A “master service agreement”, what is it? If your business has repeat customers where the contract terms stay the same, but the payment and scope of work differs with each project, then consider using a master service agreement with that client.
What Is In the Master Service Agreement?
An MSA is an agreement between your business and your customers, which contains the essential, non-changing terms of your relationship with them. Included are the “standard” provisions you’ll see in many construction, leasing, or manufacturing contracts. These include payment provisions, such as when are payments due? They may include when is payment due after services are rendered. The parties will want to define who owns the product produced under the master service agreement.
Other terms include warranties, disclaimers, liability limitations, enforcement provisions such as forum or a choice of which state’s law applies.
Depending on the industry or profession, some terms may change. For example, a software design company may want to implement master service agreements with coders. That kind of agreement will assign the rights to all unique software to the company, while letting the coder keep the rights to certain things s/he developed himself to make his coding job easier, but that were not necessarily unique to a particular project, “coder’s tools” they are commonly called.
In the case of a construction contractor / subcontractor relationship where they have an ongoing relationship on multiple projects, the general contractor may want to set the “standard” terms of the relationship in the master service agreement. This is generally signed at the beginning of the relationship.
Then, as projects come along, the general contractor can just assign parts of the work to the subcontractor from the project manual.
Even lawyers and accountants make use of master service agreements. I have my clients sign my “fee agreement” with the terms of our relationship. Then, as they may occasionally need my assistance, the “work” is assigned to me and I perform it, with the MSA in the background.
What Are the Changeable Terms in the MSA?
When a project is assigned under a master service agreement, there are some important “new” terms introduced under it. The two main provisions that need to be clearly defined between the parties are scope of work, and payment.
“Scope of work” means what will the contractor be doing? A vast majority of the contract litigation I have done centers around poorly defined scopes of work. Get it right. It’s not “build a deck outside the back door” but rather “build a 10×17 deck centered on the back door out of pressure treated lumber, foundations every x feet” and so on. In larger construction projects it gets easier because a particular section of the project specifications can be assigned to the subcontractor, e.g., “Perform all tasks and supply all materials under Section IV – site grading”.
Payment terms too are a source of dispute. Literally, how much will be paid for the services. Without an accurate scope of work, one cannot determine if the pay is fair and reasonable. See how that works together?
And let’s not forget about start/finish dates, or time to completion.
So How Do Master Service Agreements Work?
They are pretty simple in practice. The parties agree to the terms in the Master Service Agreement. It contains a provision that allows the principal party to assign work or lease equipment to the subcontractor. Then, a price is agreed on. After that, the project can proceed.
Picture a general construction contractor, signing an MSA with a painter. One week, the general assigns the painting of the second floor interior of a home to the painter. A month later, he is tasked to paint the interior of a retail restaurant build out.
Rather than signing and tracking a bulky multi-page contract for each assignment, the parties just execute a “purchase order” (or whatever you want to call it) incorporating the scope of work, payment terms, and start/finish date, and the work gets started. The one page purchase order goes in the file if there is a dispute. That’s it.
Want me to draft one for you? Let’s talk first to see if that’s the best solution to your contracts with ongoing clients.
Contact me if you have any questions on commercial leases or any other business transaction. In western North Carolina, Asheville, Waynesville, Hendersonville at (312) 671-6453.
Email me at: email@example.com.