As a business owner, you may have come across the term ‘Master Service Agreement’ but may be unsure of what the term means, why such contracts are used and how they can be an important tool in the growth and prosperity of your business.
In this article, we’ll be exploring them in more detail so that you’ll have a better understanding of the role and importance of these contracts.
What is a Master Service Agreement?
When two businesses contract with each other on a longer-term basis across a variety of projects or services, it can prove inefficient and cumbersome to set up a separate contract for each distinct project or service.
In these circumstances, a type of contract called a Master Service Agreement (sometimes called a ‘Framework Agreement’) can prove a very useful tool. An MSA creates an overarching agreement between two businesses, establishing the core legal terms and conditions agreed between them. These terms and conditions will likely cover key areas such as the parties’ contractual rights and responsibilities, warranties, indemnities and limitations of liability, etc.
What is a Statement of Work?
Under the overarching Master Service Agreement, each distinct project or service delivered has its own ‘Statement of Work’ (sometimes called a ‘Call-off Contract’). The SOW is legally binding and will set out the details and terms applicable to that particular project or service, with the core terms and conditions remaining as per the governing MSA. This removes the need to negotiate a new contract for each piece of work.
The SOW is likely to be two or three pages in length and will go into such project-level specifics as project length, details of services to be provided, personnel, project milestones and deadlines, price and payment timescales, etc. From time to time, the Statement of Work may detail variations to the Master Service Agreement on a project-specific level. Where this is the case, this doesn’t change the overall MSA at the framework level.
What’re the main benefits of using a Master Service Agreement?
The main benefits of two businesses using a Master Service Agreement are as follows:
- Certainty - the MSA establishes a comprehensive set of agreed terms and conditions between the parties, which creates certainty.
- Enforceability - the parties have the benefit of a legally binding contract.
- Efficiency – the combination of the MSA and the SOWs creates an incredibly efficient and nimble contractual structure between the parties; project-level specifics can be documented quickly so that projects aren’t delayed, whilst the parties retain a comprehensive overarching contract dealing with everything else.
- Cost Savings – removes the need for each project contract to be individually negotiated at length across all its terms. This can significantly reduce management time, expense and legal costs over the full period of the contractual relationship.
- Ease of Reference – over the course of the Master Service Agreement, naturally, the parties will become increasingly familiar with the precise terms of the contract. Therefore, this creates an ease of reference in dealing with any issues. This can lead to fewer disputes and any disputes being resolved more efficiently where they do arise.
If you need advice regarding a Master Service Agreement or Statement of Work, whether drafting or reviewing a new document, analysing your rights and obligations under an existing one, or require some general legal advice in this area, LawBite is here to help.
Appointing an expert lawyer to assist you gives you the peace of mind that your documents will be professionally drafted and suited for your business needs. LawBite experts can advise on the detailed wording of the clauses to ensure they protect you and your business.
About the author
Ashley Gurr is one of the many expert contract lawyers at LawBite. Ashley has over 15 years of experience in private practice, helping SMEs and in-house for an international consultancy group advising on commercial agreements and a multi-national utility giant in a contract strategy role.