- An MSA outlines all possible responsibilities and obligations of both parties and serves as a foundation for all future agreements.
- On average, organizations overpay their suppliers by at least 10%, which can be prevented with an MSA.
- A well-drafted master service agreement has a clause to handle any possible disputes that may arise in a business relationship.
- An MSA has several must-have components like definitions, responsibilities, access and usage restrictions, fees, proprietary rights, confidentiality, representations, warranties, disclaimers, indemnification, terms and terminations, and general provisions.
Master service agreements (MSAs) are often confused with service level agreements (SLAs). However, MSAs and SLAs are quite distinct — in their intent, the components they cover, and, most notably, what they accomplish. While the master service agreement sets the pace for future agreements between two parties by outlining the maximum possible terms, the service level agreement outlines the obligations and responsibilities of each party.
While the SLA is commonly known in the services industries, the MSA has a bad rap because of its heavy legal jargon. Legal jargon aside, a master service agreement is a must-have for all business relationships. Irrespective of whether you are a small business startup or an independent contractor, you will hit a point where you need to create an MSA.
The process of creating a master service agreement may feel like a daunting task if you have no idea where to start or what to include. This blog aspires to introduce and explain the MSA, its basic concepts, and the different components involved. We will also provide you with a master service agreement template to make it easier.
Download Neutral Paper now, a ready-to-use master service agreement template created by expert attorneys.
What is a master service agreement?
A master service agreement is the formal agreement made between suppliers and buyers. It outlines essential terms of service like deliverables, warranties, indemnification, payment terms, termination clauses, intellectual property rights, confidential information, and even dispute resolutions.
Since it includes the maximum possible terms and definitions that both parties need to abide by, it speeds up the contractual process and eliminates the need for future agreements. By signing the master service agreement, both parties agree to abide by the applicable law and honor their end of the bargain.
Why do you need a master service agreement?
Did you know that most businesses overpay their suppliers by at least 10%? This is what can happen when there is no MSA in place. What’s more, commonly used project-specific contracts do not cover all aspects of liabilities, leaving room for ambiguity during disputes.
Creating too many contracts will result in a situation where you have to waste precious time sifting through contract bundles to find a specific clause if a disagreement arises. In addition, too many contracts would mean too many funds wasted away for attorneys' fees.
Also, businesses that offer several services will need to create contracts often. So, it is critical to standardize terms and subject matter usage. There is also a dire need for these businesses to protect their revenue streams and trade secrets from consequential damages and gross negligence.
A well-drafted MSA will save money and time for both parties involved by eliminating the need to negotiate rates and terms repeatedly. Since MSA's are made with long-term relationships in mind, the entire agreement is detailed, covering everything from work orders and purchase orders to pricing, responsibility allocation, and severability.
A robust master service agreement will effectively set boundaries for the contractual relationship while ensuring that there are provisions to tackle any problems that may arise throughout the duration of the relationship.
Essential components of an MSA
There are several priorities that need to be fulfilled before a SaaS software purchase can be finalized. An MSA is the most important priority of them all. A master service agreement covers an array of components that are important to ensure a strong contractual relationship. It consists of several clauses that protect both parties' interests while offering dispute resolutions to any hiccups during the contractual period.
If you are in the process of creating a master service agreement, here are the things you need to take care of, i.e., here is a checklist for creating an iron-clad MSA. Listed below are components that typically are (or should be) included in a master service agreement.
Before you get into any agreement, it is critical to define the terminologies clearly. It would help if you did it even before you put forth a disclaimer. Defining various terms at the beginning of the agreement makes the interpretation of a contract easier. When the defined terms are used across the contract, this definition section removes any chance for ambiguity.
When defining terms in the master service agreement, it is common to capitalize the first letter of the definition. Even when the term is used in the body of the contract, it should be capitalized just like its definition. There must be only one defined term for each definition, and using synonyms instead of a defined term is frowned upon.
Examples of defined terms are: Affiliate, Authorized User, Order, Service, Documentation, and Customer Data.
Responsibilities are the contractual obligations each party is supposed to execute under the terms of the contract. It covers aspects like each party's activities and the time frame it should be executed.
This section will clearly outline the provision of the agreement, updates and upgrades that are promised during the contractual period, and other additional terms like protection of customer data, compliance with the governing law, support, professional services, and use of subcontractors.
3. Access and usage restrictions
This section outlines the access and usage restrictions that a customer or contractor shall abide by. Access restrictions can either be physical or logical. Usually, these clauses put the customer in charge of ensuring authorized access to the services. They also cover conditions related to the use of third-party products and content.
Customers can be tasked with obtaining permissions and consents whenever required to access customer data. They are also held liable for their authorized users' compliance with this agreement. Usage restrictions can be anything from restricting the number of users to proprietary rights and reselling restrictions.
The fees section gets into the details of how much will be charged for the services rendered. In addition to expressly setting the expectations regarding fees, this section will cover when the invoice will be sent to the customer and how long they have to make the payment without finance charges. Finance charges are additional charges levied on the outstanding balance as per state law.
This section will also list any taxes that are exclusive of the already predefined fees. Usually, customers are solely responsible for paying applicable taxes, including sales tax, usage tax, excise, value-added tax, and any other taxes suitable to such services.
5. Proprietary rights
This section outlines the limited rights that are expressly granted to the customer hereunder the agreement. Typically, the company that delivers the service owns all the rights, titles, modifications, and any derivative works, including intellectual property rights. In addition, clauses regarding customer data storage, usage, and sharing are entwined in this section. There are also mentions of de-identified data usage and limitations for HIPAA compliance purposes.
All types of agreements include some confidentiality clauses within them. Ideally, confidential information is first clearly defined. The classification of what constitutes confidentiality is a critical step in any contract. Then comes the protection clause, where you agree not to disclose any confidential information unless it is a compelled disclosure case.
A compelled disclosure case is a situation where the recipient is forced to disclose confidential information due to a court order or statutory duty. In such instances, the recipient of the court order is allowed to disclose confidential information, provided they inform the other party of the situation.
7. Representations, warranties, and disclaimers
Warranties or representations are clauses that state a fact or offer assurances to customers about the service performed. For example, in a field service environment, the supplier may provide customers with a one- or two-year warranty period. During this period, if there is an issue found with the serviced equipment, the supplier will have to fix the problem free of cost.
On the other hand, disclaimers set forth the obligations of each party while emphasizing the fact that one party will not hold the other responsible for inadvertent inaccuracies. This section lists the limitations of the warranty. For instance, the warranty will not be honored in the case of deliberate equipment damage.
Most contracts and agreements include a section for the limitation of liability and indemnification. If one party is subjected to incidental losses through a third-party claim, they can receive compensation from the other party for those losses. An indemnity clause should include a couple of must-have elements like:
- Risks covered by indemnity
- Reciprocal terms
- Scope of the claim
- Maximum liability cap
- Time limits to raise a claim
9. Terms and termination
This section covers important aspects like the terms of the agreement, its effective date, possible suspension scenarios, and termination clauses. In addition, it fleshes out various instances that can result in the termination or possible suspension of the agreement.
For example, the terms might stipulate that either party can end the agreement with 30 days’ written notice. In addition to spelling out the terms of termination, this section will also cover the effect of terminations, like the amount or service owed by either party, rights granted for access, loss of use, and more.
10. General provisions
The general provisions section includes aspects like insurance coverage, force majeure, waiver, statutory compliance, notices, governing law, and more. The force majeure clause captures circumstances beyond control (the act of a superior force) that relieve either party from performing their obligations as per the agreement. For instance, in the case of natural disasters, neither party will be held accountable for not performing their responsibilities.
In the governing law clause, the agreement will refer to a court of competent jurisdiction that would oversee any conflicts arising from the agreement.
When it comes to insurance requirements, usually, both parties are advised to carry and maintain insurance for a specific amount to cover any personal injury or property damage.
Simplify things with a master service agreement template
Now that you have a clear idea of what goes into making an iron-clad master service agreement, you can either create one from scratch with the help of a legal team, paying a ton in attorneys' fees, or you can download a free ready-to-use template like Vendr’s Neutral Paper.
Neutral Paper was put together by industry and legal experts to help you eliminate MSA hassles, enabling you to buy and sell software instantly. Download Neutral Paper today and get freedom from SaaS redlines.