It's likely that you've heard of a service agreement—maybe you've even used one already in your business. But what is a master service agreement, and do you need one?
A master service agreement (MSA) is a contract that lays out a framework of general terms and conditions between two parties in an ongoing, working relationship. If you're planning to have a company or person perform multiple related tasks or projects for you over time, an MSA can save you time while making expectations clear for both sides.
The biggest advantage of an MSA is that the parties only need to negotiate the terms once, at the beginning of the business relationship.
While the MSA takes care of all the general terms and conditions that remain consistent throughout the working relationship, you'll need a statement of work (SOW), sometimes referred to as a "work order " or "work authorization," to define the individual scope of work and specifics for each project or action. Think of the MSA as the master key that can open any door in a hotel and the SOW as a key to an individual hotel room.
The SOW will define the current project and include specifications like pricing, deadlines, and expected output. If there's an MSA, the SOW will be short—often one page—making it much easier for the parties to agree upon.
A common situation where two parties would use both an MSA and an SOW is for software development—for instance, the creation of a mobile application. It's common for software development to take months or even years and to involve multiple project stages or milestones. The MSA can provide general requirements for the years-long endeavor, while an SOW can apply to a particular stage of development such as design, development, or user testing.
The SOW will include details for a particular project that are specific to that project. These are terms that wouldn't be practical to apply to the contract as a whole.
At this point, you're probably wondering what terms and conditions are appropriate to include in your MSA. To get you started on your own template, here's a checklist of the provisions that should be in every standard MSA:
This section should define the length of the contract, clearly establish the roles of each party, and provide a general description of the services to be provided. In this section, you should also include the circumstances that allow either party to request changes to the agreement and indicate how the other party can accept them. (If you decide to make a change, you have various ways to amend your agreement.) You should also spell out which agreement controls—the MSA or SOW—if there's any inconsistency between them.
If you plan to use SOWs (or work authorizations or work orders) throughout the contract term, it's helpful to include a paragraph on what information the SOWs should include. For example, your MSA might state that SOWs need to specify due dates, prices, how and how often one side gets paid, and who has the authority to agree to an SOW. Your MSA should also describe the circumstances that allow each party to make and accept changes to SOWs.
A service legal agreement (SLA) defines the level of service expected. The SLA can be included as its own section, an attachment or exhibit to the MSA, or both. It should set a baseline for the quality of services that is acceptable to both sides. It should also outline each party's responsibilities and expectations in the inspection of the services and in correcting any errors or shortcomings in the delivery of the services.
For instance, your SLA might say that it's entirely up to you, as the buyer, to determine whether each batch of the seller's product is acceptable. It might also say that if you reject any products from the seller, the seller has five business days to provide acceptable replacements.
This section lays out intellectual property rights like copyrights, trademarks, patents, and trade secrets throughout the business relationship. It should say who owns these rights, or if both sides have an interest in them, what those interests are. For example, an MSA between a roller coaster manufacturer and a theme park might specify that the manufacturer owns the coaster design while the park owns the ride name associated with that specific coaster.
This section should also predetermine the rights in any work produced and any data output associated with the services being performed. It should do the same for any documents, data, or materials that existed before the parties signed the MSA. If you're a software provider, you might want to include a separate section laying out how the user is allowed to use your software based on the type of license you grant them.
Each party should confirm their ability and suitability to enter into the contract in a section on general representations and warranties. For instance, you may say that your company was legally formed and is allowed to do business, and that you personally can sign for your company.
The parties should also use this section to promise that they will fulfill their responsibilities under the contract in a professional manner. Both parties should also guarantee ("warrant") that they will behave responsibly throughout the term of the contract and handle any information or materials with care.
Much in the way that one part of your MSA outlines SOWs, another part should define what's supposed to be in each invoice. More specifically, this section should cover when a party should deliver invoices, when the other side should pay them, how pricing disputes should be handled, and which party is responsible for expenses and taxes.
Information that at least one side considers confidential is bound to be shared during the relationship. Your MSA should have a section that defines what information falls into the "confidential" category, how the parties should handle this confidential information throughout the term of the MSA and after the contract is over, and what steps the sides should take if one party leaks or compromises any confidential information. For example, an MSA might classify a service provider's customer list or advertising strategies as confidential.
The parties should agree on when and why they can terminate the contract, whether for a specific set of reasons or no reason at all, and how and when the terminating party should provide notice of their intention to end the agreement.
Every agreement—not just MSAs—will end with a list of "miscellaneous provisions" or "boilerplate clauses." These provisions usually include:
If you can think of any other issues that are important to you, you might want to include them as well in your MSA. For example, if you're a software developer, you may want to include a section on data security or cybersecurity insurance.
Many of the provisions outlined above can also be found in a standard service agreement (a standalone agreement to provide services that doesn't act as an umbrella agreement for multiple projects). For more guidance on writing one up, read our article on drafting a service agreement.
Before adding these parts to your MSA, make sure you:
A section defining various terms will be particularly helpful for software MSAs because this technology-focused field often uses words that are specific to the industry.
And don't forget to leave room at the end of the agreement for each party's signature. Below the signatures, you'll want to note who is signing the MSA—their name and position with their company—and the date.
MSAs are complicated and often require a lot of back and forth between the parties before they reach a final agreement. But once agreed upon, the MSA serves as a strong foundation to any business relationship. Putting in the work on your MSA now can help you enjoy a smooth working relationship in the future.
You'll want to make sure your MSA covers you for any tricky situations that might come up. You can always consult a business attorney to make sure you're completely protected and to help iron out any details between you and the other side.