Master Service Agreements (MSAs): Key Legal Considerations for Businesses

As a business owner, you will likely enter into a contract called a Master Service Agreement (MSA) to outline the terms and conditions that govern the relationship between you and another party. MSAs, unlike standalone service agreements that typically apply to one-off transactions between parties, are intended to govern an ongoing relationship. For most businesses, this is a common form of contract, as often there are long-term relationships between most service providers and their customers. This article explores the significance of Master Service Agreements (MSAs) for businesses, outlining crucial components and key legal considerations.

Key Features and Advantages

An MSA can streamline the negotiation process by setting out a clear structure for future transactions and contracts. When there is an MSA in place, the terms of the MSA act as a base and govern the ongoing relationship between the parties. This saves the time-consuming process of renegotiating terms each time the parties wish to work together.

The parties can agree to a ‘Statement of Work’ or an ‘Order’ that sets out the commercial terms of each project, such as the price. However, the legal terms that were agreed in the MSA will continue to apply. A well-drafted MSA will account for various factors, including what is expected of each party, the limits of each party’s liability and how potential issues will be resolved. 

Key Legal Considerations

Service Scope and Exclusions

A well-written MSA should clearly spell out the specific services the service provider will provide, as well as any services that are excluded or limited. Ambiguity in this area can lead to misunderstandings, disputes, and unexpected costs down the line. As a business owner, you want to ensure the scope aligns with your actual needs and that any required customisations or add-ons are properly accounted for.

Service Standards and Performance Measurement

The MSA should establish measurable service standards and performance metrics that the vendor must meet. This includes: 

• specifying key performance indicators;
• service level agreements; and 
• any related penalties or incentives. 

Intellectual Property Rights

For many businesses, intellectual property (IP) like inventions, creative works, or branding is a highly valuable asset. The MSA must explicitly address who owns the rights to any IP created or used during the working relationship. If you do not address crucial clauses such as IP, the position at law will apply. For example, where IP provisions are not addressed in the MSA, IP typically vests in the party that creates it under the default position at law.

Clear metrics hold the service provider accountable where you are the customer, allowing you to set out criteria to evaluate their performance and address any shortcomings.

Data Privacy and Security

In today’s world, protecting sensitive information like customer data, proprietary info, and trade secrets is paramount. The MSA should include robust terms outlining:

• data handling obligations;
• required security measures;
• breach notification protocols; and 
• an obligation to comply with relevant data privacy laws and regulations. 

Pricing and Payment

Provisions around price reviews and calculations in an MSA are critically important to get right. MSAs should include provisions allowing fee increases or adjustments, given the ongoing nature of the arrangements under this type of agreement. This can also mean that the price is agreed on a per-order basis, to allow both parties flexibility as and when projects arise.

Spell out invoicing procedures, late payment penalties, and a fair process for resolving billing disputes. A particular area of focus should be late payments, and what happens in the event the paying party does not pay on time. You will save time and money by avoiding costly disputes later on down the line, with explicit, unambiguous provisions in the MSA that address late payment consequences in a clear manner. 

Liability and Indemnification

You want the MSA to limit your business’s exposure to liability as much as possible. It should clearly define each party’s liabilities, any caps on damages, indemnification requirements, and insurance obligations. Pay close attention to terms covering third-party claims, IP infringement, data breaches, and indemnities that cover the other side’s indirect losses.

You should ensure that you are not providing overly broad indemnities that expose you to significant liability. Remember, indemnities are essentially a promise to compensate a party for any losses incurred when a specified event occurs. Providing open-ended indemnities in an MSA without limitations on your liability means the other contracting party could claim an amount far greater than the value of the services when things go wrong.

Contract Duration and Termination

Consider the length of the contract term, as well as the conditions for renewal or early termination. As a business owner, you want flexibility to end the relationship if needed while accounting for impacts on ongoing operations. Review termination notice periods, obligations regarding data/materials after termination, and any transition assistance requirements.

Governing Laws and Dispute Resolution

If a dispute arises, the MSA’s terms on governing laws and resolution methods will come into play. Consider which country’s laws will apply and whether you prefer litigation, arbitration, or mediation for settling disagreements. These provisions significantly affect costs and timelines for resolving conflicts, particularly where the services are being provided by a party outside of the United Kingdom.

Non-Solicitation and Non-Compete Terms

Depending on the services, the MSA may restrict one party from soliciting the other’s employees or competing after the contract ends. Review these carefully – you want to protect your legitimate business interests without overly limiting your future options for staffing or operations.

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Key Takeaways

A well-drafted Master Service Agreement (MSA) is essential for clarifying expectations, responsibilities, and processes in ongoing relationships, such as with IT service providers. It should include key elements like:

• service scope;
• standards;
• intellectual property rights;
• data privacy;
• pricing;
• liability;
• contract duration; 
• governing laws; and 
• provisions for uncontrollable circumstances. 

Businesses must carefully review and negotiate MSAs to protect their interests, limit liabilities, and ensure alignment with their needs. Additionally, an MSA streamlines future transactions by setting a clear structure. Moreover, it should include provisions for modification or termination to allow flexibility in adapting to changing circumstances.

If you need help drafting or reviewing MSAs, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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