We continue our series on drafting advice diving into the considerations and best practices for Master Service Agreements (MSAs).
Before we dive into the details it’s important to understand the purpose of an MSA. An MSA is a contractual agreement made between two or more parties where both parties agree to certain terms and conditions which govern future transactions. It is also an anchor document that will allow for the creation of a set of following documents to better understand the work that needs to be performed.
What should a Master Service Agreement include?
As a governing document, the MSA should provide guide subsequent documents such as a Statement of Work or SOW. To be an effective MSA, the following language should be included.
1. Scope of work: allows both parties to understand what type of work is expected to be performed.
2. Price and Payment terms: this provision allows both parties to come to an agreement on price, method of payment, and payment schedule.
3. Change orders: a description of the procedure any party must follow for making any changes to the agreement. Typically, changes are made as written adjustments for any additional work or if the timeline and schedule change and affect the delivery of the product or service.
4. Dispute Resolution: describes how the parties will conduct themselves if a problem arises during the engagement. This is important to help either party mitigate litigation costs and to come to terms with how they will both solve disputes during the length of the contractual relationship. One manner to resolve disputes is by appointing a mediator, an independent person, who helps the parties come to a resolution. Another manner is through arbitration, which is a cheaper alternative to going to court, and where both parties argue before an arbitrator who will make a decision similar in manner to a judge.
5. Termination: a clause agreed to by both parties that detail the manner of how one party will inform the other party of their wish to end the contractual relationship. This is important because no party wants to pay damages for breaking a contract. There are two popular termination types: termination for convenience and termination for cause. Termination for convenience is when a party looking to leave the relationship goes with no specific cause for leaving the agreement. Termination for cause can occur when one party does not perform the obligations or duties agreed to in the contract.
6. Term: defines the length of time (time frame) of the contract. This clause typically includes renewal conditions and procedures.
7. Legal Venue/Venue of Law: defines the location of arbitration or court jurisdiction in case disputes cannot be resolved independently between the involved parties
8. Representations and Warranties: the facts as they are being presented in a contract. Representations are the facts that caused one party to want to enter into a contract. A simple way to describe this is the features of a product. You like and need them so they helped persuade a purchase. A warranty moves the facts to the future. For example, a warranty for the product you purchased states it is guaranteed to include all the features that drove you to purchase the product and that they will work as described. If not, the warranty will cover the cost of a replacement. The warranty obligates the seller to comply with the representation in the purchase agreement.
9. Indemnification Provisions: otherwise known as hold harmless provision, relieves one party from being held liable for damages. This allows one party (seller) to protect the other party (buyer) from lawsuits filed by third parties. Indemnification provisions are important because they lay out what actions under a contract will be relieved of liability.