What is a Master Service Agreement?
A master service agreement (MSA) is a contractual agreement between two or more parties. This contract is generally used to govern any future agreements or future transactions which is quite convenient and useful in allowing parties to make changes to any future agreements or transactions in a quick manner. Consequently, most businesses use an MSA to make the negotiations simpler and the contract process faster.
What is in an MSA?
When parties negotiate the terms of an MSA, there is a general focus on:
- Outlining the responsibilities of each party;
- Identifying the parties’ goals together; and
- The obligations of each party to the MSA
However, an MSA may include terms such as:
- Payment terms
- Product warranties
- Intellectual property ownership
- Dispute resolution
As such, the service agreement may also cover other items such as corporate social responsibility, business ethics, network or facility access or any other term critical for all future agreements.
Advantages of an MSA
An MSA has many advantages, but they generally:
- Save parties time and is a more cost efficient way of resolving disputes.
- Reduces time spent on drafting and negotiating a contract and speeds up the negotiation process.
- Avoid litigation and negotiating the dispute by deciding who is at fault.
- Provide a blueprint for future negotiations for other projects or services.
Why should your company have an MSA?
An MSA allows businesses to avoid a poorly constructed contract, and offers an effective way in avoiding unnecessary litigation and contractual disputes. As such, an MSA allows your business to implement risk allocation strategy and avoid indeminifcation.
Parties signing to an MSA can avoid the need to negotiate and engage in dispute resolution through the use of risk allocation. The terms of an MSA can help your business engage a comprehensive risk allocation strategy that takes potential issues into consideration.
Some of these terms covering potential risk may include:
- Project management
- Expected charges
- Term of payments
- Third party coverage
- Termination clauses
Within this agreement, the terms can set out the risk and responsibilities of both parties included in the agreement of a particular project for a certain time period. Before signing an MSA, it is important that you understand how the agreement will interact with other contracts such as insurance contracts.
Another key advantage of an MSA offers is that it can be cost-efficient in preventing legal disputes through indemnification clauses. Indemnification is a method which protects a party from being held liable for existing or future losses. In an MSA, the indemnifying party agrees to pay for damages it has caused or may cause in the future, regardless of which party is at fault.
Commonly indemnified actions include:
- Personal injury to other party’s employees
- Property damage to the other party’s property
Having an indemnification term in an MSA will guarantee that your company will not have to suffer the financial losses caused by the mistake of another party.
An MSA is not a basic contract and should be reviewed prior to signing. You should look out for the following before you sign the agreement. To be safe, it is generally a good idea to receive legal advice and have a solicitor to review the agreement on your behalf.
Before signing an MSA you should ensure that there are:
- Terms describing the scope of work that is to be performed.
- Indemnification clauses to protect your company should any injury or accidents occur during the work being delivered.
- Clauses that cover the risk of injury or accident with the right amount of liability insurance. It is important that you provide a certificate of insurance for this.
- Restrictions of the MSA do not prevent you from working in a certain way or making a profit during a project.
- Termination clauses of the agreement which provides expectations for all parties.
If you need any legal advice on a Master Service Agreement, contact OpenLegal on 1300 337 997 if you would like to discuss your business needs.