Building strong business relationships is integral to B2B sales success. To set the nature of a relationship in proverbial stone, organizations use master service agreements (MSA).
What is a Master Service Agreement?
A master service agreement is a comprehensive contract. It outlines the general terms and conditions related to successive or future contracts, projects, or transactions. These agreements can include:
- Payment terms
- Delivery deadlines
- Intellectual property rights
- Confidentiality clauses
- Dispute resolution processes
What’s written in an MSA can affect costs, deliverables, security, and more. This makes MSAs cornerstones of successful business relationships, both short-term and long-term.
Why is a Master Service Agreement Important?
For one, a master service agreement helps simplify operations. Once an MSA is formed between two parties, multiple transactions can occur without the need to renegotiate terms. To supplement these, we can use Service-Level Agreements (SLAs) to close gaps. This means we can easily upsell, cross-sell, and extend without signing new MSAs.
The clarity provided by an MSA can shield your business against potential risks. It sets terms and expectations, including who’s responsible for physical objects, digital data, and processes. This leaves minimal room for confusion or misunderstandings as a project progresses.
Lastly, an MSA can bolster business relationships. By laying a legal foundation for cooperation, it helps build trusting, lasting partnerships. It lets two parties know what’s expected of each side in a relationship, setting expectations and clearing up misunderstandings.
How Master Service Agreements and Service Level Agreements Align
An MSA sets the overall terms of a business relationship. A service level agreement (SLA) defines specific services, KPIs, and expectations. There can be dozens or even hundreds of SLAs attached to a single MSA, spread across different functions, offices, and seniority levels.
Think of an MSA as an overarching framework that an SLA slots into. For example, an MSA may state that payment is due 30 days after invoicing for services rendered. The SLA will lay out specific services rendered, together with outputs and deadlines.
Key Considerations When Writing or Signing an MSA
- Be as clear and detailed as possible. Ensure that all terms, conditions, and clauses are clearly defined to avoid future misunderstandings.
- Allow for flexibility. Due to the long-term nature of MSAs, it's wise to build provisions that allow for periodic reviews and adjustments.
- Touch on dispute resolution. It’s essential to clearly state how disputes will be handled if they arise. This can include negotiation, mediation, or arbitration clauses.
- Include a termination clause. Define what circumstances can lead to a termination by either party and the steps that need to be followed.
- Cover liabilities & indemnities. Outline the impact of an MSA breach. This should include an indemnity clause and details on potential damages.
Master Service Agreements vs. Non-Disclosure Agreements
While both an MSA and a non-disclosure agreement (NDA) are foundational in B2B relationships, they serve different purposes:
- MSA. Sets the terms and conditions for future transactions and acts as a framework for ongoing business relationships.
- NDA. Specifically focuses on confidentiality. It's an agreement where the involved parties commit not to disclose specific information that’s shared during a project. An NDA is crucial when discussing potential business collaborations or mergers where sensitive information is exchanged.
In many scenarios, an NDA might be signed before delving into detailed discussions that would eventually result in an MSA. It ensures confidentiality is maintained throughout the process.
