Four Things to Focus On When Negotiating a Master Services Agreement

When two businesses enter into a service transaction, they sometimes execute a Master Services Agreement (“MSA”). You can think of an MSA as a “master” contract that establishes the foundations of the parties’ current and future contractual activities. MSAs provide terms that govern each subsequent transaction between the parties—such as payment terms, warranties, dispute resolution, and termination provisions.

Here, we want to look at four clauses in an MSA that often are—but should never be— overlooked.

1. Confidentiality. There are two aspects of confidentiality that need to be covered. First, it is important that both parties clearly identify and state what is considered “confidential information”. Second, you want to ensure that both parties agree that they will not share any such confidential information with outside parties.
2. Intellectual Property, Customer Data & Ownership. An MSA needs to clearly state who owns what intellectual property as a result of a service transaction. For example, a cloud computing technology MSA should state that so-and-so party owns such-and-such software or applications while the customer owns any content or data they generate. More specifically, vendors will generally state that they are only providing a limited software license, whereas customers who upload any data to any vendor technology will want to ensure they retain ownership of the same.
3. Remedies. The remedies section of agreements is often boilerplate and biased in favor of one side and should be read critically. Generally speaking, vendors will insist on restrictive remedies in the event of a breach, while the end-user will insist on far more generous provisions. The goal is to meet, if possible, at least halfway.
4. Indemnification. We’ve discussed indemnification in our own blog post (here) because it is so crucial. An indemnification is a form of risk allocation. In reviewing your MSA, you want to ensure that the party you are entering into business with, will indemnify you for their errors and omissions.

Usually, you’ll see MSAs employed in tandem with a Scope of Work. Since MSAs provide the overarching terms of a contract, the Scope of Work will allow businesses to cover more specific aspects of a project or task. A Scope of Work is where you are more likely to see the terms surrounding: project phases and allocated hours, hourly rates, supply costs, dates and deadlines, and any applicable service fees.

Contact us for more information on drafting and/or reviewing an MSA by e-mailing us at info@mnklawyers.com.

This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.