First off, what is a master service agreement. Second, how do they work. Last, is a master service agreement a better contract management tool for your business?
What is a Master Service Agreement?
The master service agreement, or “MSA”, is a contract between parties that will have an ongoing and mostly continuous relationship with each other. This relationship is generally unchanging except for the differing needs at different times from the contractor/vendor and the contract principal (the buyer).
An MSA will contain all the same stuff you see in a contract between businesses. This can include (but often doesn’t – more later) pricing, payment method, change orders, and all the legal mumbo jumbo at the end of the contract.
How Do MSAs work?
Master service agreements are a way to short-cut the contracting process between parties that will have, more or less, the same relationship on multiple projects over time. The parties enter into one contract – the “master” – at the beginning of the relationship. After that, each transaction is governed by the terms of the MSA without the parties having to negotiate those terms for every transaction.
Then, when the buyer needs goods or services from the contractor/vendor, the buyer merely tells the contractor/vendor, “We need this good or service, let’s go!” No need to sign a new contract for each time this happens.
Examples of MSAs in use
For example, a general construction contractor may have an MSA with a plumbing installer that he uses a dozen times a year. They enter into an MSA which has the essential terms noted above. Then, when the construction contractor needs an installation, they just call on the plumbing installer to do it. They send over the specifications, negotiate a price, and get the project done. The “contract” part of the relationship has already been taken care of via the MSA.
Another example: a real estate broker enters into an MSA with a photographer to take pictures for properties the broker is marketing. They may even agree in the MSA that the photographer will provide two pictures for each room, and three outside shots. In fact, they can agree on a price in the MSA, if that makes sense.
Then, when the broker needs a property photographed, he just calls up the photographer and gives him the address and a due date. The broker knows what price he’ll be paying already; and the photographer knows what the project specifications are already.
You can see how having a master service agreement in place can streamline the contracting process between businesses.
Is a Master Service Agreement right for my business?
Let’s look at some of the factors where an MSA works. First, is there an anticipated ongoing relationship where the *legal* terms will be unchanged?
Second, are the needs of the contract principal and the contractor/vendor essentially the same? In the plumber example, the needs of the construction contractor are for plumbing installations. That’s it. That’s the relationship between the parties.
Last, can the needs of the contract principal be expressed relatively simply for each subsequent engagement? MSAs are generally not for for sophisticated and complex commercial relationships where the parties don’t anticipate an ongoing, multi-project relationship, where even the “legalese” of the contract may change for each project.
Conclusion
Think about entering into a master service agreement with some of your regular clients or vendors (depending on which side of the relationship you’re on). This can keep contract management and legal fees under control.
For help drafting master service agreements and for all commercial transactions, give me a call at (312) 671-6453 or email me at palermo@palermolaw.com.
And check out these other contract-related blog posts I’ve written: