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An In-depth Analysis of the Master Service Agreement

Ashish M. Shaji

| Updated: Apr 22, 2020 | Category: Legal Agreements, Share purchase agreement

Master Service Agreement

Overview

A company may keep getting engaged with a customer or a partner regularly. It may first provide computer hardware to a customer and later may provide software support. Further, it may also replace the customer’s old information technology system. Here you may see the services may differ, but the service guarantees remain the same. It is a perfect example of a Master Service Agreement where it allows a company to cover multiple contracts rather than documenting the service guarantees in every contract. In this article, we shall have a clear understanding of the Master Service Agreement.

Meaning of Master Service Agreement

A Master Service Agreement (MSA) is a contract between two parties during a service transaction. MSA contains the details regarding the expectations of the parties. It shall settle the details and expectations of the parties to the contract. It will contain the details about what is the role of each party, and it would state which services apply in the MSA.

MSA is a contract document that enumerates the responsibilities and performance objectives of both parties. It is also termed as Service Level Agreement. The prime objective of the MSA is to facilitate the contract process and provide support to companies to manage customer expectations. It aims to build rapport and improve the scope of service delivery.

Contents of a Master Service Agreement

The main contents of an MSA are specified below.

  • The parties to the contract mutually agree not to share any secrets of the company with anyone. Thus, confidentiality is one of the main content of an MSA.
  • It shall contain the details regarding the delivery requirements
  • If there is an issue among the parties, the MSA specifies how the parties can resolve their issue. Thus, it provides dispute resolution.
  • It shall spell out regarding geographic locations. The parties agree about the pace where the employees shall work.
  • The parties to the contract shall determine how the ownership and regulation of patents and other IP shall be handled. In some cases, the client gets all the IP, whereas the vendor gives perpetual rights in others.
  • The MSA specifies the limitations of Liability. It mentions who shall be responsible in a suit.
  • It shall also mention the terms for payment. These terms shall specify the estimated cost and the schedule of payment.
  • The MSA determines the place where the resolution shall take place. It could be through arbitration or in a specific state etc.
  • The MSA shall define the work standards, as not following the work standards often leads to disputes. It shall state what, according to the parties, an acceptable work is.
  • The group shall agree on the scope of the warranty.
  • Finally, the MSA must carry the signatures of the parties.

An MSA can contain details about a few other areas like property access, social responsibilities, business ethics, and network. The basic idea is to include as many details as possible broadly so that the companies don’t have to get entangled in negotiations later.

What is the significance of a Master Service Agreement?

The Master Service Agreement (MSA) allows the companies to discuss their terms of the deal, thereby helping them to go further with the work laid down in the agreement. It helps businesses to use MSA in order to make the contract negotiations easy. In case one doesn’t have MSA still the company and the customers may go through the issues successfully; however, there could be bigger concerns that may dissuade the contract. The importance of the MSA can be perceived by the fact that it allows the companies to concentrate on their contractual issues like the time period and the price.

MSA is like an intricate agreement that means when there is no particular contract; then the companies don’t need to deal with the duress of time. This allows them to figure out issues and tackle those issues. The issues and concerns that may come up can be best understood once a company understands the MSA negotiation process. It can work in the best interests of a company as it allows the company to know what sort of issues could arise in the future, and they would be better positioned to tackle those issues whenever it prepares the next MSA.

MSA allows companies to quickly proceed further and complete the job when there is a long term arrangement. They don’t have to stop or slow down their progress for negotiating new terms. It shall ensure that the parties save not only money but also time. Therefore the companies utilise the MSAs to simplify and facilitate the contract negotiation. It serves as an agreement by which the future contracts between the parties will be guided.

The advantages and benefits of a Master Service Agreement

Often small businesses tend to use cut and paste methods or contractual templates to move on from one contract to the other. There could be an opportunity for a partnership that may appear suddenly. While implementing an MSA, a company doesn’t need to face issues arising from contracts that are not well constructed. It clearly means that an MSA helps companies in avoiding chances of litigation and any contractual disputes. However, a company needs to keep a check on their MSA and make amendments as technology, markets, and operating environment changes constantly.

Whenever there is a deal between parties, one party would never want to take all the responsibility for the mistakes made by the other party; therefore, the MSA guarantees to handle all the financial losses in case a party messes it up. Legally speaking, it is called indemnification. The other party shall be free of financial obligations. In some cases, one party may take all the responsibilities. It shall sign an MSA that provides the party with financial responsibility for mistakes, even if it is made by the other party. Under MSA, the party shall pay the legal fees and also agree to not sue its partner.

MSA shall protect the parties by specifying the risks that the company takes. Risk allocation is another important factor. A new deal may affect existing contracts if the businesses agree to an MSA. 

MSAs biggest advantage is that it helps in resolving disputes easily as the parties know the terms and can figure out the fault quickly. When it comes to completing a contract between two businesses, it may take a long time and may require a lot of money. A deal that is done quickly serves the interests of every person; therefore, MSA ensures that the parties mutually agree to a few things. It agrees to speed up the process of negotiation where a company may write MSA in a few days time, which is faster than a standard contract negotiation. Another important aspect of MSA is that it can still protect the parties when the agreement is in place. If a dispute accrues, then the MSA adjudicates who is at fault. The two businesses may not sue, as checking the document is easy. Hence, it saves time and money.

Another benefit of the Master Service Agreement is it is a good blueprint. Whenever a company prepares an MSA, it is easy to copy. A good MSA is like a template for future negotiations. Both parties get enough time to concentrate on the vital parts of the discussion, the time and cost required to conclude the project. The MSA also serves as evidence to prove the standard of service guaranteed.

Important points to remember while drafting a Master Service Agreement

There are few details that will assist the parties like pre deciding possible issues is critical as the business today faces a lot of problems. There are areas which, if not addressed, may lead to conflicts in the future. These include delivery and installation, where the MSA should specify about the delivery and the installation of products. It should further list requirements for employees who wish to work on the project. The parties should come in agreement with the expected charges, and the terms of payment must be discussed, like when it will pay, how often, and how long.

If the parties fail to agree on how to manage insurance scope and expenses, then in case of a setback, it may further lead to issues and give rise to chances of litigation. Therefore, the parties should agree on terms of handling the insurance and expenses in the MSA. Another important thing to note is that the groups shall decide if one places his money in a trust and under what circumstances the other party can earn.  The companies must approve who shall handle and fund for the protection and safety of their project.

The legal liabilities must be specified lest there be a fight over who is liable. If a situation demands, the MSA must clearly lay down which business shall assume the risk. The businesses should decide how they shall split up the tax expenses once taxes are made known.

There are projects that require third parties; hence the MSA shall define how the above-mentioned thing applies to the third party when there is an involvement of more than two parties. Finally, the MSA must clearly define out clauses and reasons for agreement termination because a business may split any time.

Procedure of Master Service Agreement

  • Look for an advocate who has good drafting skills, and he shall guide you through the whole process.
  • You shall make him known the need of MSA.
  • Once the objective of the MSA is clear, the advocate will draft an MSA accordingly.
  • The draft of the MSA will be sent to you that will be reviewed by you and shall intimate the advocate in case of any amendment to it.
  • The entire process will take around 3-4 days.

Common risks and disputes associated with a Master Service Agreement

A Master Service Agreement plays an important role to lessen legal concerns during negotiations; however, still, some common disputes may occur that includes the following:

  1. The parties involved in MSA may blame each other for employee injury or death unless it is clearly specified in the agreement.
  2. Apart from that, there could be disputes regarding property damage, so it must be addressed in the agreement.
  3. Not responding to business requests updates in a timely manner may lead to communication failure.
  4. In case the deadlines are not met in a business, it may cause disagreement.
  5. If a payment is not made as agreed by both parties, it may lead to a conflict. It is a worse thing to happen as it is the quickest way of having conflicts.
  6. Another common cause of conflict is performance or service issues. If a product doesn’t satisfy the expected goals, the parties may accuse each other for it.
  7. In case of defects in a product, it may cause a setback to expected revenue.
  8. A number of unauthorised charges may cause one party to have the suspicion of cheating on the other.

Difference between an agreement and Master Service Agreement

An agreement is a mutual understanding between parties regarding their rights and responsibilities. It creates an obligation among the parties that are enforced by the law. A Master Service Agreement also means a legal document which brings together separate but same agreements between the two parties.

Conclusion

Many organisations have utilised MSA due to the advantages and benefits that it brings to the table. The provision of reimbursement and allocation of risk is the biggest reason behind it where a party defends the other party against any future contingencies. A Master Service Agreement provides the assurance financially where if one party must not suffer due to the mistake of the other. An MSA is also used to encourage and restructure the negotiations of the contract.

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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