What should be included in an MSA?
Master Service Agreements (MSAs) are used to cover large, ongoing relationships between businesses and their independent contractors, they must cover a wide range of terms. These documents typically outline details on:
- Product delivery
This section of the MSA highlights the expectations around the product to be delivered. It should include details such as:
the effective start date of the relationship,
the quality of the resulting product,
expectations around delivery timelines.
Clarifying these details at the beginning of the relationship in a Master Services Agreement is crucial to maintaining a solid relationship between the business and the independent contractor.
Some businesses find it useful to draft an Acceptance Testing Clause into their MSA to ensure the product is tested for errors, compliance and that it is compatible with their existing systems before the product is fully built to ensure any issues are resolved early.
- Payment terms
This section of the service level agreement should include expectations for payment for the service. Payment terms include:
the amount to be paid,
when payment should be expected,
how payment should occur.
- Dispute resolution
While the intention of an MSA is to avoid disputes with independent contractors, it is also useful to outline the process should a conflict arise.
It is important to anticipate and agree on how a dispute should be settled to ensure it can be dealt with as smoothly as possible if one does happen.
Dispute resolution terms can include:
the geography or jurisdiction where a case may fall into,
any remedies expected.
This section of an MSA should include details on how public or private information shared between parties should be externally to the relationship.
Outlining confidentiality expectations is especially important if a business needs to share sensitive information such as trade secrets with their independent contractor for them to successfully complete the project.
- Limitations of liability
An MSA provides an opportunity for an independent contractor to place reasonable limitations to their obligations to the business should their product or service cause damage or loss to the business.
A Limitations of Liability Clause is often used to benefit the individual contractor in an MSA as it places a cap on the overall amount they may have to pay if something goes wrong.
However, it may be disadvantageous to the business as they will have to wear the costs if damages exceed this limitation.
Often independent contractors will state that they are not liable for any loss or damage occurred by the business associated with any third-party products the customer required be used during the completion of the product. Independent contractors also tend to exclude their liability over the performance of a product if a business has attempted to repair it themselves or via a third-party.
- Services Warranty
Along with outlining the quality of the product to be delivered, an MSA should define any warranties or guarantees for product lifetime if relevant.
Services Warranty Clauses are particularly relevant to protect the business from receiving a product at the end of the relationship that is not fit for their intended long-term purpose as outlined in their MSA product delivery section or Scope of Work agreement.
- Intellectual property rights (IP)
In this section, an MSA should address two classes of materials:
These are materials which have been previously invented or licenced by the business. Their use by the independent contractor is critical to perform their services and the complete of the project.
These are materials which the independent contractor invents or creates on behalf of the business to complete the project. It is crucial that the MSA explicitly describes who owns the IP rights to any new materials created during the relationship as this is a common area where conflict can arise down the track.
If it is decided that ownership of these new materials belongs to the independent contractor, the MSA should include a licencing clause which outlines how the business will compensate the independent contractor for ongoing use of their service.
Although an MSA establishes an ongoing relationship between a business and an independent contractor, it must also include a section to protect the parties from loss or damage should one party wish to suspend or terminate the relationship.
A Termination Clause will typically include the required process the terminating party must take to terminate or suspend the relationship. This process will often include:
the type of notice given to the other party,
how much notice the terminating party must give their counterparty,
a list of reasons why a party may be permitted to terminate the agreement,
reasonable compensation for terminating the agreement after a certain milestone
Often an independent contractor will reserve the right to suspend work on a project if there are overdue payments from the business. They may also choose to reserve the right to suspend their services if any third-party products or services the business requested be used for the project become no longer available.
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