How Are Master Service Agreement and Scope of Work similar?

10 July 2023

557 4 mins read

Have you heard of the MSA contract? Are MSA and SOW contracts similar? Keep reading to know the answers.

Every business, at some point, faces the need to expand its product team and might have to hire foreign contractors. Nowadays, you can build a qualified team of workers and reduce costs simultaneously. However, you must be aware of the legalities involved. For instance, which contract among the MSA and SOW serves which purpose of contract management? In this article, we’ll discuss all the similarities between the MSA contract and the SOW contract, but let’s first understand what MSA is?

Table of Contents

What is Master Service Agreement?

MSA or Master Service Agreement establishes the relationship between two parties in a service transaction by laying down all the terms and conditions involved in a business relationship. It serves as a framework for future contracts and is mostly used to build a long-term business relationship instead of a one-off transaction.

Following a long-term approach, MSA helps you decide all the rights and responsibilities of both parties early in the transaction. This helps eliminate the need to negotiate contracts for every term in future transactions. An MSA contract allows a prospective transaction in an evolving business to move smoothly and speedily.

Following are the terms of the MSA contract:

Confidentiality
Dispute resolution
Payment terms
Intellectual property rights
Geography
Product delivery
Warranty
Venue of law
Limitations of liability
Work standards

What is a Statement of Work?

SOW or Statement of Work is a detailed agreement between two parties for a specific project. It is used for outsourcing tech teams by specifying the details of what will be delivered and in what amount of time. This helps both parties to set the expectation right.

While SOW can be used for project and contract management, it is used primarily when businesses hire independent contractors or agencies to specify their expectations for every project. SOW mainly clarifies the goals of a project, its deadline, and most importantly, how the work should be done.

SOW has the following terms:

Summary
Work breakdown structure
Schedule
Approval
Deliverable
Cost
Work requirements

What Is the Difference Between MSA and SOW?

While there may be many differences between MSA and SOW, these documents are somewhat similar. They mostly differ in how they regulate the various aspects of business relations. MSA contract mostly covers the broad sense of relationship with long-term partnerships, whereas SOW specifies the details about transactions involved in a specific project.

Another main difference that separates MSA from SOW lies in the way they define the different levels of how they work in a particular project is to be done. MSA contract often leaves the details and gives an overview of what is to be done in a project, whereas an SOW details how the parties will work in a project, with goals and deadlines.

Moving on to the similarities between MSA and SOW, they both are used to establish a contractual business relationship between parties. Moreover, MSA and SOW are used simultaneously in a typical service transaction.

The MSA contract and SOW detail the rights and obligations both the parties have to each other. MSA and SOW cover different aspects of the business relationship in a typical service transaction. Both of these documents must be referred to establish the expectation of contracting parties and solve any future disputes between the parties.

Another similarity between MSA and SOW is that they both are legal documents involved in the contractual relationship between two parties. Sometimes SOW may be considered less legal than an MSA contract as it focuses more on how the project is to be done instead of a working plan. It may be regarded as more of a project management tool instead of a legal document.

Although the MSA contract has more legalese than the SOW, both are legal documents, and an SOW is also signed the same way as MSA. Moreover, SOW specifies how a project will be completed with specific deliverables and makes everyone involved accountable.

Ideal Way of Using MSA and SOW

There may be many aspects where MSA and SOW may overlap, but this may lead to disputes in the future. Like, these documents may create unnecessary conflicts over payment schedules as their terms may overlap.

One of the key advantages of MSA is that both parties can use it to avoid renegotiating legal terms and conditions for every new project and service transaction. Once the legal terms are established, SOWs can come into play by being negotiated for project-specific services and payment terms.

How MSA and SOW are used in IT Staff Augmentation?

Let’s first discuss the different aspects of the MSA contract in IT Staff Augmentation. Below are the points covered in an MSA contract of IT outsourcing:

Scope of Work

In this section, MSA defines what work will be done and how many days and sets professional standards between both parties. When hiring an independent creator, MSA might also determine employees’ employment levels, rates, and qualifications.

Payment Schedule

In this section, MSA establishes the financial side of the partnership by setting prices and payment schedules. It also lays down the basics of how any invoice disputes may be resolved.

Intellectual Properties

Intellectual properties defined by MSA include patents, copyright, or trade secrets. This section determines the non-disclosure of any confidential information.

Warranties

The final section of the contract defines compliance with rules and regulations and applicable laws. All warranties are also described here.

Let’s understand the different aspects of SOW with the following points:

Scope

Scope of Work is used for specific projects to define the extent of the work that needs to be done. Moreover, the project’s duration is also set.

Terms and conditions

Here the terms and conditions of the partnership are defined. SOW details the project’s duration by specifying the number of professionals to work and for how many hours.