Everything you need to know about MSAs: a comprehensive guide for businesses
What is an MSA?
A master services agreement (MSA) is a legally binding contract that outlines the terms and conditions of a business relationship between two parties. It is an important document for businesses as it sets out the expectations of each party and provides the legal framework for all transactions and/or projects during the working relationship. For this reason, an MSA is an excellent option where there is an ongoing relationship between two parties rather than a one-off transaction.
In this guide, we will discuss what an MSA is, why it’s important, key aspects of an MSA that serve to protect your business and some tips for creating a successful MSA. We will also explore some common MSA terms such as renewal, payment terms, intellectual property, termination clauses and more.
Examples of when an MSA will be a suitable contract to use
If you consistently collaborate with a particular company on multiple occasions, using an MSA eliminates the necessity of rehashing the overall legal framework time and time again. With an MSA in place, the general legal terms and conditions are already established, streamlining future collaborations.
Here are some real-life examples of when an MSA will be a suitable contract to use, rather than a services agreement:
A marketing agency (the supplier) has agreed to a retainer with an e-commerce company (the customer) where the supplier will be providing marketing services and strategic planning for several campaigns throughout the year.
A healthcare services company (the customer) requires IT security services from a technology service provider (the supplier). Upon discussions with the supplier, the customer discovers that there may be scope for more IT services to be provided by the supplier.
A supplier of office furniture (the supplier) will be providing office chairs to a company that plans to continue expanding its office spaces across the UK. An MSA can also be used for purchase orders of goods, as well as services.
Once the MSA is finalised, only the details relating to each new project or transaction will need to be agreed between the parties. As there are multiple circumstances where an MSA can be used, each MSA will be unique to the relationship at hand and the type of services to be provided by the supplier. The MSA can detail and address any potential issues or concerns that may arise during the relationship.
If you’re ready to create your own MSA, then you can find Docue’s fully customisable MSA template here.
What contract should I use for a one-off engagement?
If you will only be engaging in a one-off transaction or project with a party, then a services agreement would be a more suitable template - check out Docue's template here.
For a deeper dive into the difference between an MSA and a services agreement, check out these frequently asked questions.
What is the role of a statement of work when it comes to MSAs?
Statements of Work (SOW) are supplementary documents to the MSA that detail the specific project requirements, timelines, milestones, pricing and any additional terms.
If you think of the MSA as the legal framework that provides the skeleton of the relationship between a supplier and a customer, a statement of work is the flesh on the bones, that provide the commercial details of each new project/transaction.
The diagram below shows the order of agreeing the MSA and subsequent SOWs. Once the MSA terms have been agreed upon and signed by both parties, you will only need to agree to the commercial terms in each SOW to start a new project.
When drafting the MSA, it is essential to clarify which document will take precedence in the event of a conflict between the terms contained in the MSA and SOW. Each SOW should reference the MSA, ensuring that the terms and conditions of the broader agreement are incorporated.
For more information about the differences between MSA and SOWs and how they work together, check out this blog.
What are the benefits of using an MSA?
By using an MSA you can expedite your negotiations and make the execution of new agreements a breeze! MSAs offer a standardised framework for all your future projects or engagements, which means you can bid farewell to the hassle of negotiating the legal terms for each new transaction.
Once you lay down the legal terms and conditions in the MSA, your subsequent negotiations can focus on the exciting project-specific details like scope, timelines, fees and deliverables. There's no need to go over the same contractual framework again and again. You can dive straight into discussing the project at hand, rather than rehashing the broader legal framework all over again.
Are you tired of spending excessive time and resources on contract negotiations for every project or engagement? Well, MSAs can actually save you money, as well as time! We appreciate that traditional legal services can be costly for businesses in this respect. However, MSAs eliminate the need to start from scratch each time, saving you valuable time and effort.
When finalising project-specific details in the SOW, referring to the MSA terms in the SOW allows for a quicker review and approval process, which can also save on hefty lawyer bills. This streamlining process not only speeds up the negotiation phase but also minimises the back-and-forth, ultimately reducing costs associated with protracted discussions. Furthermore, having an MSA in place allows you to negotiate better pricing and favourable terms upfront, providing cost savings for the duration of the relationship. So, you can say goodbye to endless contract revisions and instead reduce costs with an MSA.
A well-drafted MSA can also play a crucial role in mitigating risk for your business. By establishing a solid contractual foundation, MSAs provide a clear allocation of responsibilities and obligations between the parties involved. This means that potential risks and liabilities can be addressed at the outset, minimising the chances of disputes and costly legal battles later on.
MSAs often include provisions that address risk factors such as limitation of liability, warranties, indemnification and dispute resolution mechanisms. With these safeguards in place, you can rest easy knowing that your interests are protected. Moreover, MSAs can outline intellectual property rights, ensuring that your valuable creations are protected from unauthorised use or infringement. To find out more about protecting your intellectual property in your MSA, check out this guide.
By proactively addressing risks within the MSA, you create a stable and secure business environment that fosters trust and confidence. So, not only do MSAs streamline negotiations and save you money, but they also act as your shield against potential risks and uncertainties.
What key terms should be included in an MSA?
Term of the contract
This is how long the agreement will last. Now, depending on whether you're the supplier or the customer, you might have different preferences regarding the contract's duration.
As the supplier, you might want the contract to automatically renew at the end of the term. This helps you maintain a stable and ongoing relationship with the customer, without the need for frequent renegotiations.
On the other hand, if you're the customer, it may be advantageous to let the contract naturally come to an end. This provides an opportunity to reassess your needs, evaluate the supplier's performance, and potentially renegotiate new terms that better align with your evolving requirements. It ensures flexibility and allows you to adapt to changing market dynamics and business priorities.
Ultimately, the decision regarding the contract term should be made based on your specific circumstances and objectives. Whether you choose to incorporate an automatic renewal into your standard MSA terms or if the MSA is to naturally come to an end; it's essential to consider the long-term benefits and align the contract duration with your business strategy.
Party responsibilities under the MSA
The clauses that set out each party’s obligations are an essential part of an MSA. This clause will address any specific tasks or duties that each party is responsible for during the term of the contract. This clause can also set out any specific rights that a party should be granted throughout the relationship to perform the services. For example, if the supplier needs access to the customer’s premises during working hours, the customer’s responsibility clause can include a term that requires the customer to permit access to the supplier and its employees during working hours.
By clearly defining these responsibilities, the MSA can also help prevent misunderstandings or disputes that may arise due to unclear or undefined responsibilities. With well-defined party responsibilities, each party knows what is expected of them and can ensure that they are carried out in accordance with the MSA.
For a deeper dive into this clause, check out this guide.
The intellectual property (IP) clause in an MSA is essential to establishing clear guidelines for IP ownership and how the IP rights granted under the contract can be used.
The intellectual property clause should define the ownership of IP used in connection with the agreement (i.e. who owns what) and offer protection of any IP rights that will be created or used during the term of the MSA. It ensures that both parties have a clear understanding of who owns the intellectual property and how it can be used. If you want to find out more about ownership, click here.
Before drafting this clause, it’s important to understand if there will be any intellectual property created during the course of the relationship and who will own the new IP (if any).
This clause will protect the creative outputs that may emerge during the project. The supplier may be transferring ownership of the intellectual property that arises during the project to the customer, or the IP rights may simply be licensed to the customer under certain conditions.
If intellectual property rights will be licensed under the MSA, this clause can establish usage rights between the parties. It will outline the specific permissions, restrictions or limitations for the use of intellectual property.
For example, the MSA can state that the licence to use the supplier’s IP may only be valid if the customer ensures their employees comply with the terms of an end-user licence agreement (EULA).
Providing clarity regarding intellectual property rights in the MSA will protect each party's intangible assets, allowing them to confidently pursue their business relationship without concerns of unauthorised use or infringement.
If you want to take proactive steps to safeguard your IP in your MSAs, our legal experts have created this useful checklist.
Limitations of liability
The limitation of liability provisions in an MSA can be complex and are typically the most hotly debated clause during negotiation. Hours are often spent discussing the inclusion or exclusion of liability for specific types of losses and setting financial caps on overall liability. Broadly speaking, liability is the responsibility or obligation that parties assume for their actions or failures to comply with the MSA terms. This clause defines who will be held accountable for any damages, losses or breaches of contract that may occur during the course of the parties’ business relationship.
The purpose of the limitations of liability clause is to help the parties manage and mitigate risks in the MSA by defining the extent to which each party can be held liable for damages or losses that arise due to a breach. It sets reasonable boundaries and safeguards the parties from excessive financial exposure in case of a breach of the MSA.
This clause allows parties to negotiate and agree upon reasonable limitations that align with their respective roles and responsibilities. It is common for liability caps to be included in an MSA which limits the amount of damages that a party may be sued for by the other party in the event of a breach of contract or negligence.
For example, if a supplier is more likely to breach the contract by failing to meet their obligations under the MSA, then the parties may wish to incorporate a separate and higher liability cap. This helps to ensure a level playing field and prevents a party from unfairly taking on disproportionate financial consequences for unexpected events. It also incentivises the parties to implement adequate insurance coverage or strategies to mitigate risk to ensure they are able to take on the level of liability set out in the MSA.
The importance of being reasonable when it comes to the terms of your MSA
It's important to approach the liability clause in your MSA with careful consideration, ensuring that it does not contain unfair terms that unreasonably limit a party's liability. If a court were to scrutinise a seemingly unfair exclusion or limitation of liability, the judge would look to the “reasonableness” test under the Unfair Contract Terms Act 1977 (UCTA) depending on the circumstances and language used. Striking a fair balance with liability in your MSA is key!
For more information about unfair contract terms, the Competition and Markets Authority has provided guidance which is available on the Government website.
Top Tip: Always ensure that any liability caps in the MSA are within your insurance cover limit. Otherwise, agreeing to a liability cap higher than your insurance cover may expose you to significant financial risks that you are not adequately insured for. For example, if your insurance cover limit is £500,000, you should not agree to a liability cap that is higher than this amount.
The termination clauses are one of the most vital components of your MSA, ensuring both parties have a clear exit strategy if something goes wrong. This clause will outline when and how the parties can end the agreement. It specifies the specific circumstances, the relevant notice period and the consequences of termination.
There are two types of termination options in which a party can end the agreement:
Termination without cause (also known as termination for convenience)
This is where a party has the right to end the MSA early for any reason, even if the other party hasn’t done anything wrong. While suppliers generally prefer customers to have valid reasons for termination, customers often want to have the flexibility to terminate without cause. Finding a balance between the two parties' interests is key when drafting a termination clause in an MSA.
Termination with cause
This is where a party has the right to terminate the contract due to a specific event.
The most common events that will trigger a termination with cause right are:
- Unsatisfactory performance of a party;
- A significant or continual breach of the contract without remedying the breach within a certain timeframe;
- If one of the parties has, or is about to, go into insolvency; and
- If there has been a significant change of control of the other party’s business.
The termination clause allows a party to address any concerns they may have with regard to the future of the business relationship under the MSA. These concerns will be unique to the business relationship or the services provided by the supplier.
For example, if the services that are being provided by the supplier require the supplier to maintain specific licences or permissions from a third party in order to fulfil its obligations, the customer may wish to include a right to terminate in the event that the supplier fails to maintain the licences or authorisations from the third party.
Top tip: Always ensure that your termination clause states when termination will be effective. Termination could take place immediately following the trigger event, or you can include a certain notice period required to be given to the other party before the contract ends.
Overall, a well-drafted termination clause ensures a clear and orderly termination process to minimise disputes.
Consequences of termination
After you have carefully drafted your termination rights within your MSA, it is crucial to include terms that address the consequences of termination. This section of the termination clause will outline what happens when the agreement is terminated, such as the payment of any outstanding invoices and the return of a party’s materials or confidential information.
In addition to the termination clause, an MSA should also include a well-defined notices clause, that sets out the procedure to be followed when one party intends to serve a notice (e.g. a notice of termination) to the other party.
It will typically include details such as:
the acceptable methods of delivery (such as email, registered mail, etc.);
the addresses or contact information to which notices should be sent; and
when the notice is deemed to take effect (e.g. on receipt of an e-mail, or the next working day if delivered by hand, etc.).
The notice clause will ensure that there is a smooth process to follow in the event of termination or a breach, providing both parties with a clear understanding of communication in the event of a dispute or unforeseen event.
If you'd like to see how these clauses look in practice, check out our MSA template.
A well-drafted MSA sets a strong foundation for future services and transactions. An MSA can streamline negotiations, expedite projects, and reduce legal costs. Using a standardised MSA that is tailored to your business can bring harmony between commercial and legal departments, aligning business objectives with legal requirements.
It allows business professionals to negotiate commercial terms for new projects with peace of mind, knowing that the legal terms have already been addressed in the MSA. Ultimately, a well-structured MSA empowers businesses to navigate transactions efficiently, foster strong partnerships and focus on growth.
Need to create your own MSA?
Look no further! Docue offers a user-friendly interface, enabling you to effortlessly generate a lawyer-grade MSA and SOWs that are tailored to your business needs without the traditional law firm price tag.
Once you've created your MSA, you can send it via the platform for electronic signing. Once signed, you can securely store the agreement within Docue's storage vault, guaranteeing convenient and swift access to all your contracts in a centralised location.
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Tags: msa, msa contract template, msa example, msa master service agreement template, msa word, msa terms,
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