Master Services Agreements (MSAs): What are they, and does my service or consulting business need one?
What is a Master Services Agreement?
A Master Services Agreement (“MSA”) is a client contract between a service or consulting business and that business’s client or customer (referred to as “parties” in the agreement). The MSA should set out the terms of the work to be performed and the relationship between the parties. An MSA can also be referred to as a Master Consulting Agreement, Consulting Agreement, Client Contract, or Service Agreement.
Why is it important?
The goal of an MSA is to clearly outline the terms of the relationship between the parties. A well-drafted MSA helps avoid future disputes between the parties by making expectations clear. For example, the MSA will specify when and how payment is due. Since this is written and agreed to before any work begins, both parties know in advance how and when to make and receive payment.
Do I have to negotiate an MSA for every project with a client?
No. The “master” in Master Services Agreement means that the MSA should be an overall document governing all projects you enter into with a particular client. The goal is to use an MSA as an agile document allowing you to amend and expand the scope of your projects with each client. The specifics of each project are agreed to in “Statements of Work” (also called “Scopes of Work or “Work Orders”). You can agree to and add SOWs as attachments to the larger MSA without having to re-sign the entire agreement again. We’ll describe SOWs in detail below.
What does an MSA include?
MSAs vary depending on the services being provided. In general, a thorough MSA spells out:
- Payment terms: This is one of the most important parts of an MSA. When our clients first come to us, they often tell us that getting paid and getting paid on time is one of their biggest pain points. Payment collection is one of the most common business disputes.
The payment provisions in an MSA should describe in detail how payment will be made (Does the business send an invoice? If so, how often?) and a timeline for payment (Once the client receives the invoice, when do they have to pay it? Immediately? Net 30? Net 60?). This section should also cover address what happens if the client does not pay on time.
Advance payment is the holy grail of payment terms for service or consulting businesses. If you don’t think your client will accept such an arrangement, a good way to avoid getting deep underwater – or worse, a lawsuit – is to require installment payments over the course of the project. This creates an opportunity to self-cure for non-payment by stopping work on the project.
- Confidentiality: This section specifies what is considered “Confidential Information” and what the parties must do to protect it. This is a broad definition, and usually includes trade secrets, client and employee lists, marketing strategies, and other general business information. There are often questions about whether documents and information should automatically be considered confidential or whether they must be specifically designated as confidential, either verbally or in writing. Pay attention to how long you must keep information confidential.
- Intellectual property rights: The IP section is crucial. If drafted incorrectly, it can have costly and damaging consequences. The intellectual property provision describes both parties’ ownership rights of the work product.
Sometimes the business retains ownership of all work product, simply granting their client a license to use it. In other cases, the client receives full ownership of the work product, this is sometimes referred to as a “work for hire” arrangement. Often there is a mix of ownership rights.
As a business owner, it’s very important to analyze what work you’ll need to use in the future and what work you can give to your clients with no strings attached. For example, software developers should think about whether they repeatedly use certain segments of code. If so, they need to keep a death grip on this IP! Photographers should consider whether they want to use images on their websites and for marketing. If so, they cannot give full rights of the images to their clients.
- Dispute resolution: The parties can agree on how to resolve disputes, should any arise. Dispute resolution might include mediation, arbitration, or litigation (going to court).
- Termination of contract: The MSA should clearly spell out how either party can terminate the contract. This might be as cut-and-dry as “either party may terminate the contract at any time, with or without notice, with or without cause.” You could include more detailed notice provisions or other terms to make it harder for a party to get out of the agreement.
- Services provided: Of course, the MSA should describe what services will be provided and by whom. Statements of Work (described below) contain specifics about the services, but it’s still wise to include an overview of the type of work to be done in the master document.
Who needs an MSA?
Almost all service-oriented or consulting businesses can benefit from having an MSA template to use with their clients. They’re useful (and often necessary) for many kinds of businesses, including IT and software companies, technology companies, logistics businesses, business consultants, freelance writers, marketing companies, website developers, production companies, freelance writers, software developers, graphic designers, photographers, design companies, and interior designers.
What are “Statements of Work”?
Statements of Work (SOWs) are addendum (addition) to an MSA that specifically outline the scope of each project to be performed for the client. It’s extremely important to define, as specifically as possible, the scope of the project in your SOWs. They should make clear the end product that will be delivered, the specific people who will work on the project (if there are multiple employees involved), anything that’s needed from the client, the cost, and timeline. If it’s not yet possible to make these items clear, the SOW should explain when and how the parties will make them clear in the future. Where an MSA governs the overall relationship, SOWs describe each individual job or project. One MSA can govern multiple SOWs. This is helpful for businesses because each time there is a new project, the parties only execute a short SOW instead of an entirely new contract.
We have extensive experience drafting, reviewing, and negotiating Master Services Agreements for a wide variety of businesses. We would love to sit down with you and discuss how you could benefit from a strong MSA. Contact us today!