Table of Contents+
A contract may cover a one-time activity between parties, but what happens when the relationship or conditions are ongoing? This problem can be solved by the master service agreement which simplifies the future agreements and speeds up the negotiation process when the signing parties know they will continue to work together in the future. In a master service agreement, the additional contracts are not required to be negotiated because the fundamentals of the initial agreement can be included in all the future contracts.
These agreements are not only used in the tech industries, but are also suitable for any long-term, continuous commercial engagements, such as client/vendor contracts, government contracts, and union discussions. In this blog, you will understand the meaning, purpose, and advantages of a master service agreement.
A Master Service Agreement (“MSA”) is a contract between two parties with an ongoing project or commercial connection that provides a flexible mechanism for finishing a project over time while making decisions. The objective of the Master Service Agreement is to define the contractual relationship’s boundaries, develop a mechanism for completing the work that needs to be done, and provide an effective way to keep the project on track and address any disputes that may emerge during the project’s course.
The contract negotiation process is simplified and streamlined with a master service agreement. By outlining the deal’s terms at the outset, Both parties establish a business association while still refining their rights, obligations, and expectations. Companies can transfer their focus from the basics and unimportant matters to the specifics of their contract without jeopardizing the foundational agreement by establishing the framework of their business association with a master service agreement.
This agreement allows the parties to plan for the future and respond to changes in the business landscape, along with flagging possible areas of dispute or concern. MSAs also remove the pressure of a deadline by allowing time for parties to respond and change.
Finally, a master service agreement is ideal for long-term business collaborations that require room and security to develop and expand. Its flexibility can avoid conflicts by allowing both the parties to preserve their core relationship when the circumstances evolve and also save their time and money. If the events of property damage, missed deadlines, product defects, failure to pay, unauthorized charges, miscommunication, employee injury, or unsatisfactory performance occurs, then the master service agreement delineates the responsibility between the parties.
When a company needs to move quickly from one contract to the next, they usually use the cut-and-paste provisions or contractual templates. This is not required when you have a master service agreement because of the following advantages it encompasses:
Since the project managers rely on the master service agreement to provide clear guidance about how the work should be performed, therefore, it is important to draft it carefully and include the following elements:
It helps to determine what type of work is expected to be performed by the parties.
This clause of a master service agreement allows both parties to settle on a concrete price, mode of payment, and payment schedule.
There should be a provision in which the parties are allowed to make changes to the agreement when there is any adjustment for additional work or schedule changes.
This clause enlists the party who will be responsible for the delivery and installation of a product or service and spells out who will take the charge when anything goes wrong.
In this, the parties agree on how they will handle the insurance acquisition and what consequences will be imposed if the person in charge fails to obtain and maintain the agreed-upon insurance coverage?
This provision in a master service agreement will help to determine who will fund the project and provide backup funding for the protection of the project or product.
If an issue emerges during the engagement, this clause specifies how the parties will handle it. This helps in reducing litigation expenses and determining how to resolve problems during the contractual relationship. For example, appointing a mediator, an independent individual who fosters a resolution between the parties or parties can also choose to settle their disagreements through arbitration, which is a less expensive option than going to court.
A master service agreement should specify a clear end date for the project, as well as any ongoing duties, such as warranties. Early termination is one of the most disputed scenarios in which one of the parties has either failed to perform or has failed to make regular payments. Hence, it is common for the parties to end up in litigation as a result of their failure to act under the agreement’s early-stage conflict resolution requirements.
Many master service agreements are written in such a way that the only option left with the party is the termination of the agreement when the other party does not perform its duties and in this situation, one party owes a large sum of money and the other is left with a partially built project that is worthless.
This clause releases one party from liability for damages and is often known as hold harmless provisions, which specifies what actions one party (the seller) agree to be responsible for if a third party sues the other party (buyer).
A master service agreement should also include the provision which specifies who will bear the tax responsibility and at what rate?
This clause enables the development and operation of new applications or the provision of additional services by providing human resources.
This clause in a master service agreement identifies the risks that each party will bear, particularly since the new contract may influence existing agreements.
One of the most prevalent lawsuit scenarios that can be avoided with a well-drafted master service agreement is when one party falls behind on payments, but the performing party continues to perform until there is a considerable deficit. To stall projects or shift blame, the non-paying party would frequently complain about the quality of the services or continue to refuse deliverables.
On the other hand, the performing party may be unable to fulfill some aspects of the project, either on time or within budget. A well-written master service agreement will not only anticipate these problems and offer a solution, but also provide clear guidance to project managers on how to deal with them. If you want to know more about the master service agreement, contact eSahayak.