What is an Master Service Agreement? How to Setup an MSA?
- Last Updated: Jan 06, 2025
- 8 min read
- Sirion
Think about how much time you spend negotiating individual contracts for each project your enterprise takes on – days, weeks, or even months in some cases. You start to rush, missing important clauses and sacrificing the strategic work you were meant to do.
Once you finalize that initial contract, wouldn’t it be nice to keep those agreed-upon terms as a baseline for future engagements with the same vendor or supplier?
Enter master service agreements (MSAs).
With MSAs, you can establish agreed-upon terms at the start of any ongoing business relationships to help simplify future negotiations. This works because you’ve already established a baseline for the relationship. You’re simply revisiting a small part of the agreement or a particular scope of work (SOW) to tailor it to future dealings.
This pre-established structure saves time and reduces potential misunderstandings or disputes, as both parties have already agreed to the core terms.
Keep reading to gain insights into what MSAs are, how they work, and the must-have elements to include in your future contracts.
What is an MSA?
A Master Service Agreement (MSA) is a legal contract that lays out foundational terms between two parties, typically where there are ongoing services from either end. It enables vendors and clients to establish basic terms upfront, setting a stage for their business relationship, which is bound by clear, agreed-upon rules that govern future transactions.
How Does an MSA Work?
MSAs provide a framework for long-term business relationships. While those relationships can vary depending on your industry, you often see master service agreements in broader projects such as:
- Software license agreements
- Data management agreements
- Privacy policies
- Third-party indemnification policies
You’ll use these contracts to cover various administrative factors to protect your business and avoid disputes.
What Do MSAs Cover?
Master service agreements spell out who will take responsibility in the event of specific events throughout your business relationship. These can include:
- Unsatisfactory performance or service
- Miscommunication
- Failure to pay
- Missed deadlines
- Product defects
- Unauthorized charges
- Property damage
- Employee injury or death
By laying out these terms early on, you can handle future contract negotiations and disputes quickly and efficiently.
Why Should I Set Up an MSA?
You can look at setting up an MSA as front-loading contract management work. By putting in more time and effort in the beginning, you can save yourself some of the hassles of redrafting a new contract during any future renegotiating.
Setting up a master service agreement also lets you:
- Speed Negotiations — When you have already agreed upon foundational contract obligations and conditions, you can pull those terms into subcontracts and spend less time negotiating additional items.
- Plan for Future Changes — Once you agree on basic terms in an MSA, both parties can complete any future amendments with less back-and-forth during negotiations.
- Minimize Disputes and Risk — Since the MSA lays out the specific terms for issues like liability, confidentiality, and dispute resolution at the start of a partnership, this reduces the chance of miscommunications or conflicts that might arise from ambiguities.
- Scale with Confidence — An MSA gives you and your counterparty a solid foundation to use as a jumping-off point for additional contracted projects as your business relationship evolves.
- Save Money — With an MSA in place, companies can reduce legal costs by not having to negotiate the basic terms of service for each separate agreement. The agreement also reduces the need for extensive due diligence for each project, as it lays out the fundamental guidelines and expectations from the outset.
What Should I Include in an MSA?
Every strong business relationship starts with a solid foundation. When drafting a master service agreement, you’ll want to include the right pieces to set your enterprise up for success.
Your MSA should include contract clauses related to:
Term Definitions
- What will specific terms refer to within the contract?
Confidentiality
- What exchanged information should parties refrain from disclosing?
Payment Terms
- When can parties expect to receive payment for the agreed-upon services? What are the consequences for missing or late payments?
Tax Liability
- Which party will pay the project’s taxes, non-tax fees, or penalties?
Intellectual Property Rights
- Who owns and has the right to use or license the intellectual property created within the project?
Project Deliverables
- What can each party expect to receive from the project? What timelines will the project follow? What are the consequences if a party does not receive deliverables within the contracted time?
Terms and Termination
- How long will the contract last? Under what circumstances can a party terminate the contracts? What are the options for renewal?
Warranties
- What quality of deliverables can parties expect to receive? What are parties liable for if they don’t meet that quality?
Liability Limitations
- If the project does not go as planned or there’s a contract breach, what protections will each party have from holding legal responsibility?
Indemnification
- If a party experiences a loss because of the project, how will the liable party compensate the affected party?
Jurisdiction
- How will work done at a physical location or remotely affect the project? What local laws and regulations influence the project’s management or service standards?
Conflict Resolution
- If conflicts arise during the project, how will the parties handle disputes? What resolution avenues will they choose (e.g., negotiation or arbitration)?
Force Majeure
- How will “acts of God” and other unforeseeable events affect the project? What steps will each party take to get project deliverables back on track?
Automate Drafting MSAs with AI-Native CLM
Sirion empowers you to store, create, and manage master service agreements quickly and efficiently with our contract AI. Using our advanced automated contract authoring, centralized templates, and intelligent contract repository, you can set a solid foundation of consistency across your MSAs, draft contracts faster, and swiftly source existing contracts when you need them.
Schedule a demo with our team today to see how to use our end-to-end CLM platform to accelerate and automate your MSA processes.
Additional Resources
20 Important Contract Clauses for Businesses to Know
6 Contract Management Software Benefits For Enterprise Success
