What is a master service agreement?

You’re finalizing a deal with an agency that will help you implement new tech. You refresh your email every five minutes, on the lookout for the statement of work they promised to send. But when it finally arrives, it’s attached to a master service agreement (MSA). What’s the point of signing an MSA if there’s an SOW?

This article answers that question. Before you sign anything, learn what an MSA is, what to include, and how an MSA interacts with an SOW.

What is a master service agreement?

A master service agreement (also known as a master services agreement, master agreement, framework agreement, or umbrella agreement) is a contract that sets the legal and commercial foundation for an ongoing business relationship between a vendor and a customer.

With an MSA in place, you don’t have to keep renegotiating the finer points of a legal agreement with clients you frequently do business with. Instead of going through terms such around topics such as governing law or IP with every new arrangement, an MSA locks in baseline terms once. New projects with that client then trigger a more concise statement of work that references the MSA.

In short, an MSA is the go-to agreement for growing companies that work with a vendor or particular customer more than once.

MSA vs. SOW and how they work together

An MSA sets the framework for an ongoing legal and commercial relationship and applies to every engagement between that vendor and customer going forward. A typical MSA includes the following basics:

• Confidentiality: Limits on what information can be shared by one or both parties.
• IP ownership: A claim on intellectual property or assignment of IP ownership.
• Liability limitations: The extent to which the vendor will be liable for damages incurred.
• Payment terms: How frequently payment will be remitted and by what method.
• Indemnification: How much each party will reimburse the other for damages.
• Governing law: Which state’s law governs the execution of the contract.
• Termination: How and under what circumstances the legal relationship can end.

While the MSA is the umbrella agreement for the entire vendor-customer relationship, an SOW is used on a per-project basis. SOWs detail how a project will be carried out and what success looks like. They often include:

• Scope of work: What is and isn’t included in the project
• Deliverables: What the customer has to provide so the vendor can do the work (e.g., access to tools and information), and what the vendor will hand off at the end of the project.
• Acceptance criteria: What conditions have to be met for the project to be considered successfully complete.
• Pricing for the project: How much the overall project costs and at what intervals payment is due.

If the MSA and SOW conflict with each other, the MSA controls unless the SOW explicitly overrides it. Say, for example, the MSA sets a liability cap at 12 months of fees. An SOW for a larger project can override that cap and institute a higher one (e.g., 24 months of fees paid on that SOW), but only if that language is explicit in the SOW.

MSAs and SOWs should be reviewed together before each new engagement.

When to use a master service agreement

Sometimes, an MSA is a smart move for a business relationship. Other times, it’s overkill. Here’s how to determine whether you need an MSA.

An MSA makes sense if you have:

• Ongoing relationships across multiple projects or phases, such as consulting arrangements, agency work, software development, and ongoing IT services.
• Recurring vendor relationships, including with cloud infrastructure providers, professional services firms, marketing agencies, and manufacturing partners.
• Procurement relationships with strategic suppliers, such as raw materials suppliers, logistics providers, and specialized service providers.
• Enterprise sales with SaaS vendors, which often use MSAs as the main customer contract and order forms or an SOW for renewals, upsells, and cross-sells.

An MSA isn’t a good fit for:

• Single one-time engagements when there probably won’t be repeat work.
• Low-value transactions where the level of risk isn’t high enough to justify the cost of negotiation.
• Informal or short-term arrangements that neither party expects to continue over multiple projects.

A good rule of thumb is that if there’s potential for repeat work, use an MSA. Investing in upfront negotiation saves time and energy down the road.

What should be included in an MSA?

Every MSA is different, but the following terms are often central.

Basic terms

• Party details: The name, address, and entity details of the vendor and client, as well as signatories for each party.
• Effective date: The date or event, such as a contract signing, on which the MSA goes into effect.
• Scope of service: A general description of the type of work, product, or services the vendor will perform for the customer.
• Geography: The location where services will be provided.

Commercial terms

• Payment terms: How payments will be made (by invoice, ACH, or wire transfer), how long parties have to pay (net 30, 60, or 90 days), and what fees apply if payment is late.
• Rate schedules: The rates the vendor charges for its services and that apply across all SOWs.
• Expense reimbursement: What expenses will be repaid and how.
• Taxes and fees: Which party is responsible for taxes, and what additional fees could come up.

Legal terms

• Confidentiality: Limits on what information can be shared and how long confidentiality lasts.
• IP ownership: Who owns the final work product and the intellectual property used throughout the course of the relationship.
• Warranties: The promises each party makes about the quality of their work performance.
• Indemnification: Obligations from both vendor and customer about the events they’ll reimburse the other for. There’s also usually IP indemnification from the service provider.
• Limitation of liability: The maximum amount of liability the vendor accepts. For standard MSAs, this is usually capped at 12 months of fees with carve-outs for IP infringement, confidentiality breaches, and gross negligence.
• Insurance requirements: How much and what type of insurance the vendor or client must have, including specific coverage limits.
• Governing law and venue: Which state laws apply and where hearings occur if there’s a dispute.

Operational terms:

• Termination: Under what circumstances each party can end the relationship and what effect that has on existing SOWs.
• Data security: What protocols are in place to protect the client’s data and how the vendor must respond to breaches (e.g., SOC 2, encryption standards, and breach notifications).
• Amendment procedures: How the MSA can be altered.
• Assignment: Whether either party can transfer the contract to another company, such as an affiliate or acquirer, and whether the other party’s consent is required for this move.

When MSAs don’t address these categories, they can become questions to settle during a dispute. The party with more leverage often gets to decide the answer.

Common MSA mistakes and risks

Some common MSA pitfalls include:

• Conflicting MSA and SOW terms: MSAs and SOWs that contradict each other without explicit override language create confusion and can lead to expensive disputes.
• Vague or one-sided clauses: Over-broad indemnification, unbalanced confidentiality, and uncapped liability terms can shift risk.
• Poorly defined scope: Lack of clarity in the MSA can lead to disputes about what work is already required by that agreement and what requires new negotiation.
• Missed updates: Out-of-date MSAs don’t account for the latest business risks, be it new data privacy laws or industry-specific requirements.
• Liability gaps: Failing to name risks specific to the arrangement or parties at issue—for example, data breaches with data processors or product defects with manufacturers—can create big holes.

The biggest mistake is treating the MSA as a boilerplate document rather than the operating contract for a specific business relationship.

How to make MSAs repeatable

An MSA is intended to cut down on future negotiation time. This helps deals close faster and cuts down on overhead costs for each new project. Here's how to make that sustainable.

1. Build an MSA template or standard document

The most efficient way to deploy an MSA is to negotiate it once and use SOWs for future projects. To get everyone on the same page when drafting, develop a standard MSA that includes the company’s opening position with counterparties.

2. Define your preferred positions and fallbacks

Go into every agreement knowing what is (and isn’t) negotiable, and which concessions you’re willing to make if the counterparty pushes back. Over time, this will turn into your standard playbook, making negotiations go more quickly and smoothly.

3. First-draft ownership

The party that sends the first draft tends to land closer to their preferred position. Where possible, aim to be first.

4. Cross-functional review

Make sure stakeholders’ positions are included in the terms. Get input from your finance department on payment terms and taxes, from operations on SLA and scope, and from security on data protection and breach obligations.

5. Approval workflow

Determine who is the lead reviewer and signer on standard terms as well as more complex agreements. The general counsel or CEO is often the go-to for non-standard terms.

6. Ongoing management

MSAs are not set-it-and-forget-it contracts. Keep track of renewal dates and continuously update the playbook based on actual negotiations, for example, modifying terms that receive frequent pushback. Also, update MSAs regularly when business and regulatory conditions change.

Crosby reviews the MSAs you sign

An MSA has a long lifespan, so it's important to iron out the terms that will determine your risks and obligations for the next two, five, or even ten years. Don't let slip-ups on high-impact clauses such as those for IP ownership or override provisions turn into ongoing problems.

Crosby's custom AI agents take a first pass on your MSA, and barred attorneys oversee the redlines. Median turnaround is under four hours on standard MSAs. Fixed per-document pricing means cost scales predictably with contract volume, not with billable hours.

Talk to Crosby today.

FAQs

What’s the difference between an MSA and an SOW?

An MSA governs the entire business relationship between vendor and customer, while SOWs cover individual projects. The two often work together, but while an MSA is negotiated only once, SOWs crop up on a per-project basis.

Do I need an MSA for a one-time engagement?

No, you do not need an MSA for a one-time deal. The cost of negotiating an MSA likely surpasses the cost of the engagement.

What happens when an MSA and SOW conflict?

When an MSA and SOW conflict, the terms of the MSA typically govern. But if the SOW provides explicit override language for a specific clause or provision, then the SOW takes precedence.

How often should MSAs be updated?

MSAs should be updated whenever there are material changes to your business or to the regulatory landscape (e.g., data privacy laws).