3 tips for contract drafting - ensuring you have effective master services agreements (MSAs)
Master Services Agreements (MSAs) are the overarching contract that typically governs all other contracts in a business relationship. There are many things to consider in the process of drafting, negotiating and operating under an MSA. Here are three tips that may come in handy for ensuring your MSAs are effective.
1. Make sure the right terms are covered and properly drafted. These may be different according to the industry you are in. For example, Tom Fafinski, Co-founder of Virtus Law, during a podcast (http://ow.ly/4ntway) was interviewed about MSAs relating to Managed Service Providers (MSPs). He suggested the most important terms in such agreements are those relating to whether or not services can be assigned. This is to ensure the MSAs continue to operate even if the MSP gets acquired or merges with a different entity. He noted other important terms are those which relate to limits on liability and terms relating to the circumstances under which the counterparty can hire your talent.
Brit T. Brown, Partner at law firm Beirne, Maynard & Parsons LLP, in considering best practices for MSAs in relation to natural gas & electricity, stressed the importance of not cobbling together a draft from various parts of old precedents. This often produces confusion and unforeseen negative consequences. In relation to this industry, the term relating to jurisdiction is one which he believes is important to properly consider when drafting an MSA. Consider which jurisdiction you want to cover any issue that may arise in your business relationship with your counterparty. Also, keep in mind that some statutes in certain jurisdictions may overrule terms and conditions you insert in your MSA.
Daniel Elizade, Director of Product Management at Stem, Inc and author of TechProductManagement.com, writing from the point of view of a product manager, suggests including terms in your MSA in relation to marketing (http://ow.ly/4ntzjZ). For example, for many vendors, being able to name one of their big clients can be a big advantage. However, some customers may not want to be named as they see the use of a product as strategic advantage against their competition. It’s best to negotiate how you want to deal with marketing from the very beginning of your relationship to avoid any bad will or fall out that may occur due to a misunderstanding about this.
2. Make sure all individuals who have an interest in the MSA are involved in the drafting and negotiation process. Brit T. Brown suggests those stakeholders may include operations, risk management, contract procurement, compliance, management and legal. All these stakeholder groups may have different perspectives on what are the important aspects of the MSA. For example, risk management may be focused on reducing risk, while management is more concerned about ensuring all work under the MSA runs smoothly and efficiently. Having all these groups involved in the drafting process will ensure all these viewpoints are considered and the end product is most likely to be an optimized and moderated version that does not over represent any one viewpoint.
It should be noted that even though your company produces an MSA draft which is well-rounded and covers all stakeholder’ concerns, a negotiation process occurs after the drafting stage which may alter what is ultimately agreed upon. The negotiation team may be different to the drafting team. It is important if this is so to brief them on the concerns of all stakeholders to ensure they take all of this information into consideration when getting the deal done.
3. Make sure you have a process in place once the MSA is signed for ensuring its compliance, regularly reviewing the agreement and updating it where required. Having such a process will enhance the relationship with your counterparty. It will enable you to check in with them to see whether certain processes are working. It also will allow you to identify problem areas where issues could arise in the future. This will give you the opportunity to fine tune your working relationship and MSA in order to reduce the risk of a dispute arising.
So here are some thoughts on how to ensure your MSAs are effective. We’d love to hear your thoughts. What is your experience with MSAs and what would you recommend to enhance their value and effectiveness?
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