Often referred to as a framework agreement, an MSA is an agreement established between parties that contains most of the provisions that will apply to future transactions and agreements.
The MSA can be used as a reference point to establish clear conditions and arbitrate employer–employee disagreements in the workplace.
Why do we need an MSA?
The MSA is a more complex contract with more difficult terms and conditions and extremely technical terminology. Since legal factors were carefully considered during the drafting process, MSAs are the foundation for all subsequent trades and agreements.
Objectives of having an MSA
Allocation of risk
The MSA delivers a reality check by enabling the firm to develop a complete risk allocation strategy. The parties must carefully study the MSA to avoid inconsistencies between its provisions and other contracts, notably insurance policies. The contract also outlines the obligations of the employees and contractors for the project’s duration.
Indemnity
In this type of contract, a promise is made to provide security for the losses of a third party. These contracts are helpful when an unforeseen scenario cannot be addressed because not all business happenings can be predicted.
The party providing the indemnity must pay for any damages incurred by the other party.
The following are some of the most significant terms in an MSA:
- Confidentiality
- Resolving disputes over product delivery
- Geography
- Intellectual property rights; liability; payment; venue; warranty
- Rules at work
Why MSA?
An MSA streamlines and expedites the contract negotiation process. By outlining the terms of the agreement up front, both parties can establish a business partnership while still determining their respective obligations and rights.
With an MSA, businesses can lay the foundation for their working partnership. They can then concentrate on the details of their deal without jeopardising its integrity.
As a result, by having an MSA in place, the parties can make plans and adjust to changes in the business environment. It reveals to them potential areas of conflict or dispute.MSAs provide both parties time to reply and make adjustments while removing the pressure of a deadline.
Lastly, an MSA works best for long-term partnerships that require a lot of room and security to develop and adapt. One of the advantages of an MSA contract is that it enables both parties to maintain their fundamental relationship even when circumstances change. Both parties may also be able to save time and money.
Benefits of an MSA
Let’s go over the benefits of an MSA.
- It costs a lot of money and time to complete a business-to-business contract. A business has to pay for the hours put in and the costs associated with legal representation.
- A speedier transaction will make everyone happier. Two parties agree upon the essential tenets of an MSA. This expedites the completion of a transaction.
- A business can create an MSA document in weeks or even days. That is far quicker than negotiating a contract the conventional way.
What information belongs in an MSA?
It’s all about the little things for a good MSA. Consider your MSA as the basis for all of your long-term commercial transactions. If your MSA addresses every eventuality that might arise and includes contingency measures for unforeseen issues, your business contract will be solid and healthy.
An MSA agreement should cover the following topics:
- Employee management: Each party should list the qualities they are looking for in a new hire, the background checks they require, and any other requirements they have before hiring.
- Income and expense: Determining how to anticipate costs and how payments will be made and received.
- Insurance coverage: Who will be responsible for obtaining and maintaining insurance, and what will happen if the designated individual fails to do so?
- Escrow and security: Who provides the financial backing and covers the cost of the project or product’s protection?
The significance of an MSA agreement
MSA contracts facilitate and expedite the contracting process when businesses have established long-term relationships with clients or other parties.
The following are a few advantages of MSAs:
- Simplifies the contract signing process
- It lets everyone know what to expect from one another. Businesses can make plans. Because the fundamentals of the contract are already in place, the parties have more time to reply to proposals.
- It saves time and money when long-term business connections are involved.
- It specifies what to do in case of a missed deadline, property damage, or a missing payment.
Taking care of products and projects
Who will supply and receive the products, who will care for them, and how they will be cared for should all be specified in the MSAs. Who will monitor a project’s progress to ensure deadlines are fulfilled, and what can be done if something goes wrong? As determined by project management information, these tasks are assigned to certain people.
A set of monetary regulations
Money is a must for every project. When payments are due, how they will be collected, and what will happen if they are not made on time should all be specified in an MSA. This contract clause should also specify who will be in charge of keeping track of payments.
You cannot disregard the importance of insurance in protecting your project. In your MSA, you must provide details about your insurance, who pays for it, and the coverage. Keep in mind that if insurance premiums are not paid, there will be a lot of difficulties.
Safety of projects and products
No matter how well you plan, things might still go wrong. A fantastic way to ensure that everyone is protected when they sign an agreement is to have a backup funding strategy and an escrow arrangement. Make sure your contract specifies who is in charge of these things.
Task range
Everyone should know what must be done and when it will be completed. This is a good approach to keep everyone informed and on the same page. Long-term relationship productivity will increase by including this information in the MSA. In the long term, the connection will be more fruitful.
Guidelines provided by a third party
You might require the assistance of a third party, such as a freelancer, to complete a job. Make sure you know all the requirements and procedures governing how this person will be hired, who is in charge of overseeing the project’s progress, and what standards must be met.
Indemnity clause
An “indemnification clause” is a type of liability clause. Using this provision transfers one person’s liability risk to another. Who is responsible for paying for items like penalties and damage should be clear.
The non-compete clause
Non-compete agreements prevent partners or employees from working for another company for a predetermined period after the agreement ends. To safeguard your operations and business, include this in your MSA.
The non-solicitation clause
No company may attempt to hire staff members or partners from another. A non-solicitation agreement is what this is. If you include this in your MSA contract, your staff won’t be available for employment by a rival.
Controversy clause
Important information regarding how and when disagreements between the parties may be resolved is provided by dispute resolution clauses. Several elements make dealing with issues simpler, which makes it simpler for firms to collaborate more effectively.
A clause on the ending
A termination clause explains to the parties what actions could result in termination, who is accountable for what costs, what the early termination fees are, and other details. Additionally, it outlines who must pay and when. Termination clauses are crucial to guarantee that everyone is treated equitably when their employment ends.
What areas should an MSA address?
When each party must assume personal responsibility, it is critical to recognise potential areas of contention. An MSA should encompass all aspects of the negotiated agreement, including allocating tasks to various departments. It must deal with the following:
- Delivery and installation: The product’s shipment and delivery times must be mentioned. Which party is responsible for setting it up and installing it for the first time must be made clear. Furthermore, who will bear responsibility during an unexpected event must be evident.
- Background checks: It should cover the criteria set forth by each party for prospective personnel and background checks and other screening procedures.
- Project management: Determining who is accountable is crucial in case something goes wrong later on.
- Security: Both parties must agree upon the handling of payments necessary to guarantee the security of their project or product.
- Government requirements: The project’s location, as well as the local government, tax, and other regulations that will apply there, must be agreed upon by all sides.
- Liabilities: In the event of an accident, the roles of each party should be outlined to prevent any immediate dispute and aid in effectively resolving the problem.
A contract between two parties may require a lengthy and expensive completion process. Businesses spend money on hourly wages and legal fees. An MSA can speed up the process by streamlining the issues that both parties must agree upon.
It will safeguard all parties, take much less time than a negotiation, and aid in clarifying roles during conflict. Due to how simple it is to use, it also saves time and money.
An MSA may govern the following sorts of agreements:
- Real estate ownership is evolving
- Profits from discoveries or inventions, such as royalties
- Providing updated details while upholding confidentiality agreements
- Indemnification in the event of a third-party lawsuit is offered
- The distribution of legal fees and alternative conflict resolution
- Work schedules based on local labour market variables
- Economic factors like material costs, cost of living, etc., are considered when determining purchase orders and price adjustments.
Why would sourcing firms need an MSA document?
Indemnification and risk distribution are the two main purposes for which businesses use MSAs. “indemnification” is a strategy whereby one business or party safeguards the other from certain current or foreseeable damages.
The party that agrees to pay for any damages that it or another party has caused or could cause in the future is known as the indemnifying party. They provide the attorneys and make the related court cost payments.
The terms “defend,” release”, and “indemnify” are most frequently used in the indemnification procedure. The terms “defending”, “releasing”, and “indemnity” all relate to situations in which one party pays the legal fees of the other party’s defence team to represent the party that is at fault.
The best action is to hire a lawyer and use an MSA form to avoid errors or just sign a bad contract.
Risk allocation refers to the process of creating extensive risk management strategies. Before signing the MSA, all parties should fully understand how the MSA will interact with other agreements, particularly insurance policies. They should also be aware of how the law affects particular MSA sections, such as those that describe the responsibility and risk that contractors may encounter at work during their agreement.
Do not mistakenly regard an MSA as a work order. In contrast to MSAs, labour orders are used to handle specific jobs and projects while defining the number of work hours and the payment amount.
However, most of those conditions are listed in a specific work order, which can be revoked if it conflicts with the MSA’s conditions. In particular, if this is your first time negotiating a contract, counsel should represent you.
In software development, what exactly is an MSA?
Renegotiations are easy
Client interactions are typically a contentious topic. For reasons that only they are aware of, clients like renegotiating contract terms and conditions. In any event, the requirement for renegotiation is a reality that must be addressed somehow.
For a variety of reasons, working under an MSA for software development makes it much simpler to renegotiate certain clauses of the agreement’s terms and conditions:
You need to just resign the annexe to the agreement, not the complete agreement, to get started. Even if you need to change an MSA clause, you can add an annexe, typically 3–4 pages long.
Second, you must sign the annexe again if the client wants to change the payment terms for software development services, acceptance of services, or other items covered by the T&M, fixed price, or out-staff annexe to the MSA.
T&M, fixed pricing, and outside staff combined
The most prevalent business models firms use when dealing with clients are T&M, fixed price, and outsourced employees. In contrast, similar contractual provisions safeguarding privacy, dispute resolution, intellectual property, and other issues account for around 60% of the three agreements.
That is why signing the same contracts over and over is a hassle for many firms. You merely need to quit being irritated with the MSA.
The MSA is software development split into two parts:
The MSA for software development is the first component. It comprises standard contractual provisions governing client interactions, like confidentiality, intellectual property, and dispute resolution.
The second section is the corresponding Annex to the MSA, which includes the crucial terms and conditions governing your cooperation with a particular client, including the scope and list of services you offer under the T&M business model, the cost and terms of service provision, and so forth.
MSAs for software development typically include standard Annexes for the T & M, fixed pricing, and outsourced business models. On the other hand, you might customise the list and content of the annexes to your MSA according to your requirements and the specifics of your client interactions.
Work with different business models as part of a single agreement
An MSA for software development has the benefit of being consistent across all clients, which is excellent. The customer can always update the applicable MSA annexe if they wish.
Therefore, you will have a single contract for all your clients. If you need to remember or double-check the specifics of your collaboration with a certain client, you only need to refer to the annexe for this customer.
As a result, instead of reading the MSA’s 15–20 pages, look at your 3–4 page T&M, fixed pricing, or staff annexe, where everything is clear and concise.
How will the MSA simplify subsequent contracts?
Term substitutions
Drilling projects may not be awarded even after an MSA has been negotiated. Even so, it may enable you to negotiate better terms with drilling contractors and make financial savings on a global, regional, or national level.
Renewing is simpler
MSAs could take a little longer to set up initially, but over time, they are simpler to renew, renegotiate, and modify. Additionally, they are simpler to operate, keep an eye on, and use in various drilling disciplines.
When used with drilling contractors, an MSA, for instance, can cover all types of drilling throughout a mine, including pre-collaring, surface, underground, and drilling for water supplies.
Better risk management and discretion
The parties receive a high-level perspective of their business connection through an MSA. An MSA can cover the entire project, including the proposal and statement of work, to ease worries about private information being disclosed.
If separate agreements are used for each project, a limitation of responsibility that caps risk could not be suitable or acceptable. However, if the entire link is assessed, there might be a higher possibility of negotiating such a limit on the partnership’s risk exposure. Hiring a drilling contractor for various drilling tasks is quite helpful.
Saving money
Although lawyers are essential to protecting interests, once an MSA is in place, drilling can begin without waiting for legal departments on both sides to discuss terms. There is no need to spend time or money negotiating the terms for each job since they have already been discussed in the MSA.
An MSA can help you save even more money by having one drilling contractor manage multiple drilling projects on-site. One on-site drilling supervisor, on-site maintenance across numerous drill pads, shared resources and consumables, and simplified billing are possible. One fewer contractor must be managed for compliance and performance when only one drilling contractor is present for several drilling disciplines.
What drawbacks does an MSA have?
- Negotiating an MSA might take a lot of time! They make an effort to account for all possibilities. The parties may occasionally agree to “Letters of Intent” to allow transactions to occur while the MSA is being negotiated.
- They can complicate things because the MSA may include clauses that conflict with other articles of the agreement, future goals, or both.
- When dealing with a subsidiary, your counterparty can be the holding firm.
- MSAs employed in public procurement may forbid the parties from deviating significantly from their terms, which may lead to rigidity in future goals and priorities.
- MSAs can make ending a relationship challenging. What will happen to any work currently underway under a statement of work (SOW), for instance, if the MSA is terminated?
“Statement of work”: what is it?
Under the terms of the MSA, an SOW serves as an order form. It transforms the parties’ agreement to provide and pay for services outlined in the MSA into a legally binding contract.
What is a “call-off contract”?
An SOW is technically known by another term, a call-off contract. It is most frequently used in contracts for public works projects.
Why does an MSA cite different records?
At the end of a normal MSA, several schedules or appendices may include information on the services to be given, the fees, the purchasing procedure, model SOWs, and the agreed-upon billing formula.
To continue with our prior illustration, a timetable may occasionally represent terminating an SOW or the MSA itself. Identifying how a present SOW (with an affiliate) will be affected if the MSA (with the holding company) is terminated can be challenging, especially given the wide range of grounds for termination.
MSA checklist
In an ideal MSA checklist, you can anticipate seeing the following terms:
- A complete list of the parties
- SOW/Call-off contract process
- Intellectual property issues and indemnity
- Confidentiality and non-solicitation
- Exclusivity
- Representations and Warranties
- Amendments
- Participation of affiliates or group firms and any additional financing terms (e.g., group guarantee)
- Rights of third parties
- Responsibility for principal parties and any affiliates
- Services with defects
- Dispute settlement
- What should be done if the terms of the MSA and the SOW conflict? The MSA will often precede the SOW, but you must consider how that will work out in your situation.
- Sustainability – anti-slavery, anti-bribery
- Data protection
- Termination
You can see how the MSA addresses the crucial contractual difficulties, leaving you to handle placing orders or completing them using an SOW.
The truly crucial areas, like intellectual property, confidentiality, and payment, can cause serious issues for startups and small- and medium-sized enterprises (SMEs), in particular, and cannot be left to chance in the hope that “everything will be alright”. These fundamental terms lay the groundwork for your business relationship, so it is imperative to actually have one in place before you start.
It’s important to remember that not everything said earlier will apply to you, which is why you need to bargain.
MSAs represent a significant legal change for any sustained corporate partnership. To avoid creating a new contract for each interaction between the parties, they establish a negotiating template and point of reference.
Consumer markets, technology, and the operating environment are all constantly changing. Therefore, businesses must maintain their MSAs and make modifications as needed.
