The Key Sections of an Effective Master Services Agreement

In our previous discussion, we looked at the major benefits of master services agreements (MSAs), particularly how they can streamline future business opportunities for your organization. As a quick review: A MSA serves as a general blueprint for how mutual business interests will be addressed and conducted on one project or on multiple or ensuing contracts.

Although a MSA can be a less formal contractual approach for project work, its development still requires careful thought and attention to detail in crafting an effective document. The initial step begins with the scope of work — a statement explaining what the parties are seeking in the agreement and a description of the services to be performed. The scope spells out the “bigger picture” of the business relationship, noting that future scopes of work will be issued pursuant to the master agreement.

A key element of a MSA is the provision for timely payment of services, with a 30-day time frame considered the general standard for most industries. Payment should also be conditional upon approval of the work performed satisfactorily. However, be cautious. Prevent line-item invoicing disputes from placing your entire payment at risk, or at the very least, from delaying payment beyond 30 days. I always include language noting that if any part of the invoice is disputed, the undisputed costs shall still be paid according to the agreement terms as a show of good faith among the parties in resolving their dispute.

A termination clause is another necessary provision of a MSA. I generally advise setting contract terms for specific time frames, say for one year, which automatically renew unless officially terminated. As accepted practice, either party should be able to terminate with reasonable notice at any time. Although such notice usually depends on the nature of the business itself, 60 days is considered preferable, especially if you have numerous subcontractors involved with a project. However, some organizations do lean toward shorter notification periods.

Confidentiality is an important part of any contractual relationship or when following a termination, unexpected or planned. A provision regarding confidentiality and nondisclosure of proprietary information should always be standard. The language should be explicit — and mutual, not unilateral confidentiality — whenever possible. It is preferable that both parties, not one, should agree not to disclose any valued information to third parties.

If the creation of intellectual property is part of the MSA scope of work, the rights to that creation must be defined among the parties. In Washington, the inventor of any property as a service provider automatically retains all intellectual property rights, if not stated otherwise in the agreement. However, most contracting parties prefer the insertion of a “work-for-hire” provision in the MSA, which states that any inventions, patents, copyrights, or trademarks created during the course of the contract are considered intellectual property, whose rights will be retained by the contracting party, not the service provider.

Indemnification provisions are another standard feature of MSAs. The indemnification process basically means that one party will step in and defend the other if a mistake, error or omission occurs. Like confidentiality agreements, indemnification provisions can be mutual or unilateral, although usually they are unilateral because one party — often the contracting party — will have greater bargaining power to position unilateral indemnification in its favor. Regardless, should you find yourself in the situation where contractually you have a unilateral indemnification provision that’s not in your favor, make sure that you have proper liability and risk insurance as a safeguard.

It is also typical for a MSA to have a non-assignment provision, meaning that the scope of work contractually tendered cannot be assigned to someone else without the approval of the other party. Obviously, you don’t want to enter into an agreement only to find that your contractual interest is later assigned to another party with whom you’ve not encountered or dealt with before.

Other sections common to MSAs include no waiver, notification, entire agreement, and severability provisions. A no-waiver clause basically points out that just because one or more aspects of the contract have been ignored, intentionally or otherwise, the entire agreement cannot be invalidated. A notification provision simply identifies the communication format for notifying contractual parties.

An entire agreement provision, also known as an “integration clause,” prevents later oral contradictions from either party to the basic terms of the entire contract, usually aimed at altering or adding language that was not in the original MSA. Severability, which is similar to the no-waiver clause, states that if any provision is found to be contrary to law or unenforceable, it doesn’t invalidate the entire contract.

Finally, I’m an advocate for spirit of cooperation provisions. Although a contract is a formal agreement, it shouldn’t be viewed as adversarial or negative in a litigious sense. It should relate how the parties are going to move forward in a partnering effort to develop a positive business relationship. To that end, I always build in mediation and arbitration clauses as vehicles for negotiating resolutions in good faith when problems arise.

Master Services Agreements Can Help Cultivate Long-Term Business Interests

If your organization is seeking to expand business opportunities and foster long-term relationships, one of the most beneficial tools to use is a master services agreement (MSA). This document not only serves as a blueprint for how mutual business interests or projects between two parties are to be addressed and conducted, but it also helps organize business relationships in a contractual but not burdensome manner, making it a very user friendly tool.

MSAs are popular for establishing relationships among a wide array of businesses, including information technology, communications, and life sciences. Traditionally, they have been used frequently for union negotiations, government contracts, and supply chains aimed at long-term relationships.

One of the primary benefits of crafting a MSA at the beginning of any business relationship is for expediting future opportunities. There is a true advantage to this approach, especially if the signing parties to the agreement are working together on more than one project at a time or plan to engage in multiple projects in the future. In many instances, the original MSA requires little or no revision of its basic contract provisions — saving time and overhead dollars. Subsequent agreements generally only call for a new scope of work, perhaps a revised purchase order, or some other change order that complements the original MSA.   

This happened to be the recent case with one of my life sciences clients, a Clinical Research Organization providing support for drug trial testing for the Food and Drug Administration. My client was hired to monitor the drug administering protocol and patient results for one particular drug at various health clinics. The MSA spelled out the business relationship for that particular project. When another drug is to be tested through clinical trials — next week, next month, or next year — a new scope of work will be issued for this second project, which will just basically outline what the new drug is and its planned use or purpose. However, the terms of the original MSA will still apply to this new project.

I’ve also observed long-term applications of MSAs in installation contracting: cell phone towers, cable systems, and communications infrastructure. Some of these agreements have been in effect for more than 10 years, and the process is simple. The parent company just forwards a revised purchase order or directive to the contracting interest, stating, “Pursuant to our master services agreement, please install . . . .” Revisions to the location, cost, and completion time are specified on the MSA as usual, but the minor terms of the contract remain intact from earlier versions.

As you can see, building a foundation for business longevity is a key benefit of MSAs. If you let your client know going forward that you can add to the MSA by tacking on an addendum or a scope of work change order, then you won’t have to negotiate the basic terms all over again.

In our next discussion, I’ll address some of the key sections of a MSA and where to begin in developing a document that has flexibility for long-term use.