Learn the meaning of a Master Service Agreement, why businesses use it, and how they can leverage technology to get the most value out of it.
In business transactions, every step and turn requires precision and trust. Master Service Agreements (MSAs) have emerged as the cornerstone of business agreements between companies. These agreements are the backbone for countless corporate relationships, enabling a smoother, more efficient partnership.
An MSA, or Master Service Agreement, is a comprehensive contract between two parties that outlines the general terms and conditions governing their business relationship. It serves as a foundation for future transactions or agreements.
Its primary purpose is to speed up and simplify future agreements between parties. These terms cover payment schedules, confidentiality, delivery timelines, dispute resolution mechanisms, and more. By having these terms agreed upon at the beginning of a business relationship, the parties can focus on the specific details of each engagement, such as the scope of work and delivery timelines, such as in a separate statement of work (SOW).
At its core, an MSA is a contract that sets the general terms between parties for all transactions. By agreeing on these terms upfront, companies can avoid the redundancy of negotiating the same points for every project or service, focusing instead on the specific details pertinent to the task at hand.
Another critical aspect of MSAs is their role in risk management. By setting forth liabilities, indemnities, and warranties, MSAs provide a clear roadmap for handling potential issues, from service delivery delays to contract breaches. Of growing importance are clauses that address companies' intellectual property and confidential information. In an era where data is as precious as gold, having robust confidentiality clauses can be the difference between maintaining a competitive edge and losing it to competitors.
This preemptive approach to risk management is invaluable, offering businesses a safety net in an unpredictable market.
Well-crafted MSAs provide the ability to adapt business relationships to changing conditions. Quickly adjusting to new market conditions, regulatory changes, or technological advancements is crucial in a fast-paced business environment. MSAs often include provisions for amendments, ensuring that the agreement remains relevant and effective over time.
One of the most understated benefits of an MSA is its role in building and cementing trust between parties. By mutually agreeing to a set of terms that govern their relationship, companies demonstrate a commitment to fairness, transparency, and cooperation. This foundation of trust is essential for fostering successful, long-term partnerships.
An MSA typically contains multiple sections, each designed to address different aspects of the business relationship.
With these purposes established, here's a breakdown of the specific clauses you would expect to find in an MSA:
Defines the parties involved and the purpose of the MSA. Outlines the general scope of services or products to be provided.
Describes the specific services or products that will be provided under the agreement.
This clause describes the criteria for the quality of the work performed. The more thorough and precise this clause is, the less likely there will be a misunderstanding between the client and vendor about what constitutes acceptable quality.
Outlines how and when payments will be made. Includes invoice details, payment schedules, taxes and fees, and any interest on late payments.
Details how confidential information is handled and protected. It is also known as the non-disclosure clause. This section of an MSA protects intellectual property and other proprietary information from being disclosed. Specifies the ownership of intellectual property (IP) rights related to the services provided or products developed during the term.
Describes warranties provided by the service provider.
Outlines liability limitations and indemnification clauses, specifying the extent to which each party is responsible for damages or losses.
Specifies the process for resolving disputes between the parties, including mediation, arbitration, or litigation procedures. Identifies the governing law and jurisdiction for the agreement.
This clause requires both parties to comply with all relevant laws, regulations, and standards applicable to the services provided and business conduct.
Outlines the process for making amendments to the agreement. This ensures that any changes are mutually agreed upon and documented.
Specifies how notices under the agreement should be given, including the addresses to which notices should be sent and the acceptable delivery methods.
If the project causes the client or vendor to have a loss, the MSA’s indemnification clause outlines what compensation, if any, is owed.
Specify the duration of the agreement. Includes conditions under which either party can terminate the MSA.
Each MSA is unique and tailored to the specific relationship and needs of the parties involved. While the above clauses are commonly found in MSAs, additional sections might need to be included to address particular aspects of a business relationship.
A business should consider using a Master Service Agreement (MSA) when it anticipates engaging in multiple transactions or a long-term relationship with another party. Here are some common scenarios where an MSA is particularly beneficial:
If your business plans to engage in a long-term relationship with a vendor, client, or service provider, an MSA is ideal. It sets the foundation for a continuous partnership, making future transactions smoother.
An MSA can streamline this process if your business regularly conducts transactions with the same entity. Instead of negotiating the terms and conditions for each project or order, an MSA allows you to negotiate them once and apply them to all future transactions.
For businesses providing complex services that require detailed explanations of service scopes, deliverables, timelines, and quality standards, an MSA can provide a clear, comprehensive framework that governs all these aspects.
In situations with significant risks associated with the services or goods being exchanged, an MSA can help clearly outline risk allocation, liability, indemnification, and insurance requirements.
An MSA can protect your rights if your business involves sharing or creating intellectual property. It can define who owns what IP, how it can be used, and how it is protected.
For high-value contracts or where substantial amounts of money are at stake, an MSA helps in setting clear terms regarding payment, billing cycles, late payment penalties, and other financial arrangements.
Businesses in heavily regulated industries (like healthcare, finance, or telecommunications) may use MSAs to ensure that all transactions comply with industry-specific regulations and legal requirements.
When confidentiality is a priority and sensitive information is exchanged, an MSA can include non-disclosure agreements to protect both parties.
Often, when a company enters into an MSA, the agreement is often accompanied by one or multiple SOWs. The MSA and SOW work in tandem to create a comprehensive contractual agreement. The MSA is the blueprint for your business relationship with a service provider. It establishes the overarching legal terms that govern all your interactions under the agreement. Typical terms may include payment terms, provisions for liability, indemnification, and dispute resolution. While the SOW dives deep into the specifics of each individual project undertaken within the scope of the MSA. It acts like a roadmap for each project, ensuring clarity and alignment between you and the service provider.
Here are some ways MSAs and SOWs work together:
An MSA eliminates the need to renegotiate standard legal terms for every project. You can simply reference the MSA in each SOW. The flexibility provided by the MSA enables businesses to quickly adapt to new projects, saving time and reducing administrative overhead.
SOWs provide project-specific details, preventing misunderstandings and ensuring everyone is on the same page. Each SOW then operates under the same general terms set by the MSA, providing clarity and reducing the risk of misunderstandings. This consistency helps companies maintain a stable and predictable working relationship.
New SOWs can be easily added under the umbrella of the existing MSA as new project needs arise. This scalability supports business growth and the ability to handle increasing project volumes efficiently.
Having a central MSA simplifies contract management for ongoing service relationships. With the MSA addressing the general terms, creating an SOW becomes a more streamlined process. Businesses can focus on defining the specific details of a new project, leading to faster contract creation and approval times. This efficiency is particularly valuable in fast-paced industries where speed is crucial.
In short, MSAs and SOWs are powerful tools when used together. The MSA provides the legal framework for the overall relationship, while SOWs ensure clear communication and expectations for each specific project. This approach promotes a smooth and efficient working relationship with your service providers.
You may also like: Adapting the RICE Framework of prioritization to manage contracts.
Commercial examples of Master Service Agreements (MSAs) can be found in various industries where long-term relationships and multiple projects or services are common. Here are a few examples:
An MSA outlines the terms for all future software development projects, including maintenance, support, and development of new applications. Subsequently, each specific project is defined in a separate Statement of Work (SOW).
The MSA specifies the terms for creating and executing advertising campaigns, including pricing, intellectual property rights, and performance metrics. Each campaign is governed by a separate SOW.
An MSA establishes the terms for consulting services related to business strategy, process improvement, and training programs. Individual consulting engagements are detailed in separate SOWs.
The MSA outlines the terms for the supply of raw materials or components over a specified period. It includes pricing, delivery schedules, and quality standards.
The MSA covers the provision of telecommunication services such as internet, phone, and data services across multiple locations. The MSA sets the pricing, service levels, and support terms.
An MSA details the terms under which the subcontractor will provide various services such as plumbing, electrical work, and carpentry for multiple projects over several years.
The MSA covers the provision and maintenance of medical equipment, including terms for training, repairs, and equipment upgrades. Each piece of equipment or service request is detailed in individual orders or SOWs.
An MSA details the terms for providing IT infrastructure, software, and support services to the bank. Each specific service or project is outlined in separate SOWs.
These examples demonstrate how ubiquitous MSAs are used to streamline business relationships across different sectors, providing a consistent framework for future work while allowing flexibility for specific projects or services.
Too often, contracts are edited on local machines and then emailed back to counterparties. Because MSAs can run hundreds of pages long, inconsistent language can be especially difficult to track for proper risk management.
A common challenge is the difficulty in tracking revisions: amendments and updates are common in the lifecycle of an MSA. Manually tracking these changes, ensuring all parties have the latest version, and maintaining an accurate history of amendments can be cumbersome and error-prone without a CLM tool. Moreover, contract managers may spend hours, or even days, poring over lengthy, complex documents to surface critical dates, deliverables, costs, and other crucial contract data. Thirdly, the contract approval process presents yet another hurdle in managing MSAs manually: routing agreements through email chains, chasing signatures, and managing approvals can be a bureaucratic maze, slowing down your business and causing unnecessary delays.
Without a centralized platform, manual MSA management lacks the real-time collaboration features found in digital tools, making it difficult for stakeholders to contribute and review changes simultaneously. It isn't easy to gain a holistic view of all MSAs and their statuses without a centralized, digital system. This lack of visibility can impede a business’ strategic decision-making and risk management efforts. Finally, collaborating on contracts with stakeholders over traditional email-based methods leaves businesses vulnerable to loss of crucial details, important deadlines, and even security breaches.
Fortunately, there is a better way. Businesses are increasingly adopting a contract lifecycle management (CLM) platform to help them manage contracts.
Imagine waving goodbye to missed deliverables, unclear terms, and the endless email chains of managing MSAs. A contract lifecycle management platform is a business’ secret weapon, transforming those clunky agreements into strategic assets that generate value. A platform like Icertis Contract Intelligence acts as a central hub, storing all your MSAs securely and in one place. No more digging through emails or worrying about outdated versions. Need a specific clause? Search it up in seconds!
With Icertis Contract Intelligence, approval workflows become a breeze, with electronic signatures speeding up the process and ensuring everyone's on the same page. Automated reminders keep your MSAs compliant, highlighting upcoming renewals or potential risks. Post-signature, the platform helps businesses gain valuable insights into their contracts, helping to negotiate better terms and optimize business relationships.
Mphasis, a large IT solutions provider, struggled with managing over 7,000 legacy contracts, including MSAs, NDAs and SOWs manually. By implementing the Icertis Contract Intelligence Platform, they digitized their contract workflow and achieved a 35% reduction in contract turnaround time. This contract lifecycle automation eliminated roadblocks and sped up revenue collection. Mphasis is looking to further leverage the platform with AI and integrate it with their CRM for deeper customer insights.
“ICI has been crucial in providing insights into our contract workflows and has created tremendous measurable efficiency. The legal operations team used to rely on manual processes; now, we’re able to review, negotiate and approve contracts more quickly, and get to revenue faster.”
- Eric Winston, General Counsel and Chief Ethics and Compliance Officer, Mphasis
Looking for a contract management platform that does all the above and more? Today, more than a third of the Fortune 100 trust the Icertis Contract Intelligence platform to transform the contract lifecycle management at their organizations. From automated contract analysis to risk assessment, Icertis uses AI to empower you to extract valuable insights from your contracts, reduce risks, and ensure compliance.
Start your journey to better contract outcomes with Icertis Contract Intelligence and Copilots. Request a demo today to learn more.