This article has been written by Anindita Deb, pursuing a course in BBA.LLB. from Symbiosis Law School, NOIDA. The objective of this article is to exhaustively list out the features, elements, and need for master service agreements, with additional informational resources one needs while drafting a master service agreement. Furthermore, a sample of a master service agreement has also been attached to help the readers get a reference in case they are looking to enter into such an agreement and need help with drafting.
This article has been published by Sneha Mahawar.
The Master Service Agreement (MSA) is one of the most common types of contractual agreements used in open-ended relationships or situations where one company must work on a particular project or several particular projects with another company. These types of agreements have obvious advantages over the more traditional project-specific contract. In fact, Master Service Agreements are intended to be incorporated into project-specific contracts that are addendums or statements of work to the agreement itself, allowing them to be executed concurrently with or after the Master service agreement.
A master service agreement’s goal is to speed up the contracting process. It should also make future contract negotiations easier. Contracts like these are useful in industries where there are a lot of transactions between the service provider and the customer, and each one may have its own statement of work. A Service Level Agreement (SLA) is another name for a Master Service Agreement (MSA).
Further in the article, the author has discussed every piece of knowledge one needs to be acquainted with when it comes to master service agreements. Keep reading the article to find out more.
Purpose of a Master Service Agreement
Master Service Agreements are frequently used by businesses to make contract negotiations easier. This agreement allows both the companies to spend time discussing the deal’s terms, after which they can start working on the tasks outlined in the contract. Consumers and employees can still work through issues if the companies don’t have a Master Service Agreement, but there are major concerns that the contract will be jeopardised. Having a master service agreement in place before signing a contract allows businesses to concentrate on their specific contractual matters, such as the time frame and price, for when the contract actually arises.
The majority of the time, master service agreements are complicated. Companies won’t have to deal with the pressure of time if there isn’t a specific contract being discussed. They will be able to identify and address any potential issues in this manner.
Once a company has gone through the Master Service Agreement negotiation process once, it will be aware of the types of concerns and issues that may arise. This is advantageous because the company will be aware of future issues and will be able to address them when drafting the next Master Service Agreement.
Need of a Master Service Agreement
When moving quickly from one contract to the next, many small businesses use cut-and-paste provisions, also known as contractual templates. There may be an unexpected opportunity for a partnership, or a potential customer wanting to see an out-of-the-box service right away. Companies do not have to deal with any issues arising from poorly written contracts when implementing a master service agreement. As a result, Master Service Agreements assist businesses in reducing their risk of litigation and avoiding contractual disputes. Because technology, operating environments, and markets are always changing, businesses must keep an eye on their Master Service Agreements and make changes as and when needed.
When two businesses make a deal, one party does not want to be held accountable for the other’s mistakes. The Master Service Agreement guarantees that if one party makes a mistake, the other will cover all such financial losses. Because it will not be held liable, the other party is free of financial obligations. In legal terms, this is known as indemnification.
In some cases, one party will assume complete responsibility. It will sign a Master Service Agreement that holds the party fully responsible for any mistakes, even if they are made by the other party. This party will also cover the legal fees for its Master Service Agreement partner. It also agrees not to sue its business associate.
The other factor is risk allocation. When businesses agree to a Memorandum of Understanding, the new agreement may have an impact on existing contracts. Insurance contracts are particularly important. A Master Service Agreement protects the parties by laying out the risks that each company assumes. It will also determine who will be in charge of each group throughout the project’s lifespan. Dispute resolution is easier with a Master Service Agreement. The parties are already familiar with the terms and can quickly determine who is at fault.
Advantages of a Master Service Agreement
The advantages of a master service agreement can be categorised under three main heads, which are mentioned hereunder.
A master service agreement covers the entire relationship
The Master Service Agreement governs the entire relationship between the service provider and the customer, including all contract-related issues. It is advantageous to have such an agreement in place before beginning a long-term relationship.
It provides a framework for negotiating agreements quickly. A Master Service Agreement still protects both parties because an agreement is in place. When a disagreement arises, the Master Service Agreement determines who is to blame. The two businesses are less likely to sue because checking the document is simple. This saves both time and money.
A master service agreement makes a good blueprint
The Master Service Agreement also has the benefit of being a good blueprint. It’s simple to duplicate a Master Service Agreement that a company likes. Each deal will be unique, but a good Master Service Agreement can serve as a model for future negotiations. The parties have more time to focus on more important aspects of the discussion, such as the project’s cost and timeline.
Where can Master Service Agreements be used
In both government and commercial work, these types of agreements are very common. They’re also frequently seen on the consumer side. Your telephone company’s master service agreement is an example of a master service agreement. You enter into a monthly service agreement with the company, and the company specifies the conditions for its maintenance tasks.
Difference between a contract, an agreement, and a Master Service Agreement
The terms ‘agreement’ and ‘contract’ are frequently interchanged, but they are not interchangeable. An agreement, according to Black’s Law Dictionary, is “a mutual understanding between parties about their relative rights and responsibilities” It also states that this is an agreement that creates legal obligations between parties. A Master Service Agreement is also defined as a legal document that brings together two signing parties’ separate but similar agreements.
It is not easy to come up with a rigid answer as to which agreement or contract will be the best fit for your company, but you should have in mind a few clauses to be added which are essential to your company. Agreements are also not considered as formal as contracts, and they aren’t as enforceable. Contracts, on the other side, are legally enforceable as well as binding, but they must adhere to certain standards. You can easily draw up an agreement, whereas contract negotiations can take months to complete.
Hence, a lot of companies prefer Master Service Agreements due to the very reason that the parties have the discretion to negotiate any terms and conditions that rise up in the future much faster per deal. A Master Service Agreement normally outlines the business relationship and its implications in simple terms and places more focus on aspects like product warranties, dispute resolution system, the liability of parties, payment terms, and intellectual property. It is also possible for several Master Service Agreements to include terms like geographic locations if the parties to the agreement are located in different states or countries.
Master Service Agreements are widely used in the fields of marketing, financing, or human resource, as one party gets the support that is open-ended to another. After a Master Service Agreement is in place and deals are negotiated or services are introduced, companies frequently write agreements such as a contract or a project schedule to define what the specific service area is according to the Master Service Agreement.
Drafting a Master Service Agreement
When a company decides to draft a master service agreement to meet the terms and conditions set out between the other party and itself, the following things must be kept in mind during the process of negotiation and drawing up the final draft of the agreement.
What all aspects should be covered in a Master Service Agreement
When drafting an MSA, it’s important to remember to include the following four items:
- Any and all responsible issues that either party may encounter.
- The work that both companies will do in collaboration.
- The responsibilities that the other firm is required to meet.
- The work that you must do as a company or organization.
Both parties will be able to honour their side of the master service agreement if the details are listed. Because the business world is full of potential problems, deciding on potential issues ahead of time is essential. A master service agreement could be derailed by something as simple as a third-party vendor going bankrupt. Such potential downsides must be anticipated by the two companies involved in the agreement. Some of those downsides or pitfalls that both companies might face are listed below:
- Delivery and installation: When a product ships, the master service agreement should specify who is responsible for the initial setup.
- Background checks: Any demands for prospective hires who would like to work on the project should be listed in the master service agreement.
- Expected costs: The parties should agree on the estimated cost of participating in the product’s development.
- Means of payment: One party should inform the other as to when it will pay, how often it will pay, and for how long a period of time the payments will continue.
- Insurance: All insurance coverage and expenses will be handled in accordance with the parties’ agreement. Any setback in the MSA, if they fail to fulfil the terms of insurance, will result in problems and potentially could also go to the point of litigation.
- Security: Both companies must agree on who will safeguard their project or product and who will pay for it.
- Escrow: The organisations will decide whether one of them will put money in a trust and, if so, under what conditions the other will be able to earn it.
- Project management: If neither side decides who is in charge, things could go wrong. Thus, it’s crucial to establish who’s in charge.
- Liabilities and tax responsibilities: In the event of an incident, the master service agreement must specify which company will bear the risk. Otherwise, they’ll face a dispute over who’s to blame. Once the taxes have been determined, the two companies must decide how they will split the tax expenses.
- Legal venue: Which court’s jurisdiction will cover the dispute resolution procedure, in case there is any disagreement between the parties.
- Clauses for termination of the agreement: Businesses break up on a regular basis. The master service agreement outlines how the parties should proceed in the event of corporate divorce.
Documents needed to register a Master Service Agreement
When a company is going forward to register a Master Service agreement at the office of the Registrar of companies or registering online, the hard or soft copy of the following documents in the respective processes should be kept handy:
- Government ID proof parties
- Incorporation certificate of the parties
- Address proof of the parties
- The financial statements of both the parties for the past year.
Common risks that come along with a Master Service Agreement
Even though a master service agreement plays a vital role in bringing down the legal issues during the negotiation process, it is needless to say that the nature of any agreement is that it will, at some point in time or the other, invite some common risk or disputes if the agreement is not properly drafted and is explicitly clear on all the terms. Such disputes might include:
- The parties tend to put the blame on each other for any injury or death caused to employees unless it is clearly mentioned in the agreement as to who will compensate for such losses.
- Unless clarified in the agreement, property disputes between parties can also arise.
- If the parties do not respond to requests for updates by another party in a timely manner, it leads to a communication failure.
- A dispute may also arise if the deadlines are not being met by any party.
- Another cause for dispute can arise due to the mode of payment that differs from the mode mentioned in the agreement. This is one of the most frequent causes of conflict.
- Performance or service issues also lead to serious conflicts between parties. If a product does not meet the standards and goals set out in the agreement by the parties, the parties accuse each other of causing flaws in the degraded product.
- If there are defects in a product, it causes a setback on the revenue generation and gives rise to disputes between parties.
- If there are unauthorised charges, it leads to suspicion by one party on the other.
What terms and conditions are usually included with a Master Service Agreement
A master service agreement should include all the aspects that have been mentioned above, those are the very terms of the agreement. In addition to that, it is important to ensure that the terms of the agreement are futuristic in nature with the view of the issues or conflicts that might arise between the parties. The functions and duties of both parties must be mentioned clearly in the agreement so as to avoid any future discrepancies.
Dispute resolution under a Master Service Agreement
While the vast majority of Master Service Agreement disputes are resolved before or shortly after the start of litigation, they are occasionally litigated to the end. This means that a large number of MSAs are being drafted ineffectively. Litigation is more than just a failure of the relationship; it is also a failure of the Master Service Agreements to adapt the relationship to changing circumstances or provide an effective procedure for resolving irreconcilable issues without judicial intervention.
Termination of a Master Service Agreement
The Master Service Agreement should specify a clear end date for the project, as well as for any ongoing obligations, such as warranties, which must be clearly defined. Early termination, on the other hand, is one of the most litigated situations when one of the parties has either failed to perform or has failed to make regular payments. It is not uncommon for the parties to end up in court as a result of their failure to act in accordance with the agreement’s early-stage conflict resolution terms. Unfortunately, many master service agreements are written in such a way that the only option is termination. This frequently results in a situation in which one party owes a large sum of money and the other is left with a partially completed project that is worthless in its current state. If significant funds have already been spent, the friction between the parties is amplified. All too often, at this point in the dispute, the animosity between the two parties prevents the project from being completed.
Sample of a Master Service Agreement
As mentioned earlier, master service agreements are advantageous due to the reason that they serve as a good template for drafting future agreements. Most of the clauses and terms and conditions covered under a master service agreement are almost similar, few clauses are changed or altered here and there for every new agreement, according to the requirements of every new agreement to be drafted between parties. Given below is a sample template of a master service agreement to give you a glance of what a Master Service Agreement looks like and what all is usually included within.
Master Service Agreement
This Master Service Agreement (hereinafter referred to as the “Agreement”), is made on the effective date [Date]
By and Between
The Company [Company Name], (hereinafter referred to as the “Company”), having its principal place of business at [Address of the company], and;
The Client [Client Name], (hereinafter referred to as the “Customer”), having its principal place of business at [Address of the client]
The Company and the Customer are collectively referred to as “Parties” and “Party” individually
WHEREAS, the Company is undergoing the business of [Business Description of the company]
AND WHEREAS, the Client wishes to avail the services from the Company
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein the Parties hereby agree as follows:
Terms and Conditions
The Company shall provide the necessary services [List of Services] to the Customer and shall perform them in a prompt manner to have the final product delivered.
For the performance of the services, the Customer shall pay the Company an amount of [Amount] after the services are rendered.
The project will start on the effective date [Date] and will continue for a period of [Number of years/months]. The Company agrees to complete or achieve the following milestones during the Agreement period:[Mention the milestones]
This Agreement shall be subjected to termination, once the services are rendered to the customer. It can be terminated anytime by any of the Parties in writing.
5. Representations and Warranty
The Company represents and warrants to enter into this Agreement and provide the services. The Company further agrees and represents that the services rendered are not owned by anyone else without the Company’s knowledge. If the Company does not have any authority, the Company shall have to repay the damages with respect to the project.
It is agreed upon by both the Parties that any materials and information provided to each other shall be strictly confidential. Both the Parties further agree that any business secrets or confidential information shall not be disclosed to any third parties without written consent.
The Customer agrees to indemnify the Company against any claim, damages, cost, loss, expense, or any kind of liability arising by the indemnities in connection with any claims, demands, arising out of this Agreement.
8. Limitation of Liability
Neither Party shall be liable to the other for indirect, special, or consequential damages arising out of this Agreement hereunder, including but not limited to loss of profits or equipment, or other costs.
In the event of any dispute arising in and out of this Agreement between the Parties, it shall be resolved by Arbitration. There shall be [Number of Arbitrators] Arbitrators which shall be appointed by [Party Name]. The venue of Arbitration shall be [Venue/Location of Arbitration] and the seat shall be [State]. The Arbitrators’ decision shall be final and will be binding on both the Parties.
- Notice: All the approvals notices required hereto by either of the Parties shall be deemed to be given and delivered by international courier or registered email respectively.
- Severability: In the event, any provision of this Agreement is deemed to be invalid or unenforceable, in whole or part, that part shall be severed from the remainder of this Agreement, and all other provisions shall remain in full force and effect as valid and enforceable.
- Governing Law: The Parties agree that this Agreement shall be governed by the laws of [the name of the State]. In the event the Parties do business in different states, this Agreement shall be governed by the laws of [the name of the State].
- Entire Agreement: The Parties acknowledge that this Agreement sets forth and represents the entire agreement between both the Parties. If the Parties are willing to change/add/modify any terms, they shall be in writing and signed by both Parties.
Acceptance and Signature
IN WITNESS THEREOF, the Parties agree to the terms and conditions set forth above as demonstrated by their signatures as follows:
Assign signer 1
Assign signer 1
Assign signer 1
Assign signer 2
Assign signer 2
Assign signer 2
Note- This sample is only for reference and understanding, parties can add additional clauses and conditions according to their respective needs and expectations from each other.
Using Master Service Agreements with clients
It is likely that you might face some resistance from your client when you’re presenting them with a master service agreement. It is possible that your client might be unfamiliar with the concept of a Master Service Agreement. Given below are some steps you can take to make the process seem easier to your client:
- Explain to your client that it is just like a contract. If they have concerns, explain to them that it protects both of you.
- Be clear as to what aspects are covered within the agreement, and demonstrate how it protects your client and yourself.
- Try to keep the agreement as short as possible. Clients are not willing to read long contracts and agreements and it is likely to scare them away. Using a master service agreement template will help you reduce the unnecessary words in your agreement.
- Send the agreement in a timely manner and before you start working on any service mentioned to avoid any legal action.
- Collect signatures and keep copies of the agreement securely.
Master service agreements are a game-changer in terms of legality for just about any continuing working relationship. They create a negotiating process template and point of reference that effectively removes the need to create a new service agreement for each action taken by the parties. MSAs function by establishing specific governing key terms and conditions while also allowing for additional changes and adjustments. MSAs enable each party involved to move quickly and respond to a changing business landscape by actively having to lay a basic legal framework for the future of a business relationship.
However, it is important to keep in mind that each and every requirement should be exhaustively covered in the agreement. If this is not done with caution, it results in conflict between parties and your master service agreement will end up creating more problems than it had sought out to resolve in the first place. Hence, make sure that the negotiation process is carried out effectively and demand by both the parties is taken into consideration, only then draw up the final draft of the master service agreement. If all the steps are taken appropriately by both parties to the agreement, a master service agreement can prove to be very useful in being both cost and time effective.
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