How do you manage a long-term business relationship? Do you draft and negotiate a fresh contract for every new product or service requirement? Or do you control all the variables with a Master Service Agreement (MSA)?
If the first option was your answer, you're not only wasting time and resources but also exposing your organization to avoidable risks!
A Master Service Agreement creates a framework for every transaction that occurs throughout your long-term partnerships. That way, you won't need to create new agreements or start a fresh contract negotiation process whenever there's a new requirement.
But what should you include in your Master Service Agreement to ensure it serves its purpose? Let's explore the details below.
What is a Master Service Agreement (MSA)?
An MSA is essentially a blueprint that controls every business relationship between your company and its long-term partners. It contains the agreed terms, conditions, and responsibilities of each party for current and future activities.
Since your MSA controls every project that occurs during the span of your business relationships, it reduces excessive back-and-forth communications, helping you execute new contracts with the same client seamlessly.
What is the difference between MSA and SLA?
Source: Manik Luthra via LinkedIn
Service Level Agreements (SLAs) are closely connected to Master Service Agreements. But you cannot use them interchangeably, thanks to their varying purpose and scope.
Purpose
You primarily use an MSA to establish the legal framework and overarching guidelines for long-term business engagements between your company and its partners.
The MSA outlines the general terms and conditions for all your transactions with the counterparty, from payment terms and intellectual property rights to dispute resolution and termination procedures.
An SLA serves a different purpose. You use it to define the kind of services the contract covers and outline specific expectations regarding areas like uptime, response time, and error rates.
You also define associated penalties and escalation protocols for service-related issues within your SLA.
Scope
A Master Service Agreement (MSA) covers the entire business relationship. This means you can find an SLA within an MSA.
On the other hand, an SLA is more granular, focusing on the quality of the service to be rendered.
Let's say your IT support company is in talks with a client that needs ongoing support for their IT infrastructure. An MSA will cover payment terms, termination conditions, confidentiality, and more.
On the other hand, the SLA will cover response time, acceptable error rates, reporting requirements, and other service-related variables.
What does a Master Service Agreement (MSA) mean in business, legal, and sales?
“An MSA basically functions to create a good business relationship between the two parties, covering not only liabilities and risks but also obligations, rights, and responsibilities.”
~Supin Prem, Sr. Manager, Legal Tech, SpotDraft
Source: Karen Suber via LinkedIn
MSAs play a crucial role in streamlining long-term collaborations between organizations. This empowers professionals in legal, business, and sales departments to work collaboratively, reduce contractual friction, and foster a more productive working environment.
Let’s briefly discuss how the MSA benefits members of business, legal, and sales teams.
Importance of MSA in legal function
From a legal stance, an MSA helps parties identify potential risks and establish liability and indemnification obligations. This way, it becomes easy to address risks associated with projects and determine the extent of liability in the event of non-performance of obligations.
Importance of MSA in overall business
From a practical viewpoint, an MSA is highly beneficial to parties for long-term business engagements. It eliminates the need to re-draft and re-negotiate every time a new project is launched. By doing so, business teams can save time, minimize operating costs, and improve overall productivity.
“It sucks to be a cost center. Because cost centers are places the business looks to cut when times get tough, or the numbers need ‘improving’.”
~Sterling Miller, CEO and Senior Counsel for Hilgers Graben PLLC
Ten Things: Asking For More Legal Department Resources (How And When To Go Big)
Importance of MSA in sales and procurement
Having an MSA helps free up the time your salespeople (or, on the other side of the deal, those involved in the procurement of products and services) spend on going back and forth between the other party and your own legal team. Once a well-negotiated MSA is in place that clearly defines the terms of your business relationship, closing future contracts specific to individual projects becomes much quicker.
How does the use of MSAs differ across industries?
The use case for MSAs is almost the same in terms of clauses, no matter which function or industry it is being utilized for. Regardless, specific language, exceptions, and industry-standard terms would differ depending on the service and type of business relationship.
For example, the amount of damages covered in an agreement for finance services would likely be significantly higher than that in an agreement for HR services, while the latter might be more concerned with defining and protecting sensitive information.
MSA Checklist: What does an MSA typically include?
As already established, the specific content and level of detail in a Master Service Agreement (MSA) may vary depending on the nature of the services, the industry, and the specific needs of the contracting parties.
However, a robust MSA typically contains a group of provisions critical to mitigating risk and establishing the boundaries of long-term business relationships.
#1 Scope of work
A detailed description of the services to be provided, including any deliverables, timelines, and performance standards.
#2 Payment terms
Covers everything regarding payment for services provided, from pricing structure and invoicing process to payment schedule and late payment penalties.
#3 Term and termination clauses
Talk about how long the contract should last, the conditions for termination, and how either party can end the relationship.
Also read: Managing Contract Terminations: The Ultimate Guide
“A question to ask yourself when negotiating a contract is whether you can terminate one part of the contract (e.g., a Statement of Work), and keep the main contract in place (a Master Services Agreement)? Like the start date of the contract, being crystal clear on when the contract ends can save you a lot of heartaches. Spend the necessary amount of time thinking about all of the reasons you’d want to the agreement to terminate and make sure those are included.”
~Sterling Miller, CEO & Senior Counsel, Hilgers Graben PLLC
Ten Things: I Know It’s a Boilerplate
#4 Confidentiality clauses
Highlight the various elements that are considered confidential with respect to the contract. Typically, you'd mention sensitive business information like customer data, trade secrets, and financial information in this section.
#5 Intellectual property ownership
If the contract involves software development, structural designs, or any unique inventions, the IP section clarifies who owns what rights in regard to these creations.
#6 Warranties and representations
If there are assurances made regarding either party's ability to perform their obligations, all the details are covered here. This is also where you'll find information about any licenses or qualifications that make either party qualified to deliver on their obligation.
#7 Indemnification
This section is where you cover each party's responsibility for defending and indemnifying the other against third-party claims arising from their performance under the agreement.
#8 Limitation of liability clause
Caps the amount of damages a party can be held liable for in case of a breach of the agreement.
Also read: Limitation of Liability Clause: Everything you need to Know
#9 Dispute resolution
The dispute resolution section discusses how two parties can establish common ground if they have disagreements about anything related to the business. Common dispute resolution mechanisms you might find here are mediation, arbitration, litigation, and renegotiation.
Also read: Finding Common Ground: How to Resolve Contract Disputes
#10 Force majeure
The force majeure section outlines various uncontrollable events capable of impacting the delivery of obligations or the quality of performances. Examples include natural disasters, wars, death, etc. If any of these situations occur, the impacted party will not be penalized for failing to deliver on the agreed obligations.
Also Read: 6 Essential Types of Contract Clauses You Need to Know
What kind of contracts can you execute under an MSA?
An MSA is essentially a "parent contract," meaning that it covers the broader terms and conditions of a long-term business agreement. Under this umbrella, you can execute "child contracts" for specific business transactions that occur during the span of the contractual engagement.
Common examples of these child contracts include:
#1 Service Level Agreement (SLA)
As already discussed, the SLA is where you expand on service quality requirements, covering areas like accuracy, response rates, penalties, and escalation procedures.
#2 Statement of Work (SOW)
This document outlines the specific tasks, deliverables, timelines, and performance standards for a particular project. It references the MSA for the general terms and conditions.
Also read: Master Services Agreement vs. Statement of Work Contract: What’s the Difference?
#3 Non-Disclosure Agreement (NDA)
While confidentiality is often covered in the MSA, a separate NDA may be executed to address specific confidential information that arises during a particular project.
#4 Change order
Modifications are commonplace in long-term contracts, but you can't make any changes to the content of your MSA without the consent of your business partner. A change order is how you request or authorize modifications to your existing contract.
#5 Purchase Order (PO)
This document authorizes the purchase of specific services or goods under the terms of the MSA. It typically includes details like quantity, price, delivery date, and payment terms.
#6 License agreement
Sometimes your MSA might involve the use of intellectual property. In this case, you might execute a license agreement separately to grant specific rights to parties using the intellectual property under the terms of the MSA.
#7 Professional Services Agreement (PSA)
If you're an engineer, legal professional, or consultant, your long-term contracts will likely be centered around professional services. As a service provider, the PSA allows you to lay out all the conditions regarding the delivery of your services to your clients. It covers fees, duration, intellectual property rights, and much more. PSAs are often accompanied by SOWs, SLAs, and change orders.
These are only a few examples of contracts that can be executed under an MSA. The specific types of contracts used will depend on the nature of the services being provided and the specific needs of the parties involved.
Two ways to draft MSA
Like any other contract, there are two ways to create a master service agreement — manually or through systems that automate the process. We will go through both of these methods below so your team can find the one that works best for you.
Drafting MSAs: the manual way
The manual route to generating and managing MSAs is simple, though often inefficient.
Traditionally, the process begins with term sheets that outline the key terms and conditions of a prospective business agreement.
Next, based on the term sheet, the in-house legal team drafts an MSA template and shares it with the concerned departments, usually by email.
Now, the internal stakeholders review and make changes to the contract before finalizing it. Note that this step often expands into a full-blown waltz between the two, involving several negotiations and document versions.
After all is said and done, it's time to collect signatures and capture important details to complete the approval cycle. As you can already imagine, this is backbreaking work, especially when it comes to coordinating with several stakeholders and tracking the status of the document.
Yes, for a small or early-stage company, this process is manageable. But it can quickly become overwhelming the moment your company begins to scale, and your legal bandwidth starts to feel the stretch.
Here are some things to watch out for that may signify a need to update your MSA creation workflow:
#1 Mixing versions
MSAs go through multiple cycles of negotiations and are updated periodically during this process. However, some departments might refer to older versions of the document, doubling the work for the legal team.
#2 Non-existent audit trail
Without a proper system in place, it is difficult to identify who made what changes, when, and where.
#3 Noise
With multiple participants and business units providing inputs during the drafting process, it is difficult to keep pace with the numerous email threads and changes in the draft.
#4 Not interoperable
If the organization uses CRM and other tools, it will find it difficult to integrate the signed MSA with the platform.
#5 Storage and tracking
Related documents, such as SOWs, amendments, extension or termination letters, etc., are not stored and managed together. Critical information is lost and unavailable when required.
Also read: Creating an MSA Playbook: Step-by-Step Guide
Automating your MSA
Given that an MSA can make or break business relationships, this contract should be handled with care and caution. By automating the document lifecycle process, it is possible to guarantee quality control and reduce delays, helping the organization save time, effort, and resources.
For example, with SpotDraft’s contract management system, the process usually looks like this:
- Create a compliant master service agreement that suits the needs of your business.
- The MSA is templatized for you on SpotDraft.
- When you need to draft an MSA, you can simply use this template and fill in some key details in the variable fields, such as the name of the parties, duration of the contract, governing law, etc.
- Get the required approvals from your team on the platform itself. Since the template is pre-approved, this shouldn’t take long.
- Send it across to the other party. They may edit or accept the terms directly on the CLM platform. All edits can be tracked and reviewed.
- For contracts that aren’t executed, automatic follow-up emails will be sent.
“Earlier, the purchasing department used to stand outside mine or the CEO's office to get purchase orders approved. This has been completely streamlined with SpotDraft, as they can now generate POs and automatically request approvals from key individuals in the hospital based on the nature of the request. For example, orders over a specific value are sent to the CEO as well as the MD for approval.
SpotDraft has also helped us eliminate misplacement of POs, so we don’t have to spend time hunting them down later. We are also getting our HR documents (agreements with consultants, nurses, other staff) on SpotDraft so that we have one source of truth for everything.”
~Dr. Anjana Sudheesan, Deputy Medical Superintendent, Apollo Adlux
Benefits of automating the MSA drafting process
Here's how automating master service agreements can prove advantageous:
#1 Quality control without compromising flexibility
By using a unified platform to manage the process, the legal team can ensure that the other departments can only access the latest versions of the document and that only pre-approved, compliant contracts are created.
This still allows for flexibility in the terms of the agreement, enabling users or business units to provide inputs in the select sections of the document through a questionnaire.
#2 Faster approvals
If you use a digital platform to manage your contract lifecycle, you'll easily get stakeholders on the same page. This is how you overcome bottlenecks and accelerate approvals. Moreover, a contract management system can help automate the approvals process by auto-assigning review requests based on set parameters.
#3 Easier collaboration
MSAs, like other legal documents, are subject to several rounds of revisions. A contract automation platform allows teams to collaborate on the same document version both internally and externally, thus eliminating the risk of missing inputs and referring to incorrect versions.
“Leveraging a CLM has been key because it has reduced a lot of friction from handoffs between legal and business. Rather than going back and forth over email, Slack, Word, Zoom, DocuSign, and a whole tech stack, the CLM acts as a single source of truth.”
~Jonathan Franz, Head of Legal, Crunchbase
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#4 Audit trails
The contract management platform will also help pinpoint which user made what change in which part of the document, and when. This helps to bring more accountability and transparency into the contracting process.
#5 Tracking child contracts
There are a number of contracts that may be executed by giving reference to an MSA, which makes it difficult to keep track of all of them inside email threads. A CLM software like SpotDraft allows you to create a centralized repository for all these contracts and link related documents together.
Download a free master service agreement template
Since you’ve made it this far, we have something for you. SpotDraft’s legal team put together a free master service agreement template that you can download and quickly put to use for your contracts.
How to use this MSA draft
- Download the MSA template.
- Fill in relevant fields and adjust the necessary details according to your industry and proposed terms.
- Send it across to stakeholders and let the negotiations begin!
And if you’d like to make contracts much easier for your business, reach out to us for a free demo to see how SpotDraft can help you streamline your end-to-end CLM processes.
