Tom Gabriele, Product Manager
Last month, we learned about NDAs, or non-disclosure agreements. As part of an RFI or RFP process these documents are crucial in protecting each party as they create a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets being disclosed. Once organizations engage in a business relationship it is now just as important to enter into a Master Services Agreement, or MSA.
When services are negotiated with a client or supplier, the process can take time and culminate in a contract that spells out the obligations and requirements of all parties. If the parties believe that they may have repeated contracts for the same type of services over time, they may both discover that although their negotiations may take the same amount of time, most of the terms within each contract may remain the same. Therefore, all parties can reduce their ongoing time and involvement by settling first on a master services agreement. An example may be a company that provides a customer with computer software configuration and later provides the ongoing software support.
While the service specifics may change, the service guarantees usually remain the same. Therefore, instead of documenting the service guarantees in each and every contract, a master service agreement allows a company to cover these across multiple contracts. A MSA is a contractual document that specifies performance objectives and outlines the responsibilities of both parties. Its purpose is to speed up and simplify future contracts by removing the initial time-consuming negotiation, which is done once at the beginning. Common in information technology, union negotiations, government contracts and long-term client/vendor relationships, they can affect a wide area of subjects. Master services agreements usually spell out payment terms, delivery requirements, intellectual property rights, warranties, limitations, dispute resolutions, confidentiality, work standards and the like as well as indemnification or how risk is divided among all the parties if any party is sued. It may also cover whether all parties are responsible for attorney fees or if everyone must abide by alternative methods of resolving disputes. MSAs may take weeks or months to negotiate depending on the extent of the agreement and the priority level it has with the involved organizations.
Many deviations from any specifics mentioned within a MSA are handled within each specific contract or purchase order by mentioning more specific details around that particular area or deliverable. While negotiating such agreements from scratch is a laborious process involving attorneys and lots of time and money, a way to shortcut the process is for either party to supply a previously negotiated agreement that can be altered as needed. While saving time this method can create an advantage to the party that supplied the original agreement. A more equitable method may be to start with a template that both parties can modify together. A statement of work typically addresses these subject areas:
Purpose - Why are we performing this project?
Scope of Work - The overlying work to be done and specific hardware and software involved
Location of Work - Where the work is to be performed, including the location of hardware and software and where people will meet to do the work
Period of Performance - The specific time period covered, allowable time for projects, number of hours that can be billed per week or month, where work is to be performed and anything else that relates to scheduling and is of a consistent nature
Deliverables Schedule - What is due and when
Applicable Standards - Any specific standards that need to be adhered to in fulfilling the contract, both from an industry as well as regulatory requirement
Acceptance Criteria – How the parties will determine if the goods or services are acceptable, usually with objective criteria
Special Requirements - Any special hardware or software, specialized workforce requirements (such as degrees or certifications for personnel), travel requirements, or anything else not covered in the various specific contracts
Type of Contract/Payment Schedule - A breakdown of payments by whether they are up-front or phased
Miscellaneous – any other items or concerns that are important to the project such that overlooking or forgetting them could pose problems
While a Master Services Agreement may seem "complete" in its coverage of project understanding between the parties it is important to realize that all future contracts, or Statements of Work, can contain language that supersedes these initial agreements. Until next time.
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