What is a master service agreement?
A master service agreement (MSA) is a contract that defines the terms and conditions that will regulate current and future transactions between a service provider and its client.
Business transactions can be time-consuming, and many organizations spend considerable amounts of worker hours negotiating, drafting, and revising contracts. Often, when two or more parties are involved in a long-term or ongoing business arrangement involving multiple transactions, they use a master service agreement (MSA). This is especially helpful in the early stages of the business relationship, when parties need to define the basic terms that will govern the arrangement.
MSAs fast-track subsequent transactions between parties by eliminating the need to negotiate from scratch. Parties involved in ongoing service delivery or long-term associations use an MSA to set the legal framework that will guide the relationship until both parties are ready for new terms.
The purpose behind master service agreements.
Parties to a transaction for the provision of services can use an MSA to tackle common issues that may arise in the partnership. MSAs eliminate the need for repetitive negotiations regarding subsequent contracts in an ongoing business relationship.
By laying out the terms and conditions that will govern future agreements, parties save time and money because they can negotiate future contracts faster. In subsequent transactions, parties can focus their attention on discussing the specific details of the transaction, such as price and delivery date.
An MSA also helps parties refine and modify the terms of their engagement with ease when the need arises. This is important, as the parties may need to address emerging points of conflict along the way while keeping pace with a continuously evolving business landscape. Because an MSA is not tied to a specific transaction, parties can make adjustments without the pressure of a deadline.
MSAs are commonly used in the IT industry, but businesses of all sizes in varying industries use them when there is ongoing service delivery.
When should you use master service agreements?
An MSA is appropriate whenever there is a continued or open-ended delivery of products and services from one party to another. MSAs are popular in industries such as IT, marketing, and human resources, in which business models frequently revolve around the provision of ongoing services.
You should use an MSA if you want to reduce the time you spend on negotiation. Without an MSA, you will repeatedly negotiate similar terms in different transactions. This not only slows down the contracting process but also wastes time and resources.
An MSA also helps you to get the work started faster by allowing you and the other party to focus initially on the basic terms that will govern your relationship. Instead of negotiating the same terms multiple times, you can easily incorporate those terms into subsequent transactions. You can then focus on negotiating project-specific terms when the need arises.
With an MSA, other departments within your organization can engage the provider with minimal to no input from your legal department. This process enables you to contract faster, which is vital in today’s fast-paced business landscape.
What should you include in a master service agreement?
An MSA can be as wide in scope and as detailed as you want it to be. Keep in mind, however, that there are terms every MSA should have. Here are a few of the most common:
Limitations on liability.
A party’s action in a transaction can make it liable to the other party for several reasons. For example, a party may become liable for breach of contract, negligence, misrepresentation, or infringement of intellectual property (IP) rights.
Limitation of liability helps parties mitigate risk by capping the amount of compensation one party can recover from the other when filing a lawsuit under the contract.
Contact person.
A contact person is the representative of an organization who has the authority to act for the business regarding a transaction. This person will usually supply and receive information on behalf of the organization. A contact person in an MSA may have the authority to receive deliverables and notices and confirm whether a project is approved.
Intellectual property rights.
In a service transaction, parties need to address intellectual property (IP) concerns in three ways. First, both parties must determine how they plan to use IP rights in existing materials. When they come to an agreement, the party that owns the IP needs to grant the other license to use that IP to complete the project. For instance, parties may agree that the service provider will use proprietary computer software, methodology, algorithms, designs, products, tools, materials, or other IP owned by the service provider or the client.
The MSA should also clarify who owns any IP created in the project. The client will generally want to ensure it owns the IP rights in the project. However, if the service provider will own the IP, the client must obtain a license to use it. If your organization contracts a freelance writer to write articles for your company’s blog, for example, your MSA may stipulate that you own the IP within the articles. However, your MSA could instead state that the freelance writer keeps the IP but gives your company license to use those articles.
You can also include an indemnification clause to protect parties against infringement of third-party IP. Using the above scenario as an example, you’d probably want to include a provision stating that the freelance writer would hold your business harmless for any liability if their article infringed on another person’s IP.
Confidentiality.
Parties in a service transaction will often become privy to sensitive information about each other in the course of their business relationship. Some of the information you supply may include company secrets that are cardinal to your organization’s business operations and might be your competitive advantage.
Addressing confidentiality obligations in an MSA helps to protect you from unauthorized disclosure of information about your organization that the other party learns while working with you.
Common disputes that arise under master service agreements.
MSAs can present several challenges, including miscommunication, missed deadlines, conflicting service level agreements, and unfulfilled obligations, to name a few. Common disputes that may arise under an MSA include:
Communication errors.
Misalignment in an MSA may stem from a breakdown in the communication process. It can happen, for example, when one party requests an update on a project and the other party does not respond in a timely manner. Each party can help to avoid this by designating a contact person to take charge of communication.
Product defects.
Most MSAs regulate service delivery. Product defects can render the product unsuitable for the needs of the client. In some cases, they can even lead to loss of revenue or other damages. For example, if you contract a website design agency to build a website, you will expect that the new site can handle a certain level of traffic. If the website is unable to handle the typical volume your business attracts to the site, you will not be satisfied.
Inability to meet deadlines.
A single project may entail multiple deadlines depending upon its nature. Parties may wish to break down a large project into specific milestones and set individual deadlines for each. There are also generally separate deadlines for project completion, product supply, and payment.
If the client misses a payment deadline, the service provider may refuse to provide further services in the transaction. A missed deadline for project delivery, meanwhile, may adversely impact the client's business, and it may refuse to pay in full or even pay at all.
Sometimes parties miss deadlines because they are juggling multiple transactions and lose track of the key timelines in each transaction. You can ensure you don’t miss deadlines due to human error by using contract management solutions to automatically track and get reminders on deadlines.
Service-level agreements.
Parties to an MSA use a service-level agreement (SLA), also called a statement of work (SOW), to agree on the specific terms of individual projects, including prices, quality, and deadlines. A single MSA can have several SLAs under it. Usually, SLAs regulate project-specific aspects of the contract that the MSA doesn’t cover.
Sometimes the terms in the MSA may conflict with the terms in the SLA. When this happens, the terms of the MSA will generally take precedence, but this is not universally guaranteed. As a result, a conflict between an MSA and an SLA can lead to disagreement between the parties. For instance, if the MSA provides arbitration as the dispute resolution method and the SLA provides for mediation, there might be confusion and disagreement on how to resolve disputes when they arise.
Obligations.
An MSA is supposed to lay out the parties’ respective obligations. Sometimes, however, some responsibilities are not spelled out clearly. Parties may fail to fulfill their obligations under a contract because of vague or ambiguous terms, which in turn can lead to MSA disputes.
For instance, parties need to agree on who will provide the tools and equipment necessary to perform the service, who will be responsible for paying taxes, and whether the service provider will provide support after project delivery. If something happens that the parties did not foresee and therefore did not address in the contract, there might be a dispute as to who will take on the responsibility.
Payment terms.
Within an MSA, payment terms clarify how parties will make payment and when payment becomes due. They also delineate any approval that a project must get before the service provider can demand payment.
A client failing to make prompt payment in compliance with the agreed payment terms is one of the easiest ways to create a dispute between the parties to an MSA. Nobody likes any delay in receiving money for the product or service they’ve delivered.
How Workday contract management solutions can help with master service agreements.
MSAs are foundational documents that build the framework for a business relationship. A single MSA can govern multiple SLAs, which means any error in the MSA may affect multiple transactions.
Workday Contract Lifecycle Management, powered by Evisort AI, helps you build efficient workflows for drafting and negotiating MSAs. You can reduce the time you spend reviewing and creating MSAs while ensuring that your agreements contain all of the terms that matter most to your business.
Using a cloud-based solution that streamlines contracting processes is vital to support the level of attention to detail and corroboration that an MSA requires. Workday Contract Lifecycle Management gives you a central platform for negotiating MSAs. With Workday Contract Lifecycle Management, you can view every edit, comment, and redline in an MSA in real time. Role-based access also helps you ensure that only the right people are able to see and make edits to the agreement.
If it’s not easy to pull information from a contract, parties may fail to track—and meet—their contractual obligations. With the searchable contract repository in Workday, however, your contractual rights and obligations are always visible thanks to intuitive dashboards and automated reports. Workday makes it easy to search all of your contracts for key terms and dates. It is simply a matter of a few clicks to locate and report on any necessary MSA data on demand.
Your organization may have several MSAs you need to manage and track simultaneously across several departments. Using spreadsheets to track your MSAs is inefficient, and human error is inevitable.
Workday contract analytics helps you to track your obligations under all your MSAs automatically and send customizable reminders to ensure that you will never miss a deadline.
Explore how Workday Contract Lifecycle Management can help you seamlessly create and manage master service agreements.