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Accept Cookies Manage Preferences Announcing the Formation of SpotDraft’s Advisory Board Find out more Contracts 101A master service agreement or MSA is the heart of a business relationship. This guide outlines the purpose of MSAs and includes a checklist and a free template.
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Starting and maintaining long-term business relationships is a complex endeavor, thanks to the ever-evolving nature of business environments and legal landscapes. There’s always a potential for misaligned expectations, unforeseen circumstances, contract renegotiations, and even disputes.
This is why organizations need a robust framework that protects their interests and accommodates changing circumstances across long-term engagements. A Master Service Agreement (MSA) serves this specific purpose, allowing business partners to streamline future negotiations, reduce repetitive legal reviews, and ensure smoother operations across the board.
In this guide, we'll explore the fundamentals of MSAs, including a checklist for a robust MSA and a free Master Service Agreement (MSA) template you can utilize for your organization's unique needs.
A Master Service Agreement (MSA) is a contract that sets the foundation for a business relationship between two or more parties. It acts as a blueprint outlining the general terms and conditions that govern all current and future transactions or projects.
Think of it as a rulebook that establishes the playing field for collaboration. It typically covers aspects like limitation of liability, conditions for termination, payment terms, and more.
MSAs are particularly useful in situations where parties anticipate a long-term or ongoing service relationship. They function as a framework for all business transactions between the parties, empowering them to execute new contracts easily and without too much back-and-forth communication.
This contract type is popular among sectors providing open-ended services, including technology, manufacturing, government, and more.
While MSA and SLA (Service Level Agreement) are contractual agreements used in service-based industries, they have some key differences in purpose and scope.
Imagine a company outsources its IT support to a managed service provider. The MSA would establish the overarching terms of the relationship, including:
Meanwhile, the SLA would drill down into specific performance expectations, such as:
“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
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.
From a legal stance, an MSA helps parties identify 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.
Meanwhile, from a practical viewpoint, an MSA is highly beneficial to parties for long-term business engagements. MSA finalizes general terms and conditions governing the business relationship of the parties, eliminating the need to re-draft and re-negotiate every time a new project is launched. This way, parties can save time, improve efficiency, and cut down operating costs.
“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’.”
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.
The use case for MSAs is almost the same in terms of clauses, no matter which function or industry it is being utilized for. However, 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 individual and company data.
As already established, the specific content and level of detail in an 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.
A detailed description of the services to be provided, including any deliverables, timelines, and performance standards. This ensures clarity and avoids disputes over what was promised.
A clear outline of the pricing structure, invoicing process, payment schedule, and any late payment penalties. This protects both parties financially and sets expectations for cash flow.
Defines the duration of the agreement, conditions for termination (with or without cause), and the process for ending the relationship. This provides an exit strategy if things don't work out.
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.”
Protects sensitive business information shared between the parties, including customer data, trade secrets, and financial information. This safeguards valuable assets and fosters trust.
Clarifies which party owns any intellectual property created during the course of the agreement, such as software, designs, or inventions. This prevents disputes and ensures fair use of intellectual property.
Assurances made by each party regarding their ability to perform their obligations under the agreement, such as having the necessary licenses or qualifications. This provides a basis for recourse if either party misrepresents their capabilities.
Outlines each party's responsibility for defending and indemnifying the other against third-party claims arising from their performance under the agreement. This allocates risk and protects against unexpected liabilities.
Caps the amount of damages a party can be held liable for in case of a breach of the agreement. This manages risk exposure and prevents catastrophic financial losses.
Specifies the procedures for resolving disagreements, such as mediation or arbitration. This provides a mechanism for resolving conflicts without resorting to costly litigation.
Also read: Finding Common Ground: How to Resolve Contract Disputes
Excuses performance obligations in the event of unforeseen circumstances beyond the parties' control, such as natural disasters or pandemics. This provides flexibility and protects against unfair penalties in exceptional situations.
Also Read: 6 Essential Types of Contract Clauses You Need to Know
A Master Service Agreement (MSA) acts as an overarching agreement that establishes the general terms and conditions for future transactions between parties. Under this umbrella, various types of contracts can be executed to address the specifics of each individual project or transaction.
Some common examples include:
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?
This defines the level of service expected from a service provider, including metrics like uptime, response time, and issue resolution. It ensures that contracting parties establish clear expectations regarding service quality.
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.
This document is used to modify the scope of work or other terms of a project, ensuring that both parties agree to any changes and their associated costs or timelines.
This document authorizes a specific purchase of goods or services under the terms of the MSA. It typically includes details like quantity, price, delivery date, and payment terms.
If the MSA involves the use of intellectual property, a separate license agreement may be executed to grant specific rights to use the intellectual property under the terms of the MSA.
This type of agreement outlines the terms for engaging professional services, such as consulting or training. It references the MSA for the general terms and conditions.
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.
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.
The manual route to generating and managing MSAs is simple, though often inefficient.
While this process works perfectly fine during the initial stages of a company, it can soon become overwhelming as the business scales and legal bandwidth is stretched thin. Here are some things to watch out for that may signify a need to update your MSA creation workflow:
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.
Without a proper system in place, it is difficult to identify who made what changes, when, and where.
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.
If the organization uses CRM and other tools, it will find it difficult to integrate the signed MSA with the platform.
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
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:
“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
Here's how automating master service agreements can prove advantageous:
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.
Utilizing a digital platform to manage the document lifecycle promises that all stakeholders are on the same page, thereby helping overcome bottlenecks and execute approvals instantly. Moreover, a contract management system can help automate the approvals process by auto-assigning review requests based on set parameters.
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.”
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.
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.
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.
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.
