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What is a master service agreement?

Modern business relationships are built around contracts.

When a company requires goods or provides services, contractual obligations ensure all parties are on the same line when it’s time for everyone to start working.

Many contracts are limited in scope, and it can take time to negotiate new agreements and eliminate production obstacles.

What if your business could establish an agreement with trusted partners to speed up the entire contracting process?

You’ll be able to place orders, request services, and streamline productivity workflows easily.

It is all possible with a master service agreement.

Here’s what you must be aware of.

What is a master-service agreement?

In the business world, the master service agreement -also known as an MSA or framework agreement is a governing contract made between two signing parties.

Usually, MSAs are designed to establish a set of mutually agreed-upon terms that apply to all other contracts between the parties, including Statements of Work or Service Level Agreements.

Instead of relying upon SOWs and SLAs to carry out their own terms, the MSA serves as an operational guideline that is applicable to all subsequent agreements and lower-tier contracts.

Advantages of a master-service agreement

As you might imagine, there are several significant advantages to setting up MSAs, including the capability to speed up contract workflows, reduce costs, and improve productivity.

Here are the main advantages of using MSAs to frame future agreements:

1.Faster setup

MSAs provide the framework for a lasting partnership between two companies. Once they’re in place, contracts and agreements that are governed by the MSA will be much shorter and will take far less time to create.

2. Customizable

No two MSAs are alike. Similar to other contracts, MSAs can be tailored to meet the needs of your business.

It is possible to include clauses that apply to every subsequent contract, such as intellectual property clauses, indemnification agreements or confidentiality agreements.

3. Consistency

Using MSA agreements can help ensure a consistent working environment for both companies.

If not stated otherwise, each new contract includes the same set of conditions and working guidelines.

4. Better terms

Since an MSA contract is created to build long-term relationships, making one offers both parties the opportunity to fight for better terms in negotiations.

5. Focused contracts

An MSA provides a foundation that will be used for future transactions.

This lets you create separate statements of work and service level agreements and similar agreements from the primary contract (the MSA) while still having the same terms and conditions as the MSA.

6. Faster renewals

More than 50 percent of top-performing companies renew their contracts annually, which is even simpler with an MSA.

Since MSAs are usually good for years, renewing subordinate contracts becomes faster and simpler to accomplish.

The possibility of creating an all-encompassing, central document that regulates the key elements of your business partnership can be a significant incentive for long-term business partners.

If done correctly, a legal MSA can set work standards and contracting workflows that are simple to understand and profitable for both signing parties.

Disadvantages of a master service agreement

Although MSAs have a huge number of advantages, it can take some time to achieve those positive results.

There are a few disadvantages of using MSAs that you must be aware of before you try to make one.

Extended creation time

Because MSAs can cover many of the essential aspects of the business relationship, so they can take quite a long time to create.

Most of the time, negotiating MSAs can take so long that other agreements between the two companies are signed and issued while the MSA is being negotiated.

Although you can accelerate this process with the proper negotiation tools, you should be prepared for a lengthy procedure when you decide to make the MSA.

Highly Complex

Although MSAs can help reduce legalese regarding future contracts, the MSA itself can become quite complex if the creation process isn’t managed properly.

As parties try to create terms that will be used over a long period of time, MSAs can become a catchall document.

This can result in consistency in the agreement since parties try to include every possible result.

Inflexible if improperly created

MSAs are likely to become too rigid, making them too complicated for companies to implement.

This occurs when the terms of the MSA are so strict that subsequent contracts do not conform to the requirements for one (or both) parties.

MSAs need to establish a framework while remaining flexible enough to be useful, and it is possible to cross the limit without even realizing it until it’s too late.

It may require different partners

If you’re looking to set up an MSA with a small business or company subsidiary, you might not be able to do so directly.

Most of the time, the parent company (and their law firms) will want to be involved in structuring MSAs.

If you’ve not previously worked with them, the MSA might be awkward or unsuitable.

It’s important to note that, despite some key disadvantages of MSAs, the benefits can be worth it.

MSA checklist: What to include in a master service agreement

Since MSAs provide a framework for all future contracts, placing any and most contracting information inside the MSA is logical.

Remember that if specific passages don’t make it into your MSA, those terms require negotiation on a pre-contract basis.

If you don’t expect the terms to change, pushing to include them in your MSA is generally the most effective option.

Here’s a quick checklist of items that you might think to include in your MSA.

  • All party information. It includes business names, addresses, account details, and much more. This establishes the signing parties in the relationship and puts all pertinent business information in one location.
  • Confidentiality and exclusivity. This covers all sensitive information that must be disclosed for parties to conduct business. It might include non-disclosure agreements, outline intellectual property rights, and more.
  • Contracting procedures. Explains how contracts are prepared or issued and how they are transferred from one organization to another. It may include many steps.
  • Dispute resolution. Details on what companies must do in case of an issue. It may include arbitration clauses, indemnity agreements, limitations of liability and who pays attorney charges for legal services and much more.
  • Funding and payment terms. The document outlines how businesses want to be paid for future transactions. It could be through using escrow services, recurring payment deadlines or the creation of regular payment schedules.
  • Insurance coverage. It outlines who is responsible for insurance and/or what should be covered by insurance (property damage, liability insurance, etc.)
  • Project management. Determines how the project should be managed, who is responsible for the project, and what necessary steps must be undertaken throughout the project management process.
  • Termination. It outlines what to do when either party decides to terminate the MSA or any other contract that falls under the MSA framework.
  • Third-party details. It might include information about collaboration with third-party vendors or subcontractors, what steps need to be taken, pricing minimums or working conditions for subcontractors and other similar requirements.

Remember that MSAs are completely negotiable and can be customized to suit your requirements and personal preferences.

As you begin creating your masters service agreement, start to work together with your business partner to decide what information needs to be included in your master document.

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