be addressed by appointing a mediator. A mediator is an independent individual who works out a resolution between both parties. Alternatively, parties may prefer to resolve disputes using the method of arbitration, which is a cheaper alternative to going to court.
5. The End or Termination: It provides the procedures using which a party may finish the contractual relationship. This clause is all the more important in deciding which party should pay damages for violating a contract.
There are two popular types of termination. Termination for convenience takes place when a party wishes to exit the relationship for no specific reason as such. On the whole, termination for the cause takes place when one party does not perform the obligations or duties agreed to in the contract.
6. The Term: This decides the length of time of the contract. This clause typically includes renewal conditions and procedures.
7. The Venue of legal arbitration: It defines the location of arbitration or court jurisdiction.
8. Warranties & Representations: These give us the facts as they are shown in the contract. The facts that made a party to enter into the contract is called representation. Warranties also influence the facts in the future.
For instance, product warranties frequently make sure that the product will include all the promised features (representations) and will move forward as per the description. If not, in case the warranty will fulfill the cost of a replacement. Essentially a warranty obligates a seller to comply with the representations in the purchase agreement.
9. Indemnification Provisions: This provision relieves one party from being held liable for damages. It is also called a hold harmless provision. These lay out what actions one party (seller) agrees to take responsibility for if a third party sues the other party (buyer).
10. Insurance Coverage: It spells out the required amount of insurance coverage that the parties must keep with themselves.
11. The Security Requirements: It brings about the minimum level of security the parties should maintain.
12. Human Resources: It spells out the human resources required to develop and operate new applications or provide additional services.
13. The terms of Confidentiality: In this, all parties agree not to share information with third parties.
14. About Allocation of Risk. This brings out a broad outline of the risks that each party will assume, all the more so, since the new contract may impact existing contracts.
15. Intellectual property rights (IPL): It provides the ownership and regulation of intellectual property, for example, patents and copyrights.
When both parties sign the MSA, you get an effective contract. It is well understood, a well-drafted MSA can foresee future disputes and give ways to resolve them, which can save a lot of time and money for both parties