For ongoing working relationships, a better alternative to regularly negotiating new contracts is often a master services agreement (MSA). This is a versatile legal document that businesses can customize to fit a variety of circumstances. An experienced Arizona business lawyer can help you create MSAs for all your long-term contracts. Consider contacting the dedicated business lawyers at Harrison Law, PLLC at (480) 320-2310 to discuss how an MSA may be able to help your company.
What Is an MSA?
A master services agreement is also called a framework agreement. It states the key aspects that will apply to all future transactions between the parties involved. The document typically specifies:
- The expectations of both parties.
- What services apply to the agreement.
- The geographic location of the people carrying out the work for the project for tax reasons.
- Whether a background check on workers is required.
- Coverage for any warranties.
- Payment terms, including estimated costs (along with how pricing may vary due to economic factors), payment schedule, and whether funds will be placed in escrow.
- Delivery terms, such as a definition of the deliverables, the deadline for delivery, and what constitutes as completed work (including performance standards).
- Confidentiality requirements and how these refer to the release of information.
- Liability limitations, including the requirements for each party in terms of attorney fees and indemnification (in the case of a lawsuit from a third party).
- Work schedules for employees — this is particularly relevant for government contracts.
- Insurance coverage and what each party is responsible for in terms of premiums.
- Intellectual property (IP) rights, including who has final ownership. In some cases, the client keeps all the IP; in others, the vendor keeps the IP but provides the client with perpetual rights.
- Future royalties in the eventuality of a new discovery or invention.
- How the parties involved will handle any problems that arise while they are working together. For legal resolutions, parties need to specify a venue, such as a state or federal court.
For some projects, there may be additional details to include in an MSA, such as agreements around purchasing, ethics, and access to property and networks.
Where Are Master Services Agreements Relevant?
MSAs are relevant for any business that utilizes continuous contracts with vendors, unions, and the government. Specifically, businesses should consider an MSA for any long-term agreements where they need to agree to indemnification. Typically, the two parties will agree that one of them (called the indemnifying party) will indemnify in the case of existing or future damages that could lead to losses. The indemnifying party typically also agrees to contract a lawyer and pay for the associated legal costs.
Benefits an MSA
By removing the need for renegotiation before every new contract, the client avoids downtime — work is able to continue while the two parties iron out any issues and discuss concerns. In addition, having a master service agreement allows the contractor and client to make any necessary adjustments, although the foundation of the agreement stays the same.
Another benefit of an MSA is that it reveals risks associated with the project and allows the two parties to define the steps they will take to mitigate these risks. In particular, there are several common types of issues businesses tend to face when working with contractors:
- Communication issues, such as if one person is slow to respond or fails to update within the agreed-upon timeline.
- Missing deadlines for deliverables.
- The injury or death of an employee.
- Payment issues, including missed or late payments and inappropriate charges.
- Damage to property.
- Deliverables not meeting quality standards, such as if the finished product has defects.
Any of these issues could lead to conflict between the two parties. However, a master services agreement will specify who needs to take responsibility and will define the rights of each party, which should result in fast resolution.
How to Create a Master Services Agreement
To draft a master services agreement, the two parties should start with a discussion of how their situation currently stands and the ultimate aims of the project. They should then define their individual responsibilities and specify how they will collaborate to create and evaluate work that meets the desired standards. Finally, they should consider the possible issues they could encounter while working together. They can use this information to write the following clauses:
- Independent contractor clause to specify the service provider is a contractor rather than an employee.
- Confidentiality clause, stating that the service provider will not share information about the client with any other party.
- Warranty clause for the workmanship warranty.
- Notice clause, stating how each party will manage requests for changes from the other.
- Termination clause, which states when the contract will end and how the two parties will manage its termination.
An experienced attorney will know how to incorporate all the above into a master services agreement. Contact Harrison Law, PLLC to learn if an MSA is right for your company, and all of your legal options.
Why Is It Important to Consider a Customized MSA from an Experienced Attorney?
Since an MSA is the starting point for all future agreements with a contractor, it is crucial that it addresses the unique project and refers to the specific requirements, skills, and other particulars of each party. Although looking at an example of a master of services agreement from the United States Securities and Exchange Commission may help businesses know what to expect, it is important to know the risks of using templated agreements. Templates often fail to account for unique characteristics of a specific project, which could put the two parties at risk of a disagreement in the future. There is also a risk of a lack of clarity that could lead to misinterpretations.
Consider visiting with an experienced business attorney regarding the creation of a master services agreement for your company, who will take the unique aspects of your project into consideration. Call our dedicated Arizona business lawyers at Harrison Law, PLLC, at (480) 320-2310 to discuss all of your business legal needs today.
© 2023 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
