A master service agreement is an important document that governs the relationship between the parties entering into a deal. When it comes to a master service agreement in tech deals, negotiating the terms in the agreement are essential.
A master service agreement (MSA) is a contract between two or more parties in which the parties agree to the terms and conditions which will govern all current and future transactions and responsibilities between the service provider and the client. The goal of a master service agreement is to carve out as many details as possible in nuts and bolts, which will save the organisations’ time and efforts in doing the same work.
MSAs create a framework that establishes the foundation for all future actions. The tech industry uses MSAs most frequently; these agreements are appropriate for long-term or forward contracts, ongoing business relationships, government contracts and union negotiations.
Components of master service agreement concerning tech deals: –
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Payment:
In this clause, the client and the service provider agree upon the payment deadline date, and if it exceeds, then the interest is to be charged accordingly. The customer can also impose conditions on payment, for instance, payment to be done upon receiving deliverables.
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Intellectual property ownership:
The parties to the contract decide the ownership and regulation of patents and other IPs. The customer will get all the IPs in some instances; in others, the service provider provides perpetual rights while keeping his or her IP and patents.
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Allocation of risk:
- Representations and warranties: If a party makes an impression to the other party regarding a fact that in future turns out to be incorrect, then the guilty party (indemnifier) is supposed to indemnify the indemnified party.
- Indemnification: This clause helps the indemnified (one who gets safeguarded from all the losses in the suit) to claim all the expenses he has incurred because of the other party to the contract.
- Disclaimer of warranty: It is a clause in the master service agreement wherein the agreement may set out its own warranties and disclaim warranties of other statutes. However, what is expressed guaranteed by the service provider in the agreement shall not be disclaimed under this term.
- Limitation of liability: By default, the party breaching the contract is liable for all direct or indirect expenses. When the party imposes the limitation of liability clause on the contract, he confines his scope of indemnification. He can do so by imposing limitations on indirect expenses and bearing only direct expenses or vice-versa.
- Insurance: Customers will always want the service provider to have a standard amount of insurance. So that customers can have faith and can get assured of any unforeseen losses, it also increases the credibility of the service provider.
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Acceptance:
The master service agreement must contain a process for customer acceptance and their review of it.
- Deadlines and delivery: The master service agreement should always have a delivery and deadline clause for those deliverables that are critical or urgent.
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Intellectual property:
- Confidential information: Since both parties can provide confidential information, that is to be done mutually. So, if just one of the parties is providing confidential information, then it is known as unilateral confidentiality. Confidentiality provisions should define the appropriate degree of care to keep the information secret.
- Non-solicit of employees: This clause limits the customer’s capacity to hire away employees from the service provider itself so that the customer can save money and maintain confidentiality. To prevent this, service providers consider incorporating this clause in their master service agreement, which can restrict employees’ solicitation during normal business.
- Open source: The customer must be aware of what open-source technologies are being used. If he wants to build his sole technology, then they must require representation from the service providers.
- Marketing rights: Several customers want to keep the relationship with their service providers secret to gain a competitive business advantage.
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Boilerplate:
- Subcontractors: The service providers are allowed to sub-contract the original contract, but if the information being provided by the customer is delicate, then it may be prohibited by the customer, and the service provider then has to use its employees for that particular task.
- Independent contractor: It refers to a person or an entity that delivers its goods or services not regularly, unlike employees, under a contract.
- Assignment: When the service providers do not finish off work allotted to them on time, the customer may hire a new provider for the same contract, known as assignment.
- Dispute resolution: The MSA must include guidelines for settling disputes when arising. It can add several guidelines such as the location of the settlement of disputes, escalation of dispute resolution if any, arbitration process- as it is quicker and cheaper, jury waiver and attorney fees.
- Act of God: The parties to the contract can expressly agree that no remedies will be available if there is a breach of contract caused by circumstances or factors beyond the control of parties to the contract, like natural disasters.
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Termination:
The master service agreement can be terminated in two cases; the first is termination for a cause, and the second is termination without cause.
- Termination for a cause: This generally happens when there is a contract breach by either party or by both.
- Termination without cause: This clause allows the parties to terminate the agreement upon communicating prior written notice subject to the indemnification clause, if any related to this.
Final thoughts: –
The master service agreement is an important document governing the rights of the parties entering into a tech deal. If the clauses mentioned above are incorporated, they will act as a powerful weapon protecting the rights of the parties while also being bound by the agreement to fulfill their obligations Therefore, it must be drafted considering all factors and with utmost due diligence.
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