Small Business

What Is Master Service Agreement and Why Do You Need One?

One of the most typical types of contractual agreements used in open-ended relationships or situations where one company has to work on project or projects with another company is the Master Service Agreement. This comes as a no surprise, due to their sheer practicality over the more traditional project-specific contract. In fact, Master Service Agreements are designed to be incorporated into project-specific contracts which are addendums or statements of work to the agreement itself and as such, allow to be executed simultaneously with or after the MSA.

MSA or Master Service Agreement is a contract made between two or more parties in which they both agree to most of the terms used to govern any future agreements or future transactions. This kind of an agreement has proven itself rather useful, as it allows parties to negotiate any future agreements and transactions rather quickly. You can think of Master Service Agreements as foundations for any business conducted in the future. What makes it so appealing is that repeated negotiation doesn’t have to involve all of the terms, but only those related to the deal at hand.

What is the common terminology found in an MSA?

As is the case with most contractual agreements, Master Service Agreement is designed to specify generic terms, such as:

  • Business ethics

  • Corporate social responsibility

  • Dispute resolution

  • Geographic location

  • Intellectual property ownership

  • Family access

  • Network access

  • Product warranties

  • Payment terms

  • Venue of law

MSAs are often used in open-ended fields as a support for the functional areas of an organization, such as finance, marketing, and human resources. For example, the gas and oil industry regularly uses them to set specific contractual terms between the companies working with drilling, exploration, production and service.

Why should you use a Master Service Agreement?

The main two reasons companies use MSAs is because they provide indemnification and allocates risk. Indemnification is a term that describes a method in which one company, or a party, safeguards the other party against some of the existing or any future losses. The party that agrees to reimburse any damages it or any other party has caused or may end up causing at some point in the future is called the indemnifying party. They provide the lawyers and take care of legal fees associated with the act of litigation.

The terms that are most often used in the process of indemnification are defend, release and, of course, indemnify. Defending describes a situation where one party pays for the lawyers in order to defend the side at fault, releasing means that a party will not get sued for damages and indemnity refers to paying for damages to the third party. The best course of action is to hire a lawyer and use a master service agreement template in order to avoid making any mistakes or simply signing a bad contract.

Risk allocation refers to the practice of implementing comprehensive strategies in order to allocate risk. Before signing the MSA, all parties should have a clear understanding regarding the MSAs interaction with other types of contracts, and particularly the insurance contracts. Additionally, they should understand exactly how the law can impact specific MSA provisions, including those outlining the responsibility and risk contractors could experience in their workplace during their contract.

Avoid the mistake of viewing a Master Service Agreement in the same way as you would a work order. Unlike MSAs, work orders are used to address specific jobs and projects and specify the work hours and payment amount. However, most of those terms come in a specific work order which can nullify the word order if it conflicts with any of the terms specified in the Master Service Agreement. It’s recommended that you have a lawyer present, especially if it’s your first time negotiating an agreement.